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Strategies & Market Trends : Stock Watcher's Thread / Pix of the Week (POW) -- Ignore unavailable to you. Want to Upgrade?

To: Stock Watcher who wrote (2700)	2/11/1999 11:20:00 PM
From: Jerry S.	Respond to of 52051

NMGC earnings are looking better and better - EarningsWhispers raised the projected eps to .38 from the .37 that was posted earlier (street estimate of .34). 12% surprise should jump start the stock. This stock should fetch at least a 20 p/e, imo, which would give a value of $23. Earnings on 2/18 after the bell

To: Stock Watcher who wrote (2700)	2/12/1999 12:47:00 AM
From: Jerry S.	Read Replies (3) \| Respond to of 52051

SW & Thread: I'm gonna try & make you all NMGC believers - check out this article from Individual Investor Online, with emphasis on their bottom line summary: UPDATE: NeoMagic's Magical Reverse Bungee-Jump -------------------------------------------------------------------------------- Analyst: Bob Hirschfeld (2/10/99) Last December 1 we gave a thumbs up to NeoMagic Corp. (NASDAQ: NMGC). We wrote that the company, which competes in the tough graphics chip business, was turning in outstanding performances quarter after quarter. We also noted its consistent focus on the growth niche of low- and middle-range laptops. In our original piece about NeoMagic we discussed the technical advantages of NeoMagic chips. They tend to be lighter, offer more memory, and use less power than the competition. The company has a commanding share of the notebook graphic market (54% the second quarter), enjoys double-the-industry level of inventory turns (20 versus 6-8) and 30% earnings growth. We allowed that, even if NeoMagic couldn't keep growing at 30% in a segment growing 12%-15%, its superb execution abilities gave us sufficient confidence that the company would successfully broaden its product portfolio by expanding into DVD, and would probably do so during the second quarter 1999. In our original piece, we alluded to a $30 price target by analyst Brian Alger of Preferred Capital. Reverse Bungee-Jump! When our piece appeared, the stock traded at $18.46 per share. In the intervening two months, shares ran to $23.75, before retreating to a recent $13.75 per share. What's going on? According to Preferred Capital's Alger there is nothing fundamentally wrong with NeoMagic. The consensus estimate of $0.34 for the fourth quarter is unchanged, and so is the $1.20 expected for fiscal 1999 (ended January). That leaves a stock with a track record of meeting or beating estimates trading at 11.5 times current year EPS and 9.7 times expected earnings per share (EPS) of $1.42 for fiscal year 2000. So, you've got a stock trading at about half its EPS growth rate of 20%, and that borders on the ridiculous. Alger attributes the sell-off to downgrades from other analysts. He notes though that these same analysts haven't changed their earnings forecasts. Why the downgrades? In a nutshell, fears about slowing growth going forward. Alger argues that 'slowing growth' has to be understood in context: NeoMagic's top-line growth rate has been 142%, and now it is 25%-30%, which, the analyst sarcastically notes is a 'still-respectable rate.' Alger claims that, given NeoMagic's majority ownership and technical dominance of the notebook market, the real issue is the future of notebooks. And that outlook, he argues, is bright. The performance of notebooks provides an excellent solution for commuting workers, and the lower price points make the technology very desirable for students, and there are multiple opportunities for expansion outside the U.S. Alger notes that, while other firms have achieved 'design wins' in recent months, the growth is not coming at NeoMagic's expense. Alger adds that NeoMagic is likely to fulfil its stated intention of entering the consumer electronics market and should update its progress on February 18th, the day earnings are released. Bottom Line: Awaiting further clarification from the company, we'd like to make clear our agreement with Alger. At current prices, NeoMagic shares are quite severely undervalued.