3/12/99 Natale (Bear, Stearns) recommends G* [see bottom]
March 12, 1999
Events Transcripts
Voices Events With...
Robert Natale
Robert Natale, a portfolio manager with Bear Stearns, participated in
a Voices Event on Thursday, March. 11, 1999. The following is a
transcript of that event which has been edited for clarity.
WSJ_Host: Welcome to Voices Events with analyst Robert Natale of
Bear Stearns. I'm your host Ravina Khosla.
Rnatale: Hello everyone.
WSJ_Host: Robert, how would you advise investors to proceed right
now with the market at record levels?
Rnatale: Very few investors have made money timing the market so if you
don't have any equities, now is not a bad time to start. If you are
participating in the markets already, I would suggest adding on an
incremental basis. It is my view that with interest rates ticking up, it will be
difficult for stocks.To make substantial headway because the market is
influenced more by changes in interest rates than by changes in earnings.
Vince: So Robert, which may be the hottest IPOs in the pipeline?
Rnatale: For my money, clearly the one with the most sizzle is Marimba.
It is much awaited. It has blue-chip underwriters sponsoring it. There will
be very significant institutional demand for the stock, and because it's
connected with the Internet, retail investors will be clamoring for it as well.
Marimba's Castanet product family provides a reliable way for Internet
companies to distribute, update and manage application and related data
over both Internet and intranets.
Davekare: When do you think iVillage will hit the market
Rnatale: It is scheduled for this month and I do not believe the recent
lawsuit filed by an ex-employee will derail the deal.
Missmsimms: I'm a tech journalist with a moderate risk-managed
account. My firm does not do many tech IPOs. I like Marimba, but how
can I participate in the IPO?
Rnatale: It is difficult. This deal will be oversubscribed many times over
and each investor will have to gauge what their risk tolerance point is in
deciding to buy the stock in the aftermarket because the preliminary
prospectus did not have pricing and the expected number of shares
outstanding I cannot give a specific price at I would not purchase the
shares in the aftermarket. However, as a rough gauge it could easily be
attractive at up to 10 times forward 12 month-estimated sales.
WSJ_Host: Let's get down to the basics ... do investors need brokers to
participate?
Rnatale: There are increasing avenues of pursuit available to Internet
investors such as ETrade, DLJ, Schwab and Fidelity. Nonetheless the
favored customer of a favored broker in a large office of the lead
underwriter bringing the deal is most likely to get a meaningful allocation of
a hot deal. What that means is that the typical investor must decide in
advance what they're to pay in the aftermarket for a hot deal. Most of the
easy money is made in IPOs between the offering price and the first trade
of a hot deal.
Vivekh: Realizing how limited the opportunity for individual investors is,
what's the best way for us to know which IPO's are imminent, learn
enough about the fundamentals, and then invest as early as possible?
Rnatale: There are a number of sources of new issues information which
can alert an investor to impending IPOs. They include Standard and Poor's
Emerging and Special Situations Publication, IPO Central on the Web and
Barron's.
Deeb: Is there any centralized source of IPO announcements (other than
The Wall Street Journal)?
Rnatale: Standard and Poor's Personal Wealth is also available for IPO
information on the Web.
Llorach: What do you think of VERT?
Rnatale: The company attached to the ticker symbol temporarily escapes
me.
Llorach: What do you think of this week's IPO RoweCom?
Rnatale: Of course anything that is e-commerce related will get a strong
boost in the aftermarket regardless of the company's own prospects.
However J.P. Morgan has not been known to be a strong underwriter and
I would put this company in the second tier of firms connected to the
Internet going public at this time.
Missmsimms: Is Hoover's IPO Online reputable?
Rnatale: Yes they are. And they are leveraging a database that they have
been developing for a number of years. The company recently got some
deeper pockets and the company is building up its staff.
Vince: Robert do you know when Marimba is expected to hit the market?
Rnatale: Late this month or early April.
Etrevar: Do you foresee G/S having a DRIP sometime in the future?
WSJ_Host: A DRIP is a Dividend Re-Investment Plan.
Rnatale: First that assumes that they will be paying a dividend. If so, I
would think that either they or someone else will sponsor a program. Of
course you could just reinvest through your local discount broker. The
problem with DRIPs is keeping track of your cost basis. It could really get
hairy after awhile. A few discount brokers take care of that for you as well
as some of the corporate plans.
Llorach: What do you think of VERTICALNET Inc. (VERT)?
Rnatale: Clearly a Web commerce, community-related company is going
to get a good start. However it is very early in the company's life and it will
not have a first mover advantage. Many investors are overestimating how
fast growth in the number of Internet users will be over the next 3-5 years.
It will average about 30% a year over the next three-to-five years.
Substantially less than the growth of new users over the last three-to-five
years. There is a limit to the number of concepts such as Web commerce
communities that will be able to double and triple their revenues and be
able to become substantially profitable when the numbers of new users are
growing at about 30% a year. In other words, most of these Internet IPOs
are short-term buys -- momentum buys. With the only possible exception
being Marimba.
Tkaufman: Sorry, this is our first time participating here. We would want
to know what does IPO mean to try to understand the context of this chat.
Rnatale: It stands for Initial Public Offering. It is when a company first
offers its stock to the public.
Rnagarajan: What do you think of the upcoming Proxicom IPO (yet
another hot Internet stock?)
Rnatale: What is interesting to me is that over half of all the pending deals
are Internet related. All these issues are apt to move up in the immediate
aftermarket until demand for Internet stocks in general are satiated. I give it
a few more months at this rate.
Vince: Now on a broader sense: Do you still see value in tech and Internet
related small caps in general or do u think they're running out of steam after
recent rally?
Rnatale: Good question. My best view is that technology issues are more
than halfway through an extended upcycle. I firmly believe that the smaller
growth companies that are not related to the Internet will have their day in
the sun towards the end of this year and into 2000. Small-cap stocks did
so poorly last year that it will take time for momentum investors to come
back to the group. I will say that it will take 6-9 months for the better
small-cap growth stocks that are not related to the Internet to build a base
before outperforming large-cap tech stocks. Having said that, small-cap
growth stocks are the cheapest they have been relative to large caps since
1974, the last time small cap stocks went on a multi-year tear.
Missmsimms: As a Smith Barney managed account holder, do I stand a
better chance of getting THEIR IPO shares?
Rnatale: Yes. How good your chances are depends on how active you
are as a trader, how important you are to your broker and how important
your broker is to the office manager in your local office.
Damian: What effect do you think Y2K is going to have on the stock
market?
Rnatale: Very little. I also do not think that it will have very much impact
on the economy in general. It will however affect a large segment of the
technology sector as companies avoid implementing new computer
hardware and software in the weeks prior to 1/1/00.
Tkaufman: Do you think that a stocks price increases after a company
goes into the e-commerce?
Rnatale: It certainly has to date. In fact you should be very wary of
long-standing companies with very little in the way of assets and expertise
suddenly changing their names to draw unwitting investors into what is
usually a scam.
Llorach: Could you give us some examples of these small caps with great
potential?
Rnatale: Here are a few symbols to look up. DCR, XLSW, and among
special situations OMX, GLM and IDYN.
WSJ_Host: Do you have a favorite?
Rnatale: I particularly like the wireless arena. My smaller-cap favorites
there include GlobalStar (GRF) [GSTRF?] and Aerial Communications (AREL). In
the large-cap vein, if your time horizon is three-to-five years, Sprint PCS
(PCS) represents a fabulous profit opportunity.
Ctpics: So the answer is if you are rich or an institution that's the only way
to get an IPO at offering price. Correct?
Rnatale: You can get lucky using the discount brokers, but you need
luck. Or if you are an active trader try to develop a relationship with a
broker who has access to IPOs. If you do not trade much and your total
asset base is less a few hundred thousand dollars you're probably out of
luck in getting the hottest deals. But in the long run, if your time horizon is
longer than six months the best deals are the large-cap IPOs that go public
such as Conoco and Perot Systems. It is very possible for you to get
allocations of such deals at the IPO.
Missmsimms: If you had to say, which investment firm does the most and
highest-quality tech IPOs?
Rnatale: Morgan Stanley and Goldman Sachs first come to mind,
followed by Hambrecht & Quist and Robertson Stevens.
WSJ_Host: Following up on your earlier response ...
Llorach: What is a "special situation"?
Rnatale: It's a company that has certain unique characteristics or which
may benefit from an announced or pending event apart from general
industry, economic or security market conditions. Examples would be a
new-product introduction, new management, the restructuring or sale of a
lagging division, a pending change in accounting or a recent acquisition.
Damian: Can I get a copy of the questions and answers that are
presented tonight at the end of the event?
WSJ_Host: Complete transcripts of Voices Events are available to
subscribers of The Wall Street Journal Interactive Edition. Please see the
Voices page for details.
Ctpics: Any favorite discount brokers?
Rnatale: I personally have had generally favorable experiences with
Fidelity and Schwab, but there are others as well. I would tend to stick
with the larger firms if you are thinking of going short, using margin or trying
to get an IPO allocation.
Missmsimms: You say it's easier to get allocations of large-cap IPOs,
like Perot. How?
Rnatale: Through the underwriting syndicate that is bringing the deal
public. The larger the deal, the greater the number of brokerage firms in on
the deal and the greater the chance that your firm is one of them. By the
way, this and other questions concerning IPOs will be answered in my
forthcoming book titled, "Fast Money, Fast Stocks" which McGraw-Hill
will be publishing in late April.
WSJ_Host: And Robert will be back to discuss the book in April, right?
Rnatale: Yes of course.
WSJ_Host: We're nearing the end of the hour. Before you go, Robert,
what's your reaction to the possibility of the Dow hitting 10,000
tomorrow?
Rnatale: It does not have any true significance. I do not think it represents
a true watermark like 1,000. But it should be a source of pride to anyone
involved in American enterprise or a participant who has benefited from
this great bull market.
WSJ_Host: Thank you for joining us tonight.
Rnatale: Thank you for joining me and I look forward to my next chat.
WSJ_Host: Have a great weekend.
Return to top of page | Format for printing
Copyright © 1999 Dow Jones & Company, Inc. All Rights Reserved.
|
