SB,
That's my take on the matter. Here's the whole article...
TCI
Revisiting the 25 Winners for 1999
By Jim Seymour
Special to TheStreet.com
4/22/99 1:15 PM ET
In January, I posted here a list of 25 mostly tech stocks to watch for 1999. As I
said then, it wasn't intended to be a true portfolio, balanced or otherwise, but
rather a useful watchlist of stocks I thought could do well this year. And I
promised to revisit the list from time to time during the year.
With the first quarter of 1999 under our belts, it's time for an update. I intended
to post this column two weeks ago, nearer the end of the quarter, but
complications in my wife's recovery have delayed it. (Thanks to all the TSC
readers who've written to ask about her condition; she's doing better, if slowly,
and I've passed along your good thoughts.)
Inevitably, that delay means this review is informed by a knowledge of what's
happened in the three weeks since the end of the quarter, which is in a sense
cheating as I look ahead toward the second-quarter performance of the list. But
you wouldn't have me do it otherwise, acting as if I didn't know what had
happened since then, would you?
Overall, the list was up about 35% at the end of the first quarter. That is, if you'd
bought one share of each issue when the column appeared, you'd have made about
35% on your investment in three months. (And through yesterday, the list is up
about 45% year to date, including the nastiness and recoveries of this strange
week.)
That's a pretty good return. But don't fall into the sucker's play of quadrupling
that first-quarter return to extrapolate an annualized 140% return through the end
of the year. Sadly, the market doesn't work that way.
Let's go through the stocks in the order they were discussed before, in the same
groups: Technology and The Net today, and Bandwidth and Retailing &
E-tailing tomorrow.
Technology
This has been a good, but not great quarter to be in tech stocks. Unless you've
been in one of the few train wrecks, such as Compaq (CPQ:NYSE), down by
about half since the first of the year, you've probably done well. But some of the
stalwarts haven't done so well. Dell (DELL:Nasdaq), for example, was up nicely
in early February, but today, postsplit, it is almost exactly where it was when the
year began.
There's a lot more, though, to tech than just PC-tech, at least in my book. So
when I began my January list, Cisco (CSCO:Nasdaq) was at the top. Though
Cisco's performance so far this year has been ho-hum, it remains a solid
investment, I believe, with enormous upside potential over the next few years. I
don't see Cisco as a speculative investment anymore, but as a buy-and-hold
candidate. As I said in a speech last week, Cisco's become almost a one-stock
Nasdaq index fund -- its performance so far this year closely tracks that of the
Nasdaq -- but with more stability and long-term potential. Still on the list.
Microsoft (MSFT:Nasdaq) was another top tech pick. Despite the trial, Microsoft
has moved up about 15% during the first quarter. Tuesday's conference call
featuring CFO Greg Maffei was encouraging, as he predicted a fourth-quarter profit
of 35 cents a share in the current fiscal year. But I think the continuing distraction
of the trial and the possibility -- make that the likelihood -- of pain for Microsoft
in the trial court's decision add to existing worries about Y2K buying
slowdowns, corporate reluctance to roll out the key Office 2000 upgrade this year
and maybe next, and Windows 2000 delivery and adoption-rate confusion. Such
factors argue for a flattening of Microsoft's historical rocket-like performance. I'd
stay in Microsoft, and it's still on my list, but it won't be huge over the
remainder of 1999.
Despite worries in The New York Times over the quality of Lucent's (LU:NYSE)
earnings, I believe Lucent, which I am long, is headed for years of strong growth,
profits and share-price appreciation. Its rich patent portfolio, buckets of cash,
smart acquisitions and strong management keep Lucent on my list. This
morning's report of a stellar second quarter, topping the First Call consensus
earnings number, just confirms Lucent's strength. (It's also likely to be a key
player in the about-to-emerge "wireless high-bandwidth Net-access" market; watch
for a column on wireless moves soon.)
Dell stays on my list for another quarter, if perhaps only one more. Dell isn't the
spectacular growth engine we grew used to in fatter days, and the PC market isn't
going to be a great place to be -- or at least, not as great as it once was. I think
Dell will put up good numbers, better than most analysts expect, when it reports
its current quarter in May. As troubled as the boxmakers are, Dell's going to be
the least damaged of the lot. It will this year make strides toward taking over
Compaq's post as the largest PC maker. As I said in January, as long as
Corporate America keeps buying, Dell is going to do better than any other PC
maker.
Merck (MRK:NYSE) has been sputtering along with so many other tech
mainstays -- yes, I know I'm defining "tech" broadly here, but today the pharmas
really are technology companies, traditional distinctions notwithstanding. Merck
closed Wednesday almost exactly (on a split-adjusted basis) where it was in early
January. I still think Vioxx, Merck's new "super-aspirin," is going to grab
significant market share this year. Good news: Tuesday, an FDA panel
recommended approval of Vioxx for osteoarthritis and acute short-term pain, as
Merck had sought. It's still on my list; look for a modest second quarter and
stronger third and fourth quarters.
i2 Technologies (ITWO:Nasdaq) was on the list and was a bum pick -- or at
least, a premature one. Despite turning in its 22nd consecutive quarter of record
revenue increases for the first quarter of 1999 -- up 64% quarter-over-quarter from
last year -- i2's share price has wobbled since the first of the year and Wednesday
closed down about 10% since early January. Smart new deals abound for the
Dallas company, which provides enterprise software, in competition with SAP
AG (SAP:NYSE ADR) and Baan (BAANF:Nasdaq ADR). One example: A deal
with Ernst & Young announced this week, under which Ernie and i2 will
jointly market i2's business-process optimization software. Still, fears of Y2K
spending slowdowns by Corporate America -- fears validated to a certain extent
by revenue problems appearing now at the boxmakers -- and also SAP's and
Baan's troubles in North America, have investors spooked about all
enterprise-computing vendors, including innocent bystanders such as i2. I'm
going to keep i2 on the list for one more quarter. Hope dies hard.
The Net
It was a great quarter for many Net stocks, if sometimes a scary one. The
problems with Lycos' (LCOS:Nasdaq) acquisition by Barry Diller Inc., worries
about whether and how Amazon (AMZN:Nasdaq) will ever make a buck, and
fears of a rotation out of Web stocks, all fueled sometimes-violent price swings.
Amazon is still on the list, maybe at the very top. One leg of the Web's most
powerful triumvirate, along with America Online (AOL:NYSE) and Yahoo!
(YHOO:Nasdaq), Amazon continues building brand ID -- and, not incidentally,
sales, which should be up nicely once again when Amazon reports on its first
quarter in mid-May. Its purchase of 40% of drugstore.com shows Amazon isn't
limited to leveraging its expertise only through Brand Amazon sites. And San
Jose Mercury News reporter Adam Lashinsky reported Wednesday -- but it hasn't
yet been confirmed by other sources -- that Amazon has taken a similar chunk of
Seattle-area Web grocer homegrocer.com. (Watch for an update column on the
suddenly hot online-groceries market next week.) Fair warning: If Amazon
stumbles badly, all Net stocks are in trouble. Amazon is my favorite barometer of
the market's call on the health and future of e-commerce, and the barometer is still
rising.
America Online is probably the easiest, most obvious single bet on the Net, and
one of the safer ones -- if any Net investment can be described as "safe." At this
morning's opening, 148 and change, AOL is down about 25 from its high in late
January, which I count as a buying opportunity. I'm as disappointed as ever in
AOL's service to its members, but as a business and an investment, well, can 16
million customers who pay $20-plus per month be that wrong? AOL was also
the recipient of good news this week, when the Internet Corporation for
Assigned Names and Numbers named AOL one of the five initial winners in its
choice of competitors to Network Solutions (NSOL:Nasdaq) in the Web
domain-name registration business. Domain-registration revenues won't approach
AOL's monthly online service fees, but it's a nice move.
In January, I wrote about Yahoo!: "A scary valuation, yes, but lots of growth left
to go." Ditto, and still on my list for 1999. Yahoo!'s become a finely tuned
deal-making machine. Its announced acquisition of broadcast.com
(BCST:Nasdaq) looks like the smartest of those deals yet, and may well fulfill
CEO Tim Koogle's oft-expressed wish to propel Yahoo! out of the Web
search-engine category into a full-fledged media company for the next century.
Page views topped 235 million in March, and despite Lycos' recent claims to be
the most-visited portal, I think Yahoo!'s pretty clearly the most popular, most
visited site on the Web. Yahoo! is simply a growth engine, and if you believe in
the future of the Web, it's hard not to believe in the future of Yahoo!
Lycos remains mired in the mess over its proposed acquisition by Diller's
Ticketmaster Online-CitySearch (TMCS:Nasdaq) entity, forming a new
company to be called USA-Lycos Interactive Networks. I'm among those who
have from the beginning agreed with former Lycos board member Dave Wetherell
that the Diller acquisition undervalues Lycos as well as offering much less
synergy than claimed. But until Lycos shareholders get to vote on the offer in
June, Lycos' share price is going to remain depressed. I suspect, by the way, that
a lot of Lycos shareholders do support the deal, both because they have a very
low basis in the stock and because after the perturbations since February's merger
announcement, they're glad to get a chance to cash out before any more problems
arise. With Lycos bouncing up and down around 100 today, those shareholders
have gotten back some of the value they had lost since the Diller deal became
known, and rather than hanging around to see how a nasty fight turns out, they
may want to just get out, period.
Excite (XCIT:Nasdaq) was on the list, too. Just two weeks after I posted that
list, it agreed to be acquired by @Home (ATHM:Nasdaq) for a 90% premium.
(Are you listening, Barry Diller? Buyers pay a premium for hot Net acquisitions.)
Since then, Excite has traded up to about 150 and opened around 138 this
morning in what has been essentially an arbitrage play. The acquisition is on; the
companies will make a good fit. I wrote here that I was skeptical about the real
value of this deal for @Home shareholders, and I still think they didn't really
need Excite. But increasingly, having your own in-house portal/search engine
looks as if it may become important for national ISPs such as @Home, so the
deal looks smarter in retrospect that it did -- to me, at least -- at the time. By
definition, thanks to the pending acquisition, Excite's off the list now.
I'll continue this update on hot stocks to watch in 1999 tomorrow. |
