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To get The Internet Financial Connection newsletter emailed to you for FREE, send an e mail to <mailto:ifc-request@mLists.net> and write "subscribe" in the body of the letter. This newsletter can be viewed at techstocks.com In This Issue: 1. The 4 Horsemen Lead Charge!: Technology and Internet Outlook 2. "Last Mile to the Home" Stocks 3. Maxim Integrated Products 4. Chubb & Healthsouth 5. Interesting Articles On The Internet 6. Highlights on SI: by Tom Taulli 7. Have you heard an interesing gossip or rumor about a stock on the net? 8. SI is offering a 30 Day FREE Trial, Win a Free SI Membership, Get a FREE SI T-Shirt! 9. Disclaimer ---------------------------------------------------------- 1. techstocks.com What I find intriguing about the recent run up in the NASDAQ Composite is that the top percentage gainers in that index or the top 10% rose 27.2% for the first half of 1998. The rest of the stocks in that index produced an average gain of only 4.8% as noted by Geoffrey Eiten, Editor of Growth Stock Watch otcgsw.com. The NASDAQ Composite which started the year at 1600, recently hit a high of 2028 and is now below 2000. The Morgan Stanley HI Tech Index (An index of 35 High Tech Stocks), started out the year at 450 and recently hit a high of 669 and is now around the 620 area. That implies a gain of around 40% so far this year for that index. What has led the charge for those indexes is the "Four Horsemen", Microsoft, Dell Computer, Cisco Systems and Intel. Intel has not really done much in terms of appreciating this year but has recently rallied from their 52 week low of $66 to $82. Microsoft is of course the great phenomenal stock of this century. Their stock has made me a lot of money along with many other investors but how high can their stock go? With their market capitalization hovering around the $300 billion level, what kind of rocket fuel will it take for their stock to keep going up? On top of that rather large market cap, their stock is up over 300% during the past 3 years. Can Microsoft keep appreciating in value like it has been? Probably not at the rate they have been growing over the last few years. In order for Microsoft to double again, their market cap would have to approach $600 billion. This is not impossible but rather unlikely to accomplish over the next 12 months. The law of physics have been shunned away for this stock market. What goes up, keeps going up. Microsoft may be one of the best run companies in the United States, I will not argue that but, they are trading at over 60 times next years earnings estimates and they are expected to grow earnings in the 30% area. Microsoft has always beat estimates but investors should not count on their stock producing gains in excess of over 50% during the next year. I still look for them to appreciate in price but not at the rate that they have in the past. Dell will continue to see strong demand for their computers, along with their workstations. Cisco is trading at about 50 times next years earnings, which is right in line with their growth rate. I do not look for their stock to produce another 80% gain during the last 6 months of 1998. That is how much Cisco is up during the first half of this year and plan for their shares to stall out going into the rest of this year. Longer term the Internet will help fuel demand for their products and their stock will move higher. Intel has been a laggard in the group, running up recently but not providing investors with much of a return year to date. New chips and a robust market for personal computers should give them the strength for their shares to touch a new high by year end. The short term correction in technology stocks may be a warning sign for some short term technology investors to take profits. As technology products make peoples lives easier and more efficient, technology companies will continue to benefit and investors are reaping the rewards of the new technological economy. Smart investors will use a weakness in the shares of technology stocks as buying opportunity to purchase shares or average down their positions. I recently read a very interesting article that compares the advance in Internet stocks to the Tulip Mania of the 1600's that I enjoyed very much. Click here to read the article. The author of that article will admit that he uses the term "Tulipmania" in a sarcastic vein and admits that Internet stocks should "blossom". The Internet is providing a specific need to their users and in many instances causing the prices for many products to go down. Tulips never had this effect on an economy as a whole, nor did they provide a technological edge over competing or traditional forms of commerce such as the Internet is doing right now. Many people question the valuations of many Internet stocks and in most cases they should. But in light of questioning the actual value for which they trade, investors have bid up the value of many Internet companies in anticipation of future results. The Internet does hold a lot of promise for things such as advertising and electronic commerce. The Internet is still in a building phase that will give greater and easier access to purchase products and services. Online stores, banking and e mail has already made many peoples lives easier. The future for the Internet is still in its infancy and offers much room to grow. Many investors have made some serious money investing in Internet stocks. The question is, how can investors make money buying these stocks at already lofty valuations? Despite the high valuations and the current advances of many Internet stocks, individual investors, wishing to capitalize on the Internet, should buy the leaders in that sector. Yahoo (YHOO 193 3/4), first mentioned here in the Internet Financial Connection a few months ago at $118 a share has gone up to a high of $207. Their earnings and revenues will continue to grow in the 75% area over the next few years as millions of more users log onto the Internet. I will admit that their valuation is very lofty, selling at about 40 times future revenues. Any bump along the way could cause a 50% collapse in their shares. Looking at the positive side, they are a the leader in their field and are working on and signing agreements with other Internet related companies to provide an expanded array of services for Internet users. Their stock is a key holding for the individual investor wishing financial exposure to the Internet. Buying their shares on 20%+ decline would be the best bet. America Online (AOL 130 3/4), like Yahoo, has seen their shares move up significantly during the short term. They will benefit directly from electronic commerce, as well as an increase in their subscriber base. Their stock should easily hit a market cap of $100 billion over the next 3 years, which would imply an increase of 4 fold from current levels. Buying their stock on a 10% to 20% correction would be a good entry point. In summary, the Internet will provide many investors with opportunities to make money. Many Internet stocks have run up, based on future expectations. Not all Internet stocks will make investors money. Many companies will fail and be pushed aside by larger Internet companies. Buying the leaders right now is a starting point for investors to capitalize on the Internet because they have the resources to make quick changes in a very fast moving environment. Mark Johnson Editor IFC ----------------------------------------------------------------- 2. techstocks.com Jean-Pierre Conreur of Tocqueville Small Cap Value Fund 800-697-3863, provides the following stock ideas. Below is the write up. Over the last few years, the cable infrastructure industry has suffered because Tele-Communications Inc. (TCI) had cash flow problems and was losing subscribers to satellite dish buyers. The problems that TCI had caused a spending freeze in many areas of the cable infrastructure industry. On June 24th, AT&T and TCI announced that they would merge together. That merger will give TCI the needed cash to upgrade their services to attract new customers. Other cable companies will also have to invest money to upgrade their underlying infrastructures because telephone companies are becoming more interested in competing with them. Jean-Pierre Conreur of Tocqueville Small Cap Value Fund believes that companies offering "Last mile to the home" hardware to cable operators will be direct beneficiaries. Jean-Pierre recently put 14% of his funds portfolio into that area. One of the companies he likes in that area is Antec (ANTC 24). They provide network interface devices that route video, voice and computer signals to and from your TV, telephone and PC. Click here to read a profile on the company. In the first quarter of 1995, TCI's accounted for $60 million or 40% of Antec's revenues. By the first quarter of 1998, TCI only accounted for $6 million in revenues. Jean-Pierre thinks that those numbers will pick up once TCI starts upgrading their infrastructures. TCI currently owns 22% of Antec. Another one he recently bought is Scientific Atlanta (SFA 24 3/4). Jean-Pierre notes that SFA has a new cable box and has one material advantage over its competitor General Instruments. SFA's cable box is fully interactive and "is in a position to dislodge General Instruments". Teltrend (TLTN 14 3/4) manufactures equipment that is used to transmit data over copper and fiber optic lines. "This company straddles the needs of the telephone companies and the cable companies... They will benefit from the push to deliver more services into homes," says Jean-Pierre. C-COR Electronics (CCBL 15 5/8) is another one he favors. They manufacture high quality electronic equipment (amplifiers) used in the cable industry. "As a new wave of capital spending approaches, C-COR is positioned to be a big winner," says Jean-Pierre. ------------------------------------------------------------------ 3. techstocks.com Doug MacKay of White Oak Growth Fund provides the following stock idea on Maxim Integrated Products (MXIM 32). Below is the write up. Maxim Integrated Products is a maker of specialty analog semiconductors. Their products are primarily used to convert real world signals, such as temperature, pressure, or sound, into the digital signals necessary for computer processing. Like many semiconductor stocks, Maxim is taking their lashes along with the other chip makers. Doug MacKay of the White Oak Growth Fund (Which is up 32% YTD) argues the end market of semiconductors that Maxim supplies to are broadly diversified and not limited to the personal computer sector, which has been vastly affected by overcapacity. Doug has been accumulating shares of their stock during the current weakness. He also points out that because of where Maxim is positioned in the industry, they have not seen pricing pressures or slowdown in demand. Maxim commands operating margins of 45%. Maxim has consistently increased revenues and earnings at an average annual rate of 30% during the last 10 years. In 1997, Maxim posted revenues of $434 million for fiscal year ending in June. They have a goal of reaching $1 billion in revenues by the year 2000. Maxim has no long term debt. "Longer term, I think, they are ideally positioned to be the leader in their market," says Doug, "I do not see the market in which they operate going away or becoming commoditized." Maxim is estimated to earn $1.50 for fiscal 1999. Doug points out that Maxim historically trades at 30 times earnings and believes their shares can hit $50 sometime within the next 18 months. There is a thread that discusses MXIM on SI. www2.techstocks.com --------------------------------------------------------------------- 4. techstocks.com Mark Cummins of Harleysville Group Inc. provides the following stock ideas on Chubb Corp. (CB 82) and Healthsouth (HRC 28 1/8). Below is the write up. On July 20th this year, Chubb Corp. announced that they would report an earnings shortfall for their second quarter earnings estimates. Because of the estimated shortfall, their stock has dropped about 5 points since the announcement. "This earnings shortfall is not a surprise, knowing the catastrophe losses that the industry incurred for the second quarter," says Mark Cummins of Harleysville Group Inc. (whose firm was ranked number one for their 3 year performance by Nelsons). He views the weakness as a buying opportunity. Chubb Corp. is the 12th largest property casualty company in the country. Mark notes that Chubb is a good solid company that is growing faster than the industry average. "They also have shown consistent strong financial results, they have a solid balance sheet and a great management team." Over the last few years, Chubb has sold their life insurance and real estate development business so they can direct their focus on the property & casualty business. Mark believes that Chubb will grow 1999 earnings in the 14% area when compared to the 1998 results, with their shares hitting over $100 sometime within the next year. Another stock Mark likes is Healthsouth. They have shown a consistent and impressive rate of earnings and revenue increases from internal growth and through acquisitions. Healthsouth is the nations largest provider of rehab healthcare and outpatient surgery. They are located in all 50 States with offices in the UK and Australia. "They provide services cheaper than hospitals can," says Mark. Longer term, he believes that they can grow earnings in the 20% area with their shares hitting $40 within the next year. There is a thread that discusses HRC on SI. www2.techstocks.com ----------------------------------------------------------------- 5. techstocks.com Joe Dancy of The Lone Star Growth Investor members.aol.com provides the following links to Interesting Articles On The Internet. These articles were from a daily worldwide search of over 150 newspapers and magazines. Subscriptions to his newsletter are FREE. members.aol.com COMPUTERS, THE INTERNET & INTERNET COMMERCE Internet gambling is inevitable whether it is individuals, existing "physical" casino monopolies, governments or crooks who play the trade. Net gambling hit the spotlight last month when a number of overseas Web sites suddenly appeared after the World Cup kick-off scmp.com Some of technology's most creative thinkers gathered in Silicon Valley the other day to describe and show off their latest ideas, which ranged from a talking couch that tells you when your nap is over to a pair of eyeglasses that double as a computer screen. sfgate.com A video camera, tethered to a computer, focuses on your eyeball. It's watching where your eye lingers on the World Wide Web page you're viewing, and when it decides what interests you it'll look for related information. mercurycenter.com Not so long ago, David Epstein marketed commercial photography. Zachary Julius, his college chum, worked in cafeteria products. Then, without formal training in computers, they opened up a coffee and computing cybercafe and started selling Internet access. Just over 2 years later, at age 29, they are selling their Springfield-based company, JavaNet, for $15.8 million to RCN Corp. The sale announced this week is the latest sign of the overheated race among businesses to carve out a solid place in the exploding market for Internet service. globe.com It all may sound like speculative mania. But there may be a more rational explanation for why investors are willing to pay more for little Amazon than for its giant counterpart. ''They have the better business model,'' says Paul Sonkin, adjunct professor of securities analysis at Columbia University who also manages money. mercurycenter.com Internet watchers see as a looming wave of small and medium-size merchants entering e-commerce. Consumer sales over the Internet totaled $2.4 billion in 1997 and are expected to surge to $17.3 billion by 2001, according to Forrester Research of Cambridge, Mass. chicagotribune.com J.R. Ewing would be proud. The Dallas entrepreneurs who started an Internet entertainment programming service hit a gusher Friday called "Internet mania." The price of shares in Broadcast.com Inc. more than quadrupled during the first day of public trading, an investors fought and schemed to get in on what promoters call the next generation of television. It was one of the biggest percentage gains ever for an initial public offering. chicagotribune.com INVESTING There are two styles of stock investing: growth and value. Lately growth has been beating the pants off value, but some suspect that will soon change. Value investors try find stocks that are forgotten, out of favor, or misunderstood. washingtonpost.com While mergers get the attention, spinoffs get the profits. Studies show that when a company divides into two or more separate parts, the owners of each do very well -- often because values are created that the market doesn't immediately understand. washingtonpost.com Even with U.S. stocks at record valuations, mutual fund managers who look to buy stocks on the cheap say they're finding plenty of bargains. "It's amazing that this market is concentrating a lot on the favorites," said David Dreman, 62, whose Red Bank, N.J.-based company manages about $6 billion in customers' assets. detnews.com The stock market has been compared to a casino when, in fact, it is the opposite - the market, on average, produces positive returns. In a random game with stocks you are certain to win --over a one year period the odds are three to one in favor of scoring a positive return. Over 15-year periods stocks have been profitable 58 times out of 58, which is called a sure thing. members.aol.com A quiet professor of chemical engineering and his wife, a former teacher, shocked their friends when it was discovered that they amassed $800 million by investing in undervalued equities. members.aol.com Nobel Prize Winners Put Investment Theory to Test - and put their money into small cap undervalued stocks Nobel prize winners put academic theory to the test - and invest in small capitalization and low price-to-book value stocks in an attempt to outperform market averages. members.aol.com Peter Siris in his book Guerrilla Investing notes that the Internet has created a revolution for the individual investor - if they don't compete against the institutions. members.aol.com As the world's economies become more closely linked, investors are increasingly searching out opportunities to buy stocks. But international investing is fraught with dangers, especially since many countries do not have a stable government. Strategists are increasingly warning their clients that when politics and investing mix, the results can sometimes be explosive. nypostonline.com Fund managers that have had the most success making money in Japan are convinced that the surprising election results and subsequent resignation of Prime Minister Ryutaro Hashimoto will be the catalyst to even higher returns in the future. nypostonline.com There has been rioting in Indonesia. Nuclear tests in India. Chest thumping followed by nuclear tests in Pakistan. Support for the yen as Japan wallows in near depression. Worry that if the yen falls any further against the dollar, China will devalue its currency. Gross economic unrest in Russia. Chaos and mayhem in Africa. Time to invest in Asia? dallasnews.com A handful of NASDAQ stocks, perhaps the top seven, are the ones doing the heavy lifting as the market advances. Tech stocks with beefy market capitalizations, such as Microsoft, Intel, Dell and Cisco Systems, are pushing the Nasdaq over 2,000. In short, what is driving the broader market to record- shattering heights are large-cap stocks. sfgate.com SEMICONDUCTORS Despite their frustration over the snail's pace of the 300-millimeter wafer transition, executives who attended a closed-door meeting, put together this week to discuss the matter, insisted that chip and equipment vendors are determined to cooperate as they wait out the production delay. Equipment makers' concerns reportedly centered on their return on investment, as a paralyzing recession and continued successful die shrinks are diluting demand for the 300-mm equipment that's already been developed. techweb.com Jitters from the Japanese election added to the pall cast over Semicon West, the huge chip-equipment trade show. With Japanese Prime Minister Ryutaro Hashimoto resigning Sunday, analysts and executives fear that the turmoil could prolong any economic boost for one of the industry's key regions. But this cycle is even worse than the downturn of the early 1980s, said Jim Morgan, the veteran chief executive of industry leader Applied Materials. ''It's among the toughest and most unforgiving that I've seen.'' sfgate.com The semiconductor equipment industry is the pits, but that could be good news for investment bankers like Tim Sullivan -- and maybe for bottom-fishing investors. Equipment-makers may be getting the urge to merge. sfgate.com The chip industry's slump -- which already has slashed company earnings and forced thousands of layoffs -- is now threatening to slow the typically breakneck advance of semiconductor technology. Semiconductor manufacturers are hesitating to invest in the development of larger silicon wafers -- the stuff from which silicon chips are cut -- despite the new wafers' promise of long- term cost savings. mercurycenter.com ASIA, JAPAN & RUSSIA United States Treasury Secretary Robert Rubin has urged the new Japanese Government to take rapid action to solve its economic problems and avoid the inactivity that characterised the last days of the Hashimoto regime. "It's absolutely imperative Japan moves effectively and expeditiously to deal with its economic issues, in particular making sure the fiscal programme is sufficient to generate domestic demand-led growth," he said. scmp.com te=Default.htx&maxfieldsize=2846 Key pillars of Japan's economic model are collapsing and industries must make dramatic changes to lift the economy out of recession, the government said Friday. In a grim report, the Economic Planning Agency said Japan's economy is "stagnating" and that time-honored practices such as lifetime employment and seniority-based promotion are not working. detnews.com ECONOMIC The U.S. trade gap soars as imports rise and exports shrivel - a stunning collapse in shipments to Asia accompanies more American purchases of foreign goods. mercurycenter.com... The summer of 1998 likely will be remembered as the Good Old Days in years to come, at least in the economic sphere.Consider that inflation is comatose, unemployment is low, the stock market is climbing to record levels and interest rates could be headed still lower. mercurycenter.com Y2K | ||||||||||||
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