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techstocks.com To Subscribe to this Newsletter: Send an email to <mailto:ifc-request@mLists.net> with "subscribe" in the message body. The Internet Financial Connection August 27, 1998 Presented by Mark Johnson, Editor of the IFC techstocks.com -------------------------------------------------------------- Please tell a friend about this newsletter :) -------------------------------------------------------------- This newsletter can be viewed at techstocks.com In This Issue: 1. Technolgy Stocks Will Make New Highs!... but When? by Mark Johnson 2. Advent Software 3. Conseco Inc. 4. Scott Technologies & Pharmaceutical Marketing Services 5. Interesting Articles On The Internet by Joe Dancy 6. Highlights on SI: Open Market 7. Highlights on SI: by Tom Taulli 8. Highlights on SI: by David Zgodzinski 9. Disclaimer ---------------------------------------------------------- 1. techstocks.com Technology stocks cannot make up their mind about the direction they want to go in. Morgan Stanley HI Tech Index (An index of 35 High Tech Stocks) and the NASDAQ Composite have been victims of large point swings in both directions. Both indexes went through extreme pain and fell substantially last Friday, surged at the beginning on both Monday and Tuesday, only to take a big hit again in trading early Wednesday. What does all this mean? It is nothing new for the technology sector. Greed and fear still control most of the market. One big highlight last week was when Ciena (the maker of multiplexing systems for long distance fiberoptic networks) last Friday lost almost half of their value because one of their potential customers, AT&T said it would stop evaluating their products. Ciena was planning to merge with Tellabs and now that merger is in possible jeopardy. Another highlight last week that everyone knows by now is when Dell Computer announced record revenues and earning last week, they captured the No. 1 position in the computer desktop market. On top of capturing the U.S market and despite Asian turmoil and weakness, Dell reported that revenues had increased 34% to that region. Shareholders of their stock were well rewarded and Dell continues to make new all-time highs almost daily since the report in earnings. The technology bellwether Microsoft, continues to come under scrutiny about unfair business practices. Amid all of these allegations, their shares are around $113 and 7 points away from an all-time high. Since their stock is so heavily weighted among the technology indexes, their shares may have to show support in order for the technology stocks to start rising. The NASDAQ Composite, is not a true composite of technology stocks but has many technology stocks in their index. That index is almost at the same level as it was before the "Asian Crisis" (AKA Asian Herpes) last October. Another factor besides Asia pushing down the technology markets right now, as well as the rest of the markets is the other economies such as Russia devaluing their currency and problems in central America. On a brighter note, Europe has been strong and they have been making a comeback after not being so hot over the last several years. As for interest rates, the 30 year bond has dipped below 5.5% and for the people that are buying them, they do not really provide that much of a return. Sure they're safe and "cash is king" in a wild stock market like the one we have been witnessing, but will investors really be happy with this return? The answer is, probably not. Many people that require very safe investment havens and fixed incomes choose bonds and annuities for income. 5.5% is not much in return for investing. They will seek out higher forms of income and money will start to flow back into the market. This is not rocket science, but money continues to go into the market, regardless of what it is doing. The main button pushers, selling stocks and making the market go down have been the institutional investors and pension funds. The individual investors have not been panicking and trying to get out. The vast majority have been keeping their money in the market and are in it for the long haul. I believe that technology stocks are setting themselves up for a significant rally over the next several months. Things look gloomy because of foreign economic outlooks and turmoil. The demand for technology products and services will be strong going into the forth quarter of this year. Technology stocks have seen a correction and this is nothing new to the industry. They can still go down during the short-term and the foreign troubles are not over and will continue to rock our markets. I look for the technology indexes to make significant new highs by the end of this year. Investors will start to then realize and say, "oh yeah, that's right, technology stocks are the future" and begin pushing money back into the technology sector. More and more companies are becoming technology related and the U.S is in the middle of this technology expansion era. I look for the NASDAQ Composite to hit at least 2200 to 2300 by year end, up from the current 1780. As for the Morgan Stanley HI Tech Index, that index should see 720, up from the current 600 level. Both indexes should see gains of 20% by year end. Mark Johnson Editor IFC ----------------------------------------------------------------- 2. techstocks.com The Clean Yield provides the following stock idea. An annual subscription is $100 for 6 issues. You may contact them by phone at (802)-533-7178. Advent Software (ADVS 37) is a recent selection from their newsletter. Below is their write up. "A few years ago, Smith-Barney brokerage ads used to intone sententiously about making money the old-fashioned way: earning it. In the financial services industry, "earning" still means sound analysis and responsiveness to customers, but there's no longer anything old-fashioned about how it's done. Now that powerful automation is inexpensive, even small, decentralized brokerages, banks, investment advisors, and mutual funds gain and use information within milliseconds of their giant, Wall Street-based counterparts. The added competition in the industry is further bringing down costs and boosting quality. By now, Smith-Barney might be declaiming that any firm clinging to yesterday's technology will assuredly be carved up by those at the cutting edge. But the company is no longer around. Today's automation realities were far from obvious in 1983 when Stephanie DiMarco founded Advent Software and took the revolutionary step of building financial services applications on personal computer platforms. Since then, Dimarco has counted her remarkable prescience in three distinct worlds: computerautomation, connectivity, and investment management. They primarily create software that boosts efficiency in the financial services industry. Advent, for instance, was the first in its field to migrate to Windows and is among pioneers in using the Internet for training its clients and distributing customer reports. As portfolios increasingly incorporate variable-rate instruments, multi-currency translations, cross-border regulatory compliance, and other complexities, Advent has stayed abreast. Its applications are designed to handle data from wide-ranging sources with seamless integration across office functions. ADVS products have been Year 2000 compliant for years. All this has resulted in an unblemished 14-year record for annual sales and operating-profit growth, and commanding narket leadership in investment management software. Now, through March acquisition of MicroEdge, Advent has also taken a strong position in software for grantmakers as well. The '90s' bull market, with its proliferation of money managers, has created near-ideal conditions for Advent. But even if the market should falter and new license sales slow, Advent's 5,000 existing clients will require software maintenance and staff training services for the indefinite future. Though its log may come up on their computer screens each day, traders long overlooked tiny Advent. At its November 1995 IPO, the stock priced out at $18. In the ensuing quarters, sales and earnings growth handily outpaced the application software industry, but the stock price rose more slowly. Then, two months ago, the leading-company-in-thriving-industry story could no longer be ignored, and the stock price leapt 50% on volume. Now, the stock has pulled back sharply in the market turbulence, and long-term investors can do themselves a financial service by buying ADVS here." There are threads that discuss ADVS here on SI. Subject 13168 ------------------------------------------------------------------ 3. techstocks.com Ron Muhlenkamp of the Muhlenkamp Fund muhlenkamp.com, provides the following stock idea on Conseco Inc. (CNC 35 3/4). Below is the write up. Ron Muhlenkamp of the Muhlenkamp Fund likes to find good solid companies that have a PE (Price to Earnings Ratio) that is below their ROE (Return on Equity). "That combination has worked very well for us over the years," says Ron (who manages in excess of $200 million), who has beaten the S&P 500 five out of the last seven years. One company that is on the top of his list right now is Conseco Inc. They are a sizable writer of fixed and variable annuities, along with individual health insurance and individual life insurance products. Their shares peaked last April at $58 a share and they now trade at $36 per share. A few reasons why he likes Conseco is that they focus on a certain industry, make it strong and let the demographics work for them and build their business. Another reason he likes them is that they are driven by profitability and "do not let their ego get in the way of their pocket book... Conseco has laid out a map of where they are want to be." On August 20th, SunAmerica Inc. (which is also a large marketer of annuities like Conseco is), announced that they were to be acquired by American International Group. Ron is quick to point that SunAmerica is being bought out and that they trade at 25 times next years earnings estimates. Conseco is trading at 10 times his 1999 earnings estimates. Ron figures Conseco will earn $3.45 this year and $3.95 in 1999. "They are a good company at a cheap price," he says, "Conseco should trade at least 15 times earnings... Based on their record it should be higher than that." In a press release on Wednesday, Conseco said that their "key businesses are performing at or above expectations" and are comfortable with analysts' consensus estimate of $4.06 for 1999. There are threads that discuss CNC here on SI. Subject 13041 --------------------------------------------------------------------- 4. techstocks.com Greg Heard of the Greenspring Fund 800-366-3863 provides the following stock ideas on Scott Technologies (SCTTB 14 1/4) and Pharmaceutical Marketing Services Inc. (PMRX 8 1/2). Below is the write up. Scott Technologies recently changed their name from Figgie International Inc. The former company was made up of 10 different smaller companies and the new company has only two companies. One makes breathing apparatuses and the other makes Global Positioning Systems (GPS) used in military applications. Greg Heard of the Greenspring Fund likes their company so much that he has accumulated a 5% stake in the company. He particularly likes their stock because they generate a lot of cash, have been paying off debt and is buying back shares. "It is an undiscovered money maker that has good growth prospects and has a nice balance sheet... They are doing some things that will add value no matter what the stock market does," says Greg. He figures they will earn $0.72 this year and $1.15 next in 1999. Scott Technologies may possibly combine their class A shares and B shares together. Class B shares have more voting rights and if the two were combined, the class B shares would be retired and possibly fetch 5% to 10% more than the A shares. One stock idea Greg finds very interesting is Pharmaceutical Marketing Services Inc. They provide a range of information services to pharmaceutical and healthcare companies. It was was announced that their foreign business would be merged with IMS Health. IMS did not acquire the whole company because of the continuing review of the transaction by the Securities and Exchange Commission and various antitrust authorities. Arbitrageurs, who would buy the shares of Pharmaceutical and then short the shares of IMS have been unwinding their positions in Pharmaceutical by selling their shares. Pharmaceutical has cash and marketable securities of $8.50 per share, while their stock is trading at the same price. Greg estimates their existing business will earn $0.25 in 1999 and notes that they are "essentially being valued at nothing." There are threads that discuss PMRX here on SI. Subject 19327 ----------------------------------------------------------------- 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 The Conference Board reported that institutional investors control about 60 percent of the stock in the 1,000 largest U.S. corporations, with control becoming more and more concentrated among the largest 25 institutional investors. A decade ago institutional investors controlled 46.6 percent of the stock in the nation's largest companies. mercurycenter.com Forces are bearing down on the bull market - analysts say small declines in the Dow have masked carnage among other stocks. dallasnews.com Average Americans hold key to market's future - how will they react to downturns? nypostonline.com How to dodging stock market turmoil without bailing out. globe.com New pessimists debate: Is it 1929 all over again? nypostonline.com Fund investors are seen riding out storm, resisting panic selling. globe.com Wall Street thinks the Washington scandal situation has stabilized - but some have a different opinion. nypostonline.com While Wall Street analysts and traders sweat out big recent swings in stock prices, individual investors continue to take the stock market's renewed volatility in stride. detnews.com ASIA, JAPAN & RUSSIA A year ago, as Asia's economic nightmare was just beginning, Wall Street spent a lot of time wondering which countries might be next to devalue their currencies. Today, the more appropriate question seems to be: Are there any countries that can avoid a devaluation. detnews.com Emerging economies--what we used to call the Third World--have emerged as major headaches for U.S. investors, whether or not they hold any investments in Latin America, Southeast Asia or Russia. chicagotribune.com Russian stocks tumbled to more than two-year lows and the ruble fell further from a de facto currency devaluation and default on some foreign debt. Prime Minister Sergei Kiryenko, trying to calm public anger over the measures, said funds saved from the 90-day moratorium on debt payments would go to pay overdue wages and pensions. detnews.com SEMICONDUCTORS AlliedSignal's hostile takeover bid for AMP, followed so closely by a Mentor Graphics run at Quickturn, has Wall Street's high-tech watchers wondering if at long last the corporate raiders are beginning to swarm. Companies like Atmel, Advanced Micro Devices, PRI Automation, Brooks Automation, Lam Research, Teradyne and Advanced Energy are all potentially attractive targets. sumnet.com Y2K The Federal Reserve plans to stock up on cash in case nervous Americans want more of it in their pockets on the eve of the new millennium. By the end of next year, $200 billion in currency will be stored in government vaults, up from the $150 billion normally held in reserve. globe.com Businesses and governments are running out of time to fix computer systems that may go awry at the start of the year 2000, triggering a global recession, a panel of specialists said. dallasnews.com ----------------------------------------------------------------------- 6. techstocks.com Canuck Dave is an active participant on the Open Market (OMKT) thread here on SI. He provides the following commentary on Open Market (OMKT 10 1/2) and what they are all about. Below is his write up. Open Market (Nasdaq: OMKT) Canuck Dave, 98.08.24 openmarket.com Basic Facts "Open Market makes and distributes Internet commerce software aimed at three main markets. 1. Business-to-Business and Business-to-Consumer packages designed for large enterprises. Disney and BusiNessWeek are examples of customers. These companies then maintain the software themselves to some extent. 2. Commerce Service Providers (CSP's), such as AT&T and Bell Canada which take the software and sell Internet Commerce packages to smaller enterprises, removing the burden of development and maintenance from these smaller enterprises. There are currently about 40 CSP's using Open Market products. 3. Publishing software, which also involves large databases. Open Market has a number of patents in the area of Internet commerce and includes a number of Fortune 500 companies amongst its clientele. The company sees the large-scale business-to-business applications and continuing expansion of the CSP market as its key growth areas. The future of the publishing arm is unclear. Historical Data and Earnings The company first went public in early 1996 and since that time it has had negative earnings in every single quarter (average .20$), changing management in 1997. Its initial public offering was in the 34$ range and the price has never since reached the IPO. The consensus estimates on future earnings are that it will have a modest loss in quarter 3 of 1998 and post small positive earnings ($.05) in quarter 4. Consensus estimates are also for continued modest earnings growth in 1999 to .12$ per quarter. Based on these projected earnings and historical P/E's in the sector, several analysts have made Open Market a BUY at today's stock price (~12$) | ||||||||||||
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