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The Internet Financial Connection, May 7, 1999 Presented by Mark Johnson, Editor of the IFC techstocks.com It appears exclusively on Silicon Investor techstocks.com -------------------------------------------------------------- To Subscribe to this Newsletter: Send an email to <mailto:ifc-request@mLists.net> with "subscribe" in the message body. Please tell a friend about this newsletter :) -------------------------------------------------------------- !!! ATTENTION INVESTORS !!! Try Investor's Business Daily FREE for two weeks. Investor's Business Daily -- a proven way to get the best stock, options, and commodities information you need, every business day. Click on the link below ads.amazingmedia.com to begin receiving Investor's Business Daily. There is no commitment and you will enjoy two FREE weeks of Investor's Business Daily delivered to you every business day. ads.amazingmedia.com -------------------------------------------------------------- This newsletter can be viewed at techstocks.com In This Issue: 1. 16 Months Into e-Commerce the Next 100 Months... 2. Copart 3. Cost Plus 4. WPP Group 5. Investment Opportunities From "Mortal Combat" 6. Interesting Articles on The Internet by Joe Dancy 7. IFC/SI Reader Highlight: ACTV Inside 8. Disclaimer ---------------------------------------------------------- 1. techstocks.com August West is an active member at the e-Commerce the Next 100 Months...... thread on SI. August provides the following commentary about what goes on there and his outlook on the e-commerce area. To conserve bandwidth, please click the link below to access the article. If you have any interest in the Internet area, it is well worth reading! techstocks.com ----------------------------------------------------------------- 2. techstocks.com Elizabeth Pearce of The Highmark Small Cap Value Fund, highmark-funds.com, provides the following stock idea on Copart (CPRT 18 1/8). Below is the write up. Move over eBay here comes Copart! Copart runs salvage yards for auto insurance companies. When a car is totalled, Copart handles the auction where the vehicle is sold to dismantlers, rebuilders or auto body shops. They moved their auctions onto the Internet and have been extremely successful. Copart's Internet sales program began in late 1998 and has had steady growth in buyer acceptance, use and sales. The Company reported that approximately $3.6 million of its March 1999 gross auction proceeds were generated from vehicles sold or pushed through bidding on the company's Internet web site. "This is a traditional business that is using the Internet to make their business more efficient," says Elizabeth Pearce of the Highmark Small Cap Value Fund. In March, Internet sales were 59% higher than in February. Nevertheless, since Copart specializes in auctions of salvaged autos, they won't put eBay out of business anytime soon. About 70% of Copart's Internet sales derive from buyers who reside in a different state from where the vehicle or item is based. One example of how successful these auctions can be is when a totaled Mercedes SUV was brought into one of Copart's auto yards in Bakersville California. The pictures were displayed over the Internet and an auto repair shop that specialized in those cars, in Connecticut, paid a whopping $16,000 for the vehicle. One reason why they paid so much for it was because, many of the parts in the car were hard to come by. Perhaps more significantly, the sales to local buyers has been increasing. Local buyers appreciate the efficiency of searching for specific models and the convenience of bidding on line and avoiding full day, in-person auctions. Elizabeth explains that Copart is the largest player in the national market for salvaged vehicles. "They are a consolidator in an industry where there are high barriers for entry. Very few urban areas want one of these sites put up close to a city or small town. They have relationships with Allstate, State Farm and other major auto insurance companies... It is hard for the mom and pop shops to compete with a national company with sophisticated systems." Generally, when a car is totaled, insurance companies will take title to that car. Copart will then store the car for them and take 5 pictures of the vehicle. These pictures are posted on the Internet for auction purposes. Copart is the largest user of digital pictures on the Internet. On the other side of the transaction, the insurance companies had been the recipient of several hundred page monthly reports, telling them where all of their cars were. Now, they can access that information over the Internet. Copart is expected to earn $0.73 in fiscal year end July of 99' and $0.90 in 00'. Elizabeth figures there is upside to those estimates and sees their stock hitting the mid 20's within the next year. ------------------------------------------------------------------ 3. techstocks.com Richard Gould of the no-load Rockland Growth Fund greenvillecap.com (800-497-3933), provides the following stock idea on Cost Plus (CPWM 34 7/8). Below is the write up. The Rockland Growth Fund, you could say has done well and is ranked 8th out of 449 other small cap funds, according to Lipper Analytical. Their fund returned a respectable 25% in 98' and the Russell 2000 small cap index was down 3% during the same time period. Manager Richard Gould of the Rockland Fund is high on Cost Plus. They are specialty retailers of casual home living and entertaining products. The Company operates 90 stores in 16 states under the name "Cost Plus World Market" which features a selection of casual home furnishings, housewares, gifts, decorative accessories, gourmet foods and beverages, which are imported from around the world. Click here for more information. Richard says that Cost Plus has been in business for 41 years and is not a fly by night operation. He is impressed with their strong growth and having 38 stores in 92'. "They currently have 90 stores, are expected to have 102 by the end of 99' and 146 total stores by the end of 01', says Richard. "A great thing about their model is that in the first year a new store is opened, an average new store will have about $3 million in sales. In the 2nd year after a new store is opened, the average sales are $3.5 million and in the 3rd year that average increases to $3.9 million. They do a wonderful job at adding new product lines in stores, which has been very successful. Word of mouth also brings in new customers, that helps increase new store and existing store sales." Cost Plus is estimated to earn about $1.20 in fiscal January 00' and $1.44 in 01'. Richard thinks there is upside to those estimates. He figures their stock can touch the $50 level sometime within the next 12 to 18 months. There is a thread that discusses CPWM on SI. Subject 15876 ---------------------------------------------------------------- 4. techstocks.com Thomas Melly of Simms Capital Management, simmscapital.com, provided the following stock idea on WPP Group (WPPGY 87). Below is the write up. WPP Group is a UK based advertising holding company with names that include J. Walter Thompson Worldwide and Ogilvy & Mather. WPP provides media advertising, strategic marketing and research & sales promotion. They service to local and multinational companies, including more than 300 of the Fortune Global 500 businesses. Click here for more information about the company. WPP's stock was trading in the mid 70's last July and then plunged all the way down to the $35 level, on the fears of global recession and cuts in corporate advertising budgets. Since then, their stock has recovered into the mid 80's. Tom Melly of Simms Capital Management explains, that in the event of a world wide economic downturn, as market pundits predicted last fall, WPP's outlook was not so rosy. Therefore, investors sold off their stock. "Many areas of the world are doing quite well, and that is good news for WPP. They are an attractive global player. They have high returns on equity, good earnings growth, and their stock has not gone up a lot, when compared to where their shares peaked last summer. Three quarters of a billion dollars in new business was announced for the first quarter, things are looking very good for them," says Tom. Tom notes that other peer companies such as Omnicom and Interpublic Group trade at 31 and 26 times year 00' estimates receptively, while WPP trades at 22 times forward earnings. He thinks the stock can trade at comparable earnings multiples as their competitors and approach the $120 area within the next 12 to 24 months. ----------------------------------------------------------------- 5. techstocks.com Joe Dancy, co-editor of the IFC and editor of the The Lone Star Growth Investor members.aol.com provides the following interview with Matt Stichnoth of the Wall Street Companion. AudioInvestor.com provides an audio version of the interview. Click the link below audioinvestor.com if you would prefer to listen to the interview. Below is the write up. Matt Stichnoth, publisher of the Wall Street Companion, is a "contrary minded value based investor." Stichnoth notes how poorly the Russell 2000 has performed relative to some of the indexes tracking larger companies. The S&P 500 "is in a classic bubble," and history indicates that these overvaluations do not end well. When selecting undervalued stocks he looks for certain "flags" that indicate potential turn around situations. One thing he looks for is insider purchases. Another is spinoffs, since many of these companies lose institutional interest and support. Last, he looks at valuations to find companies that are compelling bargains. One company that he likes is Midway Games (NYSE: MWY). He notes that the company is selling for under two times book value, that the Chairman made a massive insider purchase in January of this year, and has some very attractive software titles including "Mortal Combat" and "NFL Blitz." The company was spun off from the parent about a year ago, has missed earnings estimates for a quarter or two, but none-the-less is a leader in the games market. They also have a big presence in the arcade game market. Matt notes that this is one area of the software market that is growing strongly - and will continue to grow. Gadzook's (NASDAQ: GADZ) is another company he likes. Insider buying has been strong recently, and same store sales has begun to increase after dipping for several quarters. The company is selling at book value. Adams Golf (NASDAQ: ADGO) is another company he finds attractive. They have a new driver out that should boost sales, and have a good franchise name. They went public and institutions lost interest, and they are trading for 85% of their working capital and have no debt. This market is very appealing and continues to grow. Last, Omega Protein (NYSE: OME) is in the fish meal business and owns around 80% of the market. They have a return on equity of 33%, operating margins of 18%, a lot of free cash, and sell for less than book value. Longer term, this company should be profitable and a more reasonable valuation could be attached to its shares. While Matt notes that these companies may not do well over the next 3 months, longer terms they are solid financially and have a product that should do well. He offers a free complimentary copy of his newsletter to readers and listeners by calling (800)-966-6567. ----------------------------------------------------------------- 6. techstocks.com Joe Dancy, co-editor of the IFC and editor 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 INTERNET AND ELECTRONIC COMMERCE Start Up Internet Companies Sold For Millions globe.com Internet Advertising Revenues Double in 1998 technologypost.com Content seen as the key to e-commerce success canoe.com The CEO of the No. 2 online broker, E*Trade, feels when all is said and done, the vicious competition being waged today is merely a prelude to lucrative times ahead. nypostonline.com SHOP.ORG, an online retail industry association, estimates only 1.6 percent of people who surf e-commerce sites make purchases. nypostonline.com E-mail popping up in cases of divorce mercurycenter.com Computer Glitch at CheckFree Holdings Stymies Bill Payers. washingtonpost.com SEC, NASD Probe Electronic Trading. washingtonpost.com PC's, NETWORKING, Y2K AND SEMICONDUCTORS CEOs of most of the area's largest companies are hedging their bets against a Y2K computer meltdown. Nearly half plan to call in extra staff and back up critical records by year's end. chicagotribune.com Semiconductor Sector Back On Growth Path. technologypost.com Consumer to be next market area for networking. mercurycenter.com MARKETS AND INVESTING Is This A Stock Market Bubble? nypostonline.com Rules expected for electronic traders. bergen.com Commentary: Stock market rebound proves value of holding in tough times. detnews.com Securities regulators in the U.S. are scrutinizing the exploding online and day-trading business. canoe.com Buffett Still Not Sold on Tech Stocks. nypostonline.com Celebrity Salaries No Match for CEOS. nypostonline.com Buffett Says Few Stocks in U.S. Market Meet His Purchase Test. latimes.com Investors, hoping worst is over, turn back toward Asia. globe.com Repricing of stock options raises hackles. dallasnews.com Growth in traditional IRAs puzzles experts. bergen.com The raging bull market has spawned a hyperactive stepchild -- day trading. detnews.com Internet Stocks May Provide Opportunities. washingtonpost.com ECONOMIC Experts say the reality is that unusually low inflation means workers have been taking home better wage increases in recent years than they have seen in many years. chicagotribune.com Income growth, outpacing inflation, boosts Americans' buying power. globe.com Emerging Markets Are Ripe Again. washingtonpost.com ----------------------------------------------------------------------- 7. techstocks.com Daniel Henderson is an individual investor and an Internet Financial Connection reader. He provides the following commentary on ACTV (IATV 14 3/8). Below is his write up. With the stockmarket seeming a little out of control, whether on the upside or the downside, as seen by the recent tech selloff. It's nice to find a company that holds all of the optimistic hopes people are giving the .com companies, as well as a realistic chance to become the next Microsoft. I say a realistic chance because this is a speculative stock, and from the very nature of the name it is mere speculation that this company will become extremely profitable. The company I am talking about is ACTV (NASDAQ: IATV). These guys are on the frontline of Internet TV convergence. They have the backing of John Malone's Liberty Media, which currently owns 5% of the company with an option to extend that to 25% in the next 5 years. They are also backed by General Instruments, Oracle, Sun Microsystems, AT & T, soon to be renamed Ma Cable, as well as Billionaire media mogul Rupert Murdoch. For me, finding a stock I feel comfortable investing in is a process, as it should be for all investors. I look for a company that has a product that has great potential to create revenue. ACTV wants to be "the" software you use in all of your TV/Internet applications. Forget WebTV, that technology is ancient. What ACTV wants to do, with the help of their 13 patents on Internet convergence, is make surfing the web and watching TV a synonymous activity. Let me give you three examples: Gameshows: You're watching Jeopardy, you meet the contestants as they are introduced, Alex makes a little idle chatter and the game is off. You pull your wireless keyboard to your lap as contestant one picks a category, the question is given and contestants one, two and three race to hit the buzzer first to answer the question, in the form of a question of course. At the same time home viewers type furiously to be the first to pose their answer. All while racing against millions of other ACTV viewers to attain a separate prize for the home viewers, a prize being offered by a paid ACTV sponsor. This sponsor is also just one click of a keypad from sending you to their homepage. With each question asked, remember there are tons of question in Jeopardy, a new sponsor offers a prize. Viewers compete but they also digest the names of the sponsors, promoting brand awareness. Let's say only a third of the viewers go to the sponsor's homepage, but imagine how many more hits this would generate for the sponsor. And as with the Internet now, TV convergence will be all about the number of hits each advertisement produces. Revenue, revenue, revenue. Sporting Events: Imagine watching a football game, lets say next year's Raiders/Minnesota game, where the hype is already starting to spread about the Charles Woodson/Randy Moss showdown. Well, through a traditional broadcast you would follow the game, being led around by the camera crew and the producers of the game. But with ACTV's patented Individualized TV you'll be able to zoom that camera in to follow the Woodson/Moss showdown every step of the way. And if you miss the big play because you're watching Moss fake like he's going to receive a pass while at the same time Minnesota's runningback Robert Smith breaks it down the sideline for a screaming touchdown, no problem. Just pick up the ACTV remote and rewind, pick the camera angle you want and watch the replay as many times as you want, all during a live broadcast. Regardless if the network you are watching wants to replay it or not. With each replay a sponsor's name appears, with each camera angle another sponsor. Perhaps a sleeper defensive player catches Smith right before he crosses into the endzone and you don't recognize his name. Using the ACTV remote again you pull up the players name, statistics, where he is from and perhaps even his favorite hobby. Throughout it all you are receiving individualized advertisements geared for not just generic pro football fans, but pro football fans of either the Raiders or the Vikings based on the sex, income and age of the viewer. Again let me repeat the mantra: Revenue, revenue, revenue. Television Shows: Let's say you're watching Buffy the Vampire Slayer and you hear a great song but don't know who performs it. Just as you ponder running to your computer to look it up, an advertisement for the band performing the song appears at the bottom of your screen. This is an example of what ACTV's patented Hyper TV allows. In essence this is a push technology, where advertisers can push advertisements from the Internet onto your screen. Coupled with ACTV's patented Wolzien Process, which is a pull technology created by Media Analyst Tom Wolzien, where viewers can pull information from the internet onto their screen, there is a lot of room for you guessed it, revenue. Simply put lets say CDNow (Nasdaq: CDNW), a popular online music vendor, pushes their advertisement to the concerning the band they just heard on Buffy. With pull technology the viewer can now click the advertisement pulling them to the webpage allowing them to make an online transaction to buy the music CD. All from the comfort of their own home. With this being said it is hard not to say that ACTV's future is golden. With AT & T's forthcoming purchase of Media One, the world's largest broadband communication company, ACTV's future seems even more promising, because through AT & T's support of ACTV and the acquisition of Media One this gives ACTV even more cable subscribers to offer their software. In the end it is up to the rational investor to do their own due diligence on the company and come to their own conclusion. Whatever the choice remember this is a long term company, don't expect record breaking revenues next week, or even next year. Good luck to all. There is a thread that discusses IATV on SI. Subject 25560 ----------------------------------------------------------------------- 8. techstocks.com DISCLAIMER: All information contained on this page are from the authors cited. The information is believed to be reliable but there is no guarantee to its accuracy. Stock ideas presented by mutual fund managers, money managers, newsletter writers and SI participants may be bought or sold by them anytime before or after being presented in this newsletter. Anyone purchasing the stock ideas above should consult a financial advisor before doing so. The stock ideas mentioned above are not solicitations to buy or sell but to provide people with information from many sources. I (Mark Johnson editor of the IFC) am not paid any fees by the above writers nor by the companies represented. The stock ideas may represent a starting point for investors. People are encouraged to do their own homework before buying any stock. Neither Silicon Investor or the Internet Financial Connection will be responsible for any loss occurring from the purchase or sale of the above securities or any securities. ========================================================================= To Subscribe: Send an email to <mailto:ifc-request@mLists.net> with "subscribe" in the message body. Please tell a friend about this newsletter :) | ||||||||||||
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