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The Internet Financial Connection, December 25, 1999 Happy Holidays from the IFC! ------------------------------------------------------------- Presented by Mark Johnson, Editor of the IFC It appears exclusively on Silicon Investor siliconinvestor.com AOL users may wish to view the IFC letter at the link below. AOL sometimes requires that you download emails that have more than 20k of data. siliconinvestor.com -------------------------------------------------------------- To Subscribe: Send a blank email to <mailto:ifc-subscribe@topica.com> 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 ibd.infostreet.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. "One of the best sources of financial information available!" Mark Johnson Editor of the Internet Financial Connection. ibd.infostreet.com -------------------------------------------------------------- This newsletter can be viewed at siliconinvestor.com In This Issue: 1. "Top Gun" technology stocks have the advantage 2. Symantec & Lam Research 3. Independent Energy Holdings & Applied Micro Circuits 4. ICH Corporation & Bradlees Inc. 5. Interesting Articles on the Internet by Joe Dancy 6. Disclaimer ---------------------------------------------------------- 1. "Top Gun" technology stocks have the advantage siliconinvestor.com Mark Johnson, Editor of the Internet Financial Connection, provides the following interview with John Leo of the Northern Technology Fund northernfunds.com. AudioInvestor.com provides an audio version of the interview. Click the link below audioinvestor.pyxos.com if you would prefer to listen to the interview. Below is the write-up. With the technology-based Nasdaq Composite up over 70 percent year-to-date, you might assume the tech mutual funds have had an exceptional year. Of course, most tech mutual funds have had one of their best years ever and the Northern Technology Fund is one of those funds, producing a return north of three figures: over 110 percent so far. John Leo, co-manager of the Northern Technology Fund attributes his team's success to buying the leading companies in their respective industries. He argues that the competitive nature of the leading technology firms gives these firms an edge and allows them to capture the lion's share of the profits in their respective niche. "The market is very unrewarding to companies that don't keep up technologically or competitively in one form or another," says John. "From a share price standpoint, lagging firms wind up being punished severely. Investors tend to reward the top one or two companies in each niche that have a clear leadership position... I do expect that to continue." Some investors are shy or afraid to invest in the technology sector because many technology-based products can become quickly outdated or "leap frogged" by other companies. John recommends that investors diversify their holdings and own a basket of technology companies or a mutual fund to minimize risk. Another way to minimize risk, he mentions, is to focus on companies that are leading the charge or at the leading edge in terms of being competitive with products and service. "Investors should not try to bet on turnarounds or companies that have stumbled. That tends to be a failing strategy within the technology sector." John does not claim to be a market timer in any way but would not be surprised to see a pullback in the technology sector sometime within the next few weeks. He thinks that if there is a correction, it could be followed by a relief rally as investors push money back into the tech area. One of the common themes John favors is the communications area. He believes that theme will continue to be a strong one that investors will focus on in 2000. In the wireless communications services area he likes Nextel Communications (NXTL 105) and Sprint PCS (PCS 101 1/4). "We believe those two companies will experience rapid growth over the next few years." In the Web-hosting area, he likes Exodus Communications (EXDS 85) because it is the leader in the outsource Web delivery area for Internet companies, which is growing rapidly. On the communications equipment side, the Northern Technology Fund has a strong commitment to JDS Uniphase (JDSU 298), which makes components for optical networking solutions. John thinks the communications semiconductor side of the communications area has a lot to offer simply because there are "high and very focused levels of investments" being made by companies that are building out Internet and corporate networks. "It is important to remember that telecom networks in our country and around the world are changing materially, moving from voice-centric markets and moving into more robust markets that can handle a variety of information. To accomplish this expansion of bandwidth, companies need new capabilities in terms of the semiconductor content. In many cases, the demand for these products is outstripping what some of these semiconductor companies can supply. That is a good problem to have." A few companies he particularly likes in the communications semiconductor area include: Broadcom (BRCM 245 3/4), Conexant (CNXT 67 3/4) and Vitesse (VTSS 51 5/8). In the B2B (business-to-business) space, John likes the players who are helping organizations and enterprises become Internet-enabled and interface with clients effectively. "Businesses need to transform from a brick-and-mortar type of delivery system to an ecommerce system. Organizations need to be compatible with the world of tomorrow, which is electronic commerce." He is high on BEA Sytems (BEAS 70 7/8), Siebel Systems (SEBL 89 1/8) and BroadVision (BVSN 153). Those companies provide different tools that help businesses roll out "an effective ecommerce offering." The Northern Technology Fund has greatly reduced its exposure in some of the hardware sectors within the tech area. Specifically, those are the PC box companies and hard disk-drive companies. John explains that he is avoiding those areas of the market because "the computing platform is moving away from a desktop, PC-centric platform and moving toward an Internet browser platform. We are trying to make sure our portfolio reflects that shift in power." John mentions the importance of the technology industry within the global economy. He thinks that every investor should have some reasonable exposure to the technology industry. "The tech sector is driving a lot of change within the economy and is far and away the greatest engine of growth within the economy." He recommends owning a diversified basket of companies or a technology mutual fund. ----------------------------------------------------------------- 2. Symantec & Lam Research siliconinvestor.com Harvey Bateman of Sirach Capital Management sirachcap.com provides the following stock ideas. Below is the write-up. Harvey Bateman, Director of Equity Investments for Sirach Capital Management, a $7-billion money manager in Seattle, Wash., focuses on companies that exhibit strong earnings-growth characteristics. These include strong quarterly earning growth, accelerating earnings growth and earnings surprises. Two companies that Harvey and his investment team recently included in their large-cap growth portfolio are Symantec (SYMC 63 3/4) and Lam Research (LRCX 108 1/4). Symantec is best known for its Norton Utilities software that provides antivirus and security solutions. Harvey elaborates that around six months ago, Symantec brought in a new CEO, John Thompson, from IBM and brought a new focus to the firm. In the past, Symantec had ventured into other areas besides the security area. John has brought a new focus to the firm. He plans to divest some of the other businesses and focus on the security and antivirus part of the market. Symantec will be unveiling two new products in next year's first quarter. One of those products is a firewall-based software product for consumers and the other is a Unix version of its popular antivirus software. Harvey notes that the market for security-based software is growing at a 35-percent-plus rate and believes Symantec will be able to increase its market share. Symantec is expected to earn $1.97 for the fiscal year ending in March of 2000 and $2.36 in fiscal 2001. He thinks its shares can move into the $80 area sometime within the next six to 12 months. Lam Research is another company Bateman is high on. Lam is a maker of semiconductor- processing equipment used by many of the major chip manufacturers. Lam's niche is in the etch market and has developed a well-known process called Chemical Mechanical Planarization (CMP). It has recently introduced a new product called Exelan, "which is well-received." He adds that the book-to-bill ratio for the semiconductor industry is strong and his analysis suggests that it is still early in the semiconductor cycle. Lam is expected to earn $2.92 in year ending in June of 2000 and $3.53 in 2001. He thinks those estimates are low. He sees the stock possibly appreciating 30 percent over the next six to 12 months. ------------------------------------------------------------------ 3. Independent Energy Holdings & Applied Micro Circuits siliconinvestor.com Alex Motola of Insight Capital Research & Management icrm.com, provides the following stock ideas. Below is the write-up. In 1998, the U.K. deregulated its energy markets. Alex Motola of Insight Capital Research & Management notes that people living in the U.K. are not inclined to stay with the incumbent energy supplier. One reason is that the bureaucracy in the past between energy users and suppliers created uncomfortable conditions. One company Alex finds attractive and will directly benefit from the deregulation of energy in the U.K. is Independent Energy Holdings (INDYY 31 1/2). It is the largest independent marketer of energy in the U.K. It primarily resells electricity and also provides natural gas to customers. Alex mentions that INDYY plans to drive natural gas sales by selling it to the company's electrical customers, offering a single bill and a single energy provider. "The overall opportunity is very large." Part of INDYY's strategy is to go after the most-profitable customers, which include small businesses,industrial and residential customers who consistently use a large amount of energy. INDYY has about 200,000 customers and is adding new ones at a rate of about 7,000 per week, so "growth has been excessive." Alex figures INDYY will earn about 85 cents in the fiscal year ending in June of 2000 and $1.30 in fiscal year 2001. He views the company's stock as "cheap" and thinks it can move into the $40 range. In the technology area, Motola likes Applied Micro Circuits (AMCC 118), the maker of high-performance telecom integrated circuits. He explains that Applied Micro has its own fabs and is able to meet production requirements. Other companies that outsource capacity have had trouble at times keeping up with demand because certain components have been hard to find and in short supply. Alex insists that Applied Micro sits at the higher end of the food chain and does not produce commodity products. Its clients include: Lucent, Nortel, Juniper Networks and Sycamore Networks. "Applied Micro is clearly the premier chip play on fiber-optic networking. Nortel's fiber business has grown from $1 billion last year to $3.5 billion this year and is expected to grow to $10 billion next year. Applied is tied and designed into Nortel's fiber franchise and into most of the telecom equipment providers." He admits that Applied's shares are expensive on a P/E basis but states, "The business momentum is clearly unbelievable!" He thinks its stock will move higher as business fundamentals remain strong. ---------------------------------------------------------------- 4. ICH Corporation & Bradlees Inc. siliconinvestor.com John Keeley of the Keeley Small Cap Value Fund (888-933-5391), provides the following stock ideas. Below is the write-up. John Keeley of the Keeley Small Cap Value Fund is devoted to finding companies that are restructuring, spin-offs of other companies, trading under book value and e merging from bankruptcy. John states that companies, particularly in the value area, are sensitive to rising interest rates. He believes that once investors start to cash in hefty gains made from the high-tech growth stocks, which have had a phenomenal run so far this year, "Some of that money will be reallocated into the smaller companies and that bodes well for the sector." One company John favors is ICH Corporation (IH 10 3/8), which emerged from bankruptcy several years ago. It operates 185 Arby's restaurants and 73 Lyon's restaurants. Keeley finds a lot of value in ICH because it trades at less than seven times this year's earnings estimate of $1.50 and about five times fiscal 2000 earnings of $1.85. He points out that ICH posted revenues of about $225 million in the last four quarters, and its stock's total market capitalization is valued at $28 million, along with a $6 book value. John believes that ICH's stock could double from present levels. Another company John likes is Bradlees Inc. (BRAD 8) owns and operates 104 discount department stores in the Northeast. The company is managed by Peter Thorner, who led Ames Department Stores out of its troubles several years ago. Bradlees has come out of bankruptcy and started to open new stores for the first time this year. Keeley figures Bradlees will post a loss of 81 cents in the fiscal year ending in January of 2000 and will earn between 15-20 cents in fiscal 2001, "which is a dramatic improvement in operations!" Bradlees has annual revenues of $1.3 billion, while its stock market capitalization is around $80 million and has a book value of $4 per share. He thinks the company's stock will be able to trade in the $12 range once earnings get back on track, and it is recognized by the Street. ------------------------------------------------------------------ 5. Interesting Articles on the Internet siliconinvestor.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 The number of US Internet users has increased 600 percent - to 56 percent from 9 percent of all Americans - over the past four years, a new Harris Poll says. globe.com Consumers looking to do some holiday gift-buying on-line this year stood a good chance of having their shopping sprees thwarted by an assortment of Web glitches, according to a report by Andersen Consulting. technologypost.com A major report just published suggests that, contrary to popular belief, Europe is not that far behind the United States in terms of usage of the Internet for business. technologypost.com A string of Internet-retail partnerships announced this week promise to heat up competition among the major Internet access providers, resulting in a barrage of bargains for the millions of Americans still off-line, industry analysts say. washingtonpost.com On-line securities investors soon may be able to trade without paying commission according to PricewaterhouseCoopers. technologypost.com A recent study shows that just 46 per cent of households making under US $40,000 a year were on-line. That compares to 81 per cent of households raking in more than $80,000 and 78 per cent of college graduates who use the Internet. technologypost.com It's only a matter of time before Wall Street loses confidence in the trendy dot.com companies' game plans for making money, warned a world-renowned "long-term" market bull. detnews.com Though it seems everybody's getting on the Web these days, two-thirds of Americans have yet to do so because of the expense or because their communities lack easy access. triblive.com UPS was expecting its biggest day of the year Friday - perhaps its biggest day ever - as shipping companies hustled to deliver the record number of Christmas gifts being ordered over the Internet. dallasnews.com While Web-only players continue to grow at breakneck speed, offline chains that have set up shop online are giving them a run for their money. mercurycenter.com INTERESTING AUDIO PROGRAMS ON THE INTERNET Mark Alch, financial consultant, discusses wealth management concepts in his new book "How to Become a Millionaire" - and why the market is such a powerful wealth building tool. audioinvestor.pyxos.com MARKETS AND INVESTING Investors who are sitting on shares of some of the highest-flying technology stocks are doubtless wondering whether it's time to sell. detnews.com Ralph Acampora, the raging bull of Wall Street, said yesterday the Nasdaq composite index could hit 5,000 by the end of next year. That would mean the technology-packed average would add another 35 percent gain next year to the 78.37 percent return is already picked up so far this year. nypostonline.com After a disastrous 1998, international funds started staging a comeback in 1999, and are now poised to truly take advantage of recovering world economies in 2000. nypostonline.com When America Online Inc. and Wal-Mart Stores Inc. announced a new venture Thursday to bring the Internet to Wal-Mart's millions of customers in small-town America, Wall Street shrugged it off. Old News. washingtonpost.com After 12 years as chairman of the Federal Reserve Board, Alan Greenspan is looming over the presidential election. In both the Republican and Democratic fields, the candidates are split over whether he should keep his job. mercurycenter.com If your mutual fund has gained about 15 percent so far this year, which is about the average, and you're pleased with that, then here's a little investing tip: Don't look at the performance of the Nasdaq stock market. bergen.com Roughly 70 IPOs have appreciated from their offer price by 500 percent or more, 40 by 700 percent or more and a staggering 30 by more than 1,000 percent, according to a listing provided by Bloomberg News. Beneath the numbers, as Merrill Lynch's Bob Farrell noted, is the telling reality that half of the stocks in the S&P 500 were down for the year. washingtonpost.com Alarmed by a growing wave of corporate mergers, a Minnesota Democrat fumes that Congress and the country are standing by as giant corporations combine, leading to vast concentrations of economic power. mercurycenter.com BIOTECH, SEMICONDUCTORS, AND Y2K The meeting of the world's major industrial powers and leading developing nations, known as the Group of 20, was designed to show that rich countries now recognize the need to cooperate with poorer ones to stop financial turmoil from sweeping across the globe. iht.com Some of the government's Y2K watchers are warning of computer problems on New Year's Eve that may arise not from the date rollover, but from pranks committed by mischievous hackers. washingtonpost.com Coming soon, to a chip near you, your own genes. The biotechnology industry, which has long lived in the shadow of Silicon Valley and envied its many overnight successes, is now tapping into that same technology in a bid to speed up its own growth significantly. mercurycenter.com The future looks bright for Alza Corp., say biotech analysts, despite this week's collapse of the Palo Alto company's deal with Abbott Labs. mercurycenter.com Perceiving little chance of major disruptions from the millennium computer bug, most Europeans are stocking up on champagne for New Year's, not canned soup and flashlights. detnews.com ECONOMICS The insatiable American appetite for imports is building up imbalances in the economy that will make the nation vulnerable to a sudden loss of confidence among the foreign investors who finance the trade deficit, some experts warned. chicagotribune.com The week after global trade talks collapsed in Seattle, India's commerce minister rose in Parliament here to denounce what he called a pernicious attempt by the richest, most powerful nations to rob developing countries of their great advantage in trade: cheap labor. mercurycenter.com ----------------------------------------------------------------------- 7. siliconinvestor.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 or the company they represent 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 a blank email to <mailto:ifc-subscribe@topica.com> Please tell a friend about this newsletter :) | ||||||||||||
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