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The Internet Financial Connection, December 2, 1998 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 :) ------------------------------------------------------------- This newsletter can be viewed at techstocks.com In This Issue: 1. Internet IPO's: What Investors Need to Know 2. Concord Communications 3. Nokia 4. Allied Capital 5. Interesting Articles On The Internet by Joe Dancy 6. Semiconductor, Semi-Equipment Sectors Set for Recovery 7. Highlights on SI: Space, The Final Frontier by David Z 8. Highlights on SI: by Tom Taulli 9. Disclaimer ---------------------------------------------------------- 1. techstocks.com Steve Harmon, of the Internet Stock Report isdex.com provides the following interview. Below is the write up. One area where there has been a supply/demand problem is in the Internet IPO area. When the theglobe.com went public a few weeks ago, primarily institutional investors and a very small number individual investors were able to buy the stock before it actually traded on a stock exchange. The underwriters transfer the stock mainly to institutional investors and "special" high status clients with high a net worth. "It is like having 2 seats in a movie theater and having 100,000 people waiting outside to get in," says Steve Harmon of the Internet Stock Report, "Something is not right here." A very small number of individual investors will actually get in on the underwriting. You will read in press releases that theglobe.com actually went public at $9 a share and then soared to $97. In a sense, that is true. What individual investors are not understanding is that when theglobe.com opened for trading, it started trading at $87 per share. It then shot up to $97 per share and ended the day trading in the low $60's. Less than a week after going public, theglobe.com's shares hit a low of $32 per share. Steve urges that investors use extreme caution before purchasing a fresh Internet company that has just come to the market and most of all, do some homework before investing. Steve notes that the demand for Internet IPO's are enormous and not enough IPO's are coming to market to meet demand. "It's like dropping a small sponge into an ocean, once it hits, it is quickly absorbed." To add to the scarcity of the Internet IPO's, from mid September through October, there was not one high profile Internet IPO. Steve adds that well known Internet stocks such as Yahoo! and Amazon could have been purchased below their opening day prices, if investors would have waited. One of the first questions Steve believes that investors should ask themselves is, "how much am I willing to lose?" before purchasing an Internet IPO. He thinks, it would be best if investors waited a few days until after an Internet IPO became public to buy their shares. "Basic fundamentals should also be used such as, what the company does, their business model, who is the management, how big is the potential market and who are their competitors?" He still thinks some investors can make money in some new IPO's that have come to market. eBAY is one example of successful recent IPO. Their stock publicly started trading at $50. A few short weeks later, it went down to $25 per share. Recently, it shot up to $234. Cases like this are rare and not likely to happen for each IPO. One of the events driving the Internet Stocks was the forecast of strong Christmas sales over the Internet. This strong forecast of "E-tail" items being sold over the Internet has led to strong gains in the Internet Stocks. Since the beginning of November, Yahoo! has gone from $130 to a high of $227, Amazon went from the $130's to $233, eBAY from the low $90's to $234. Some pundits think that the Internet is like a "Tulip Mania." Others are trying to get in on the bottom floor of the next great "Industrial Revolution." I will admit, I think many Internet stocks will move considerably higher going into 1999, but the recent pull back in the Internet area was due. Usually after excessive stock run-ups and when option premiums become very great on Internet stocks, like they are right now, Internet Stocks have been considered overvalued for the short-term trader. Another reason why Internet Stocks have made an enormous run-up is because there is simply not enough supply out there to meet demand. StreetAdvisor.com estimates that the total market cap of the 20 major Internet companies, with combined market caps total close to $100 billion. The stock market has over $10 trillion in marketable securities. The article notes, if every investor were to allocate 2% of their portfolio to Internet Stocks, that $100 billion would turn into $200 billion. That of course would double the current price of the average stock in the Internet area and of course add fuel to present fire. ----------------------------------------------------------------- 2. techstocks.com Richard Gould of the no-load Rockland Growth Fund greenvillecap.com (800-220-0132 ask for Jennifer), provides the following stock idea on Concord Communications (CCRD 43 1/4). Below is the write up. Concord Communications is a leading developer of Web-based network reporting and analysis solutions. Their software analyzes how well network is running and can predict what may go wrong within the network. Richard Gould of the no-load Rockland Growth Fund (their fund was ranked in the top 5% of all small cap funds according to Lipper) likes Concord so much, their company is his funds largest holding. "As networks become increasingly complex, Concord is in the absolute sweet spot of priority IT spending. Concord's software can save a company a huge amount of money, that is really the key. The product pays for itself, often within 3-4 months." Richard notes that the price of Concord's software is actually determined on the number of elements on a computers network. An element, for example, would be a server, switch, router, modem, etc. "For every element that is added in a network, Concord will earn more in revenues. A company that uses their software will incur an immediate benefit after only a 1/2 day of plug and play installation." Concord is growing by leaps and bounds. In 1997, they added about 250 customers. When they recently reported 3rd quarter results, over 100 new customers were added in that quarter alone. Management believes they can continue to add 90-100 new customers per quarter. Concord currently serves roughly 15% of the Fortune 1000. "The market in which they operate has not yet been highly penetrated... They are the leader in their area and have much room to grow," says Richard. Concord's customer list includes well known technology names such as; Cisco, Ascend, Hewlett-Packard, Newbridge Networks, America Online, Ericsson and MCI WorldCom. Richard adds, Concord will offer a number of new products over the next few quarters, which should accelerate earnings. In addition, the average initial order size is increasing significantly. Most companies have only purchased one or two products so far, "but that number will most likely increase." "Revenues have been growing at 100% per year and earnings growth should continue to grow faster than revenues. Also, linearity of shipments within a quarter shows much higher visibility than the typical software company. The stock should move in-line with its earnings growth." He figures, they will earn close to $1 in 1999, with their stock hitting $100 within the next few years. There is a thread that discusses CCRD on SI. Subject 17597 ------------------------------------------------------------------ 3. techstocks.com Thomas L Melly of Simms Capital Management Inc. and Brian Modoff of Alex Brown, provide the following stock idea on Nokia (NOKA 100 7/8). Below is the write up. Tom Melly of Simms Capital Management is very fond of Nokia, a leader and maker of cellular phones and GMS (global mobile systems) infrastructures world wide. They command 30% of the world's handset market and 28% of the GMS infrastructure market. Tom has included Nokia in most of his clients' accounts and figures the company can maintain a 25% earnings per share growth rate during the next 5 years. There has been a slowdown in the cellular market because of the Asian crisis... The impact on Nokia has been minimal because, they have increased their market share," says Tom. He thinks, the stock will hit $150 within the next 2 years. Another Nokia bull is analyst Brian Modoff of Alex Brown. "Nokia is the Dell in the handset market... They dominate in volume and are beating the pants off of their competitors... They have accelerated the handset product life cycle, making life tough on the competition," he says. Brian mentions, they are "#2" in the deployment of GMS infrastructures and are gaining market share from the competition, especially in the emerging DCS1800 networks. Brian thinks that Nokia's will perform well, even if Asia continues to be a problem going forward. He figures, they will end this year with earnings of $3.27 and earn $3.55 in 1999. --------------------------------------------------------------------- 4. techstocks.com David West of Davenport and Company, davenportllc.com provides the following stock idea on Allied Capital (ALLC 18). Below is the write up. Allied Capital provides loans and investments in three areas; mezzanine finance, commercial real estate finance and SBA lending. Allied will typically loan money in a situation where a commercial loan from a bank is not a viable option. During the last few months, banks have been more cautious towards lending money. "There is evidence that banks are getting tighter on the condition of loan terms... This is very positive for Allied!," says David West of Davenport and Company. Their stock has come down from a 52 week high of $29 and hit a low of $12 in October. David believes that all the fundamentals are still in place for Allied and business will only get stronger. On November 19, Allied announced that they would raise additional money by selling 3.1 million shares in a private placement. David notes that this will give them more capital for loan originations which will increase earnings. David figures, Allied will earn $1.65 in 1999 and around $1.85 in 2000. Because of their tax status, Allied is required to pay out 90% of their earnings in the form of a dividend, which is currently around 8%. David thinks their stock can hit $25 within the next year. ----------------------------------------------------------------- 5. 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 Once barely a blip on the retail radar screen, online shopping is expanding so dramatically that it's on the verge of changing how Americans shop for everything mercurycenter.com So, are investors completely crazy? Not completely. "The Internet will have a dramatic impact on the economy, creating and destroying shareholder wealth in historic proportions." washingtonpost.com Many Internet sites claim to help consumers find the best deals online, either by linking to low prices or comparing product features. But most comparison-shopping technology is so new and crude that it rarely works as advertised. washingtonpost.com Consumer commerce on the Internet is growing by more than 200% annually, even though most people online still are not making purchases, according to a report released yesterday by an Internet retailer's association. On average, only 5% of consumers who visit Web commerce sites make a purchase, with concerns about credit-card security and difficulty in finding merchandise listed as the key reasons people browse but don't buy. washingtonpost.com Internet companies are emerging as borrowers in the $430 billion junk bond market, where they can raise the hundreds of millions needed to pay for acquisitions and provide the rapid growth their investors expect mercurycenter.com A proposed European Union law on Internet commerce would allow national governments to regulate the on-line sale of goods and services, stopping short of EU-wide controls. All countries would be required to give on-line contracts the same legal weight as paper ones and to allow on-line settlement of disputes between businesses and customers iht.com Some investors were undoubtedly cheering as the final bell rang Nov. 13 and shares of theglobe.com were up more than 600 percent, the strongest first-day surge ever, according to Securities Data Group. But here's where the stories of home run balls and home run stocks diverge bergen.com In the manic world of Internet stocks, theglobe.com is the hot new aphrodisiac, the shooting star of the month and the latest symbol for the insanity taking root in investors' minds herald.com SEMICONDUCTOR & ELECTRONICS The chip gear book-to-bill index bounces up - is it light at the end of the tunnel? It's not clear just yet, but North American suppliers of chip production equipment saw a vast improvement in business during October when they posted a book-to-bill ratio of 0.73 semibiznews.com The dizzying free fall in personal computer prices that spun out of last year's Comdex show has leveled off, as consumers demanded greater performance and greater service from computer makers and the prices of key PC components rose. mercurycenter.com It will most likely be a year or more before semiconductor capital equipment spending bounces back, according to industry analyst Theodore O'Neill, who follows the segment at Needham & Co techweb.com Chip card market growth will be strongest in the United States and Japan during the next four years, according to a new study by Dataquest here. The report predicts that U.S. chip card revenues will grow from about $20 million in 1997 to $532 million in 2002, while Japanese sales will go from $14 million to $390 in the same time frame semibiznews.com ECONOMIC When Federal Reserve policymakers met Sept. 29, they readily agreed they needed to cut interest rates to cushion the impact of financial market turmoil on the economy, but they did not want to cut them so much that they might create "an exaggerated impression" of the economic risks ahead. washingtonpost.com MARKETS & INVESTING Mountain climbers call the phenomenon summit fever. As they near the peak of a mountain, the dangers escalate. The air thins. The grade steepens. Daylight fades. And, against all common sense, the mountaineers push to the top. It's often an all-or-nothing gamble for glory or death. We're past the point where reason and analysis are driving investors. Why is the market climbing now? Because 10,000 is there. chicagotribune.com ml After scoffing at small-company stocks for years, Wall Street is finally taking notice. The divergence between large-caps and small-caps is unprecedented, and many smart investors believe it can't last washingtonpost.com Some mutual fund shareholders may be happy to hear that their funds are posting great gains - in part because their fund managers bet big on Internet stocks even when it was not part of their mission nypostonline.com You might think several months of wild gyrations in the stock market taught individuals a lesson or two about investing. For years, personal-finance experts have been preaching the same message for investment success: Focus on the long term. Spread your portfolio among a broad array of asset classes. Don't make frequent trades. But when a chaotic stock market put investors to the test, many didn't heed this advice detnews.com "Clearly the valuation levels, expected earnings growth -- everything from a historic yardstick is saying small caps are very attractive right now," said John Pratt, associate director of the personal investor advisory service at Salomon Smith Barney washingtonpost.com When is the proper time to invest? Technical analysts, who think they know, meet in S.F. sfgate.com The murmurings of Dow 10,000 are beginning again. Encouraged by Fed chief Alan Greenspan's quarter-point interest rate cut yesterday, some Wall Street strategists confidently predicted that the stock market would hit a new high before year end. nypostonline.com The Securities and Exchange Commission believes too many investors are completely unaware how the fees they pay take a bite out of total fund performance. The mutual fund industry's top regulator is now calling on funds to disclose exactly how fees affect returns nypostonline.com After a short rest, the bull is ready to run again, and the bear is going back into hibernation, a leading market analyst said Tuesday. This bull market will be fueled by a prolonged period of peace and new technology, or what Ralph J. Acampora, managing director of global and equity research for Prudential Securities, terms a "secular'' bull market. denverpost.com Y2K THE "Y2K problem" - the need to reprogram computers to correctly recognize and store dates after the turn of the century - is helping to reignite speculative demand for gold. Some of this has been reflected in sales of gold coins. People out there in the country across the Hudson are buying them at an all time record rate. nypostonline.com ----------------------------------------------------------------------- 6. techstocks.com Joe Dancy, co-editor of the IFC and editor of the The Lone Star Growth Investor members.aol.com provides the following commentary. Subscriptions to his newsletter are FREE. To conserve bandwidth, please use the link below to access the article. techstocks.com ----------------------------------------------------------------------- | ||||||||||||
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