Two With ‘Tailwinds’
* The Selector: Ned Zachar, director of research at San Francisco-based Thomas Weisel Partners.
* His Record: Zachar joined Weisel in January, shortly after its founding, after working at Montgomery Securities and Chase Securities. Institutional Investor twice named him to its annual all-star research team.
* His Philosophy: “First, we look for tailwinds in the economy that are having a dramatic impact on individual sectors--bandwidth, for example. Then we take a bottom-up approach, looking for the best stocks within those sectors.”
* His Picks: Zachar’s current favorites include several companies that make testing systems and electronics and communications equipment--Teradyn Inc., PMC-Sierra Inc., Flextronics International Ltd. and Varian Inc. But he highlighted two firms with perhaps the widest investor interest: Internet-commerce security specialist VeriSign Inc. and telecom company Qwest Communications International Inc.
VeriSign
Ticker symbol: VRSN
Market capitalization: $4.5 billion
Latest-quarter sales: $18.7 million
Est. 1999 earnings per share: 2 cents
Wednesday: $30.75
Qwest
Ticker symbol: QWST
Market capitalization: $24 billion
Latest-quarter sales: $874 million
Est. 1999 earnings per share: 11 cents
Wednesday: $30.56
*
The tailwind pushing Mountain View, Calif.-based VeriSign of course, is e-commerce. “You want to make sure you’re talking to the American Airlines Web site before you give them your credit card number,” Zachar said. “And every day as people use VeriSign’s digital certification technology, that in itself is becoming a barrier to entry. They’re becoming more of an industry standard.” The company, whose shares have tripled this year, could be on the verge of profitability, Zachar noted. After a break-even second quarter, VeriSign is expected to make 2 cents a share in the third quarter.
Denver-based Qwest, which is in the midst of buying US West Inc., may have several of Zachar’s tailwinds behind it--including the Internet, bandwidth and consolidation--but the stock has fewer investors behind it than it used to. After a huge 1998, the shares are about 40% off their April peak. “It was viewed as an Internet company. But now the US West people are looking at it and saying, ‘Geez, there’s not much here in earnings--this is hard to evaluate,’ ” Zachar said. “The Qwest people are looking at US West and saying, ‘What happened to the high growth?’ That gap is an opportunity. There’s a lot of dislocation going on here--not unlike when WorldCom was buying MCI and people weren’t sure if they could get the synergies.” Since that merger was finalized almost a year ago, MCI WorldCom has whipped the blue-chip Standard & Poor’s 500 index by more than 2 to 1.
Sources: Bloomberg News, IBES International (earnings estimates)
