Tech Stocks Again Expected to Shine
After a year in which the Nasdaq composite index rose a historic 86%, it’s probably not surprising that Wall Street strategists and writers at financial magazines and Web sites expect plenty of tech stocks to be among this year’s star performers as well.
Here’s a sampling of opinions on the best individual stocks to own in 2000:
* Morgan Stanley Dean Witter’s analysts say the computer chip sector will continue its momentum from a strong second half of 1999. “The semiconductor industry’s fundamentals should strengthen throughout 2000, and most companies should enjoy accelerated [earnings] growth,” the brokerage says in a recent report.
The firm’s top picks in the industry are Atmel (ticker symbol: ATML), Lattice Semiconductor (LSCC), LSI Logic (LSI) and Microchip Technology (MCHP).
Atmel’s ASIC (or application-specific integrated circuit) and flash memory products should benefit from the boom in the wireless communications market, Morgan Stanley said.
And LSI, as the largest ASIC manufacturer in the world, also is “well-positioned,” the firm said.
Lattice supplies programmable logic devices, which Morgan’s analysts call “one of the most proprietary and fastest-growing segments of the entire semiconductor industry.”
Microchip Tech, meanwhile, “is the leading supplier of programmable micro-controllers, and the company has continued to proliferate its product line.”
Morgan Stanley also likes the prospects of companies that make equipment used in the manufacturing of chips, saying the industry could be heading into “the sweet spot” of a cycle that might last through 2001. Its equipment favorites: Applied Materials (AMAT), KLA-Tencor (KLAC) and Lam Research (LRCX).
* Donaldson, Lufkin and Jenrette’s “focus list” includes several telecom names, including MCI WorldCom (WCOM), Qwest Communications (Q) and Sprint (PCS).
MCI is “best positioned to take advantage of telecom trends in data explosion, local de-monopolization and global deregulation,” DLJ’s analysts wrote recently.
Qwest, which is merging with US West, “should prove a huge winner in the infrastructure build-out supporting the global movement from voice to data/Internet traffic,” DLJ said.
It called Sprint a “bellwether wireless play with national scope, strong branding and distribution, access to financing and strong momentum.”
* Internet mania, of course, was one of last year’s big investment trends, and BusinessWeek magazine’s annual forecast issue declares, “Incredibly, the ‘dot-com’s have more room to run in 2000.” Its “cream of the crop” picks are VerticalNet (VERT), Rowe.com (ROWE), Sportsline.com (SPLN), MarketWatch.com (MKTW), Cysive (CYSV), Infospace.com (INSP) and ISS Group (ISSX).
VerticalNet “runs more than 50 industry-specific Web sites, some with IPO potential.” (The mania for initial public offerings was also one of 1999’s top stories, of course.)
Rowe, which sells for a measly price-to-sales ratio of less than 4, was called a “fast-growing operator of Net-based purchasing systems for businesses.”
Sportsline is a “leading sports Web site [that] commands premium ad prices,” the magazine wrote.
Shares of Marketwatch, which operates a financial-markets Web site, have been “beaten down despite strong growth prospects” for the company, the magazine said. The stock is down 72% from its 52-week peak.
BusinessWeek called Cysive an “up-and-coming Net consultant with a blue-chip client list;” InfoSpace a “pricey stock” but a company whose earnings growth is exceeding expectations as it benefits from the wireless build-out; and ISS a “profitable network security firm expanding [its] reach into corporations.”
* Prudential Securities recently added lender Financial Federal (FIF) and casino operator Park Place Entertainment (PPE) to its “best ideas” stock list.
Of Financial Federal, a leading lender to “yellow metal” companies (i.e., makers and users of construction, transportation and waste-disposal equipment), analyst Ava A. Radtke wrote, “We are generally bullish on niche commercial finance companies, as they’ve demonstrated steady asset growth, stellar credit quality and profitability.”
In fiscal 2000, Pru forecasts earnings per share of $1.88 for Financial Federal, a 21% gain over fiscal ’99.
Meanwhile, “We believe the recent weakness in PPE shares is unwarranted,” gaming analyst Joseph V. Coccimiglio wrote in a report to clients.
He said concerns about insider selling and delays in the closing of Park Place’s $3-billion purchase of the Caesars casino properties have been overblown, noting that senior management has not been among the sellers and that the Caesars deal could close early this year.
“PPE should produce the highest net free cash flow in the industry in 2000,” he said, at $265 million.
* Individual Investor magazine, whose annual “Magic 25” portfolios have beaten the Standard & Poor’s 500 index in six of eight years since they were launched in 1992, has compiled another diverse portfolio. Perhaps its boldest picks are in the “against the grain” group: BioChem Pharma (BCHE), down 28% from its 1999 peak; Disney (DIS), off 24%; Elan (ELN), down 33%; Novell (NOVL), back near its high after a recent surge; and Charles Schwab (SCH), down 51%.
Sales of BioChem’s AIDS drugs are likely to grow as HIV infection continues rising in the developing world, the magazine said, pointing also to the company’s “brimming” new-product pipeline.
Though troubled Disney may not see earnings growth this year, investors could “jump back on board as fiscal 2001 comes into focus,” the magazine said. With momentum from “Toy Story 2” and “Fantasia 2000,” some analysts see the movie division snapping back; cable revenue could climb by as much as 17% this year, bolstering broadcasting; and the theme-park unit is expected to get a lift from the openings of Tokyo DisneySea and the California Adventure addition to Disneyland.
The Irish drug company Elan has had accounting woes and problems getting drugs approved in recent years, leaving the stock in what one analyst called “a show-me state.” But it has six drugs in late development, three of which could be rolled out this year: one for epilepsy, one for cervical dystonia and one for treating acute pain. Elan also gets a dependable stream of licensing fees from pharmaceutical companies that turn to it to develop drug delivery methods.
Sales of Novell’s NetWare 5 network operating system have been surging, which could help the software maker further emerge from Micosoft’s shadow. One of NetWare’s key assets is its Novell Directory Services, which keeps track of all data stored on servers. Analysts expect the directory services market to explode to $5 billion this year, a fivefold jump from 1998.
Some analysts fret that Schwab’s profit margins are shrinking as it steps up spending to fend off competition, but Individual Investor noted that assets under management continue to grow briskly, along with trading volume.
* Smart Money magazine’s annual “best investment” stocks have, for the most part, also lived up to their name, outdoing the S&P; 500, on average, in five of the last seven years. For 2000 the magazine’s top picks are AXA Financial (AXF), Cardinal Health (CAH), Citrix Systems (CTXS), Columbia/HCA (COL), Core Laboratories (CLB) and Novell.
Rising interest rates and Hurricane Floyd have been unkind to insurance stocks, but the sector’s troubles have created bargains such as AXA, the magazine said. The U.S. subsidiary of France’s huge AXA Group owns Equitable Life, brokerage DLJ and money manager Alliance Capital Management. Per-share profit is projected to grow 15% annually over the next three to five years, and the company’s trailing price-to-earnings ratio is a reasonable 17.
Drug distributor Cardinal Health has posted 54 straight quarters of 20% or better earnings growth and analysts see that trend continuing this year, yet the stock is priced at a modest 22 P/E. Troubled competitors and fears of government price interference have unduly weighed on the stock, Smart Money said.
Web infrastructure companies such as Citrix “are in the catbird seat right now,” the magazine argues, because “everyone with designs on e-commerce dollars needs to spend heavily to get up and operating on the Internet.” Though Citrix sports a steep 98 P/E, analysts expect 57% profit growth this year. (It’s a popular choice: The CNBC.com Web site also tabbed Citrix as a “hot stock for 2000.”)
A lot of hospital stocks have been ailing. But, Smart Money noted, “Perhaps the greatest vote of confidence in Columbia/HCA comes from the hospital company’s chairman. Over the last year he has bought $95 million worth of its stock--with his own money.”
Though oil prices surged in 1999, spending on oil production has only started to pick up, which could benefit oil-services companies such as Core Labs. DLJ predicts that oil companies will boost spending on new exploration and development by 13% to 15% this year.
* Finally, at the Iexchange.com Web site--where anyone can become a virtual equity analyst--top-rated site participant “ggecko” likes Becton Dickinson (BDX), among other stocks.
The medical device maker got hammered when it missed earnings projections two quarters ago and it ended ’99 down 39% from its peak price, but Becton reported healthy profit growth in its latest quarter and the stock “will be $33.84 by Jan. 31,” ggecko confidently declared. That would be a 26% gain in a month.
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Some Stock Picks for ’00
Here are details on some of the stocks Wall Street brokerages and financial magazines are touting for 2000.
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Est. Ticker 52-week 52-week 1999 5-yr. Stock symbol high low close growth* Atmel ATML $31.50 $6.81 $29.56 22% Lattice Semi. LSCC 54.38 18.88 47.13 24 Applied Mat. AMAT 129.00 41.50 126.69 25 MCI WorldCom WCOM 64.50 44.00 53.06 31 VerticalNet VERT 181.88 17.38 164.00 NA Rowe.com ROWE 53.56 13.13 45.38 40 SportsLine.com SPLN 83.25 15.50 50.13 59 Finl. Federal FIF 24.75 15.38 22.81 19 Park Place PPE 14.00 6.00 12.50 NA BioChem Pharm. BCHE 30.25 17.38 21.75 NA Elan ELN 43.94 21.25 29.50 NA Walt Disney DIS 38.69 23.38 29.25 14 AXA Financial AXF 38.75 25.50 34.00 15 Columbia/HCA COL 29.44 17.25 29.31 14 Becton Dickinson BDX 44.19 22.38 26.94 13
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* Estimated earnings growth over next five years (analysts’ consensus estimate)
NA -- not available
Sources: Reuters; Zacks Investment Research
