July - August 1997 Newsletter
MARKET COMMENT
SUPER FAST PHONE AND 900# RECOMMENDATIONS
NEW BUY RECOMMENDATION: Octel Communications
HIGH RISK PORTFOLIO
SNAKE BITS
SNAKE BITS II
PREVIOUS RECOMMENDATIONS
GLOBAL POSITIONS - July 9, 1997
PHONE SERVICE
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Higher Highs appear as likely as the sun shining tomorrow. The market has the potential to continue its rampant advance for at least another six to nine months, based upon the stats that are surfacing.
We have muted inflation, interest rates that are headed lower, moderate economic growth, solid earnings growth and tons of dead presidents looking for a home.
The centipede Bull has more life than the Eveready Rabbit.
If all the above was not enough, we also must contend with the enormous influences of the Baby Boomers spending habits - at this point they are actively saving and their huge cash hoards are finding a home in the equity markets. Another element that is pushing prices higher.
In our opinion, there is still a shortage of stocks available for sale due to buy backs, acquisitions and mergers and leverage buy outs of the 80s, which also have added to this ever advancing market.
The end of the cold war in Europe and the robust growth of the Asian Tigers are propelling other world economies to new heights.
The Russian market alone has skyrocketed 144% during the past 52 weeks (note: the Templeton Russian Fund (TRF) was recommended on September 27, 1996 @ $21.50. It now stands at $54.00, and we also received a $2.35 capital gains/sh. in addition to this mind blowing move.)
As far as the mini-micro caps that our newsletter devotes 50% of its editorial on, the market hasn't blessed it with stellar returns as we have seen within the broader mid and larger caps, but it is only a matter of time before investor interest filters down our bargain littered path of unknown, obscure and fundamentally undervalued micros.
All of the special opportunities listed under the high risk portfolio section will be monitored for percentage gain performance. It is in our opinion that over time this group will reward the patient investor quite handsomely.
We believe that most of these opportunities have tremendous upside potential with varying degrees of risk, but over time we perceive that the returns will be eye-popping.
Happy investing, William Velmer
Super Fast Phone and 900# Recommendations
- On April 30, 1997, we informed our 900# investors that Octel Communications (OCTL) was being placed on our Buy list. At that time OCTL was $16.00. The company is the world's largest provider of voice messaging technologies. See Brief recommendation.
- No Superfast phone service recommendation during the latest period.
- Pen Traffic Company (PNF). The company operates 265 supermarkets in Pennsylvania, New York, Ohio and West Virginia. The company also operates wholesale food distribution businesses serving 114 licensed franchises and 97 independent operators. Total sales around $3.3 billion - losing money - has good cash flow - negative book and has a series of outstanding bonds that are currently paying. For risky accounts looking for attractive yields and possible appreciate in the Bonds, consider the 9 5/8 Senior Subordinated Note due 4-15-2005. They are currently trading at 52 - producing a current yield of around 18% (remember K-Mart). Broker Contact: Greg Nelson at 1-800-453-9408. Corporate Number 814-536-9900.
- Alpha Microsystems (ALMI). The company serves the Internet and Intranet through its software, services and technologies. Recent products:
Stock Vue 2.0 - automatically retrieves stock, mutual fund quotes, charts, company news and SEC files.
Business Vue is an active Internet desktop application which automatically retrieves and delivers Internet based corporate profiles, news and press announcement, SEC filing, forums postings, website addresses and pages and more.
The company continues to announce additional agreements with various vendors, which, in our opinion, strengthens its franchise. Example:April 11 - agreement with Earthlink Network.
Bottom Line: Lots happening - but losses continue from old operations as the shift in business takes hold. Book value around $1.25 - cash equals .79/share. Shares outstanding equal 10.8 million. Company has no debt. Our favorite, as well as, only Internet play. Currently trading close to 52 week low. Current price around $1.25 looks very attractive.
Food for Thought: from a base of about 100K Internet users at the end of 1994, Internet membership grew to 10 million by the end of 1995, and is approaching 40 million today. By 2000, membership is expected to top 160 million. Not an unrealistic figure, considering that there are already close to 250 million personal computer users worldwide, and within three years most of these are likely to be connected to the Internet.
The above statement tells all. You have to play an Internet related opportunity and in our opinion, this one has the potential to be a 10-banger. Someone could buy them out. They have a tremendous cash hoard.
Looks very attractive at current levels; that is, $1.25 - $1.31.
Corporate Number 714-957-8500
Broker Contact: 1-800-331-1355, Mike Chesler.
- Digital Equipment (DEC). The company is the fourth largest multinational computer company. DEC is a world leader in implementing and supporting networked platforms and applications in multi-vendor environment. Building on its core competencies in software, systems, networks and services, the corporation does business in more than 100 countries, deriving more than 60% of its sales from outside of the US.
For the nine months ended 3/97, revenues fell to $9.6 billion with losses of $9.7 million. Primarily reflecting discontinuation of the retail PCs and certain component product lines and negative foreign currency translation effects. For the year ending June 30, 1997, DEC anticipated to only earn around .70 on $14.00 billion. Next year's earnings are estimated at $2.35. With DEC currently selling at $35.50, an estimated PE value of 14.8 is generated. When one considers that DEC has a book value of around $23.00 and cash of $16.25/share and long-term debt of around $750 million and a world class franchise that has been built since 1957, one has to take a serious look at this opportunity. Take a look at the headlines for DEC. during the past month or so. If they don't excite you, maybe you need to jump off a bridge. This opportunity is a screaming BUY! At present there are currently 16 brokerage firms rating DEC. The majority are too chicken to raise their opinion above HOLD. Only two rate it a strong BUY. Personally, DEC looks attractive as an acquisition candidate as well. Remember COMPAQ was considering an offer of $60/share not so long ago. We love this opportunity and expect to profit from it handsomely during the next 12 to 24 months.
Note: We originally recommended DEC on 7-2-94 @ $19.625. We recommended to sell 1/2 of the position @ $73 on 2-26-95 for a huge gain of 271%. In our last newsletter; that is, April-May, 1997, we mentioned that DEC at current levels ($25 - $26) look super cheap. Well, guess what, it is now $35.50.
We have decided at this time to add another position of DEC (500 shares) to our master portfolio for percentage gain performance. We will also monitor this opportunity in our 900#. Broker: Greg Nelson at 1-800-453-9408. Corporate Number 617-897-5111. We love what everyone else HATES!- Silicon Graphics (SGI). The company designs and supplies a family of workstation serve and super-computer systems incorporating interactive 3-D graphics, digital media and multiprocessing super-computer technologies. Revenues for the nine months ended 3/97 rose 29% to $2.5 billion. Net loss totalled $24.2 million. Revenues reflect higher sales of servers and higher performance computing systems. Loss reflects costs related to the consolidation of Cray Research (SA Advisory actually owned CRAY and sold at a huge profit when SGI acquired the company at around $28.00/share.) At present SGI trades at around $16.50. The current book equals $9.51, cash hoard around $1.67/share. LTD equals $400 million, estimated earnings for fiscal 1998 come in at around $1.33, yielding a PE estimate of 12.4 - 52 week range $12.625 low - $28.375 high. We believe SGI will turn around and, just like DEC, make us lots of cash. There are presently 17 brokerage firms monitoring SGI. The majority (14) have placed a HOLD on SGI. We think that they are too cautious. We again love what everyone else hates.
We will monitor SGI in our model 900# portfolio for percentage gain performance.
We will be right on that one also.
Corporate Number 415-960-1980. Broker Contact: 1-800-453-9408, Greg Nelson.- Check out PURT (NASDAQ). This one look real cheap!
In order to stay in line with SEC guidelines, S.A. Advisory may buy, hold or sell positions in all securities recommended. The portfolios are all hypothetical in nature. It is likely that all recommendations were purchased prior to the recommendation. We may buy additional shares or may sell shares at any time. S.A. Advisory's portfolios are geared towards sophisticated investors aiming for long-term capital gains. Our trading habits may vary at our own discretion. Most recommendations are based upon strict fundamental analysis. Usually revenue and earnings EST for low priced common stock result from management discussions.
Copyright © 1997 S.A. Advisory