Flextronics, Sterling Commerce, Y2K Plays and Juno

A selection of some of the most intriguing tech stock ideas on the Web. The items presented do not represent the views of TheStreet.com; rather, the collection is offered as a service to our members who may be scanning the Web for stock-related information.

Flextronics
Online Investor (3/10)

The outsourcing trend in electronics manufacturing has meant good business for Flextronics (FLEX). Though fourth in size among electronic-manufacturing outsourcers, it is well positioned to keep humming along, says Online Investor.

Flextronics is well diversified. It gets 29% of its revenue from consumer electronics, 27% from telecom equipment, 19% from networking equipment and 13% from computers. Considering its relative lack of dependence on PC sales growth, it is surprising that concern about PC sales growth has impacted the stock, says Online Investor. Flextronics stock, which has doubled in the past year, is down about 11% in 1999.

Flextronics counts Ericsson (ERICY), Philips (PHG), Cisco (CSCO) and Microsoft (MSFT) in its customer base. This has helped fuel its own sales growth to $1.6 billion, up from $80 million in 1992. Just a few years ago, outsourcing consisted of just assembling circuit boards. Now the PC industry is interested in companies that can help with product design, final systems assembly and testing.

Flextronics has a low effective tax rate, especially important in a capital-intensive business. It could allow for above-average growth if Flextronics continues to invest wisely in expansion, says Online Investor.

More information can be found at: fnews.yahoo.com

Sterling Commerce
Pat Dorsey (3/8)

If you're looking for an Internet play that's not too "iffy," consider a company that supports other companies in their e-commerce efforts, such as Sterling Commerce (SE), says Pat Dorsey, an analyst for Morningstar StockInvestor. Though the company recently saw its stock fall 23% upon slowing revenue growth -- and then another 10% when Microsoft announced e-commerce plans -- its long-term prospects look quite good, says Dorsey.

By helping such companies as Wal-Mart (WMT) and Procter & Gamble (PG) do business with vendors and suppliers electronically, Sterling creates a healthy market for itself. Business-to-business e-commerce volume is doubling each year, so the software that enables that business also grows. Sterling has been growing its revenue by about 30% each year since it was spun off in 1996 from Sterling Software (SSW).

Future earnings growth estimates are at 25% per year. This might seem run-of-the-mill compared with other Internet companies, but it isn't based on just a few million dollars in sales. Sterling had $500 million in sales in 1998. It carries about $600 million in cash, has no long-term debt and a nice list of good customers. Also, it earned in 1998 about the same amount that Amazon.com (AMZN) lost: $120 million.

Microsoft is trying to muscle into the territory, always a risk worth worrying about. Still, Sterling has a good lead in terms of time. And complex e-commerce systems tend to require lots of service and support. Microsoft does not have a stellar reputation in that area, says Dorsey. "The beating that the shares have taken recently seems overdone," says Dorsey.

More information can be found at: www.morningstar.net

Y2K Plays
Gregory Hight (3/7)

Rather than agonizing about the dire year 2000 predictions, better to find ways to profit from it, says Raging Bull's Gregory Hight. Firms working on getting computers and systems through the next few months stand to reap terrific profits in the short term. But it would be best to invest in companies that also will have a business base after Jan. 1, 2000, specifically those that fulfill demand for the essential work being postponed during this next year, he says.

Eight companies have at least one strong competitive advantage for getting past the peak of Y2K concerns, says Hight: Cambridge Technology Partners (CATP), International Integration (ICUB), Keane (KEA), Mastech (MAST), Network Associates (NETA), Radcom (RDCMF), Tangram Enterprise Solutions (TESI) and Whittman Hart (WHIT).

For example, Cambridge sets itself apart by guaranteeing when it will complete the project and the project's cost. The company has come through 91% of the time, helping to grow revenue by 46% and earnings per share by 24% in the first nine months of 1998. International Integration emphasizes a fixed price. Though four customers made up 59% of its net revenue, it managed to expand that customer base in 1998.

More information can be found at: www.ragingbull.com

Juno
Chris Nerney (3/8)

Juno, an early player in Internet email, offers free email accounts to customers who don't mind that the messages come with advertising attached. The company hopes its email customers will become the base upon which to build full-scale Internet-access service. Juno has filed for an initial public offering, hoping to raise $86.25 million, reports Internetnews.com analyst Chris Nerney.

Juno started in April 1996 offering free email accounts to low-tech users with a PC and modem. The plan was to get customers comfortable with Juno so they would stick with the company as their Internet service provider when they graduated to full Web-surfing capabilities. Last July, the company began offering "enhanced" email, with which customers could send and receive file attachments for $2.95 a month. Or customers could choose full Internet access for $19.95 per month. The plan has produced 6.6 million customers who accept free email service and 191,000 customers who pay for some kind of service.

Unfortunately for Juno, even simple email users have proven likely to switch Internet service providers as easily as they switch long-distance companies. The company plans to use the proceeds from its IPO to market itself to customers beyond its subscriber base, says Nerney, who tabs Juno as a "latecomer and an underdog."

More information can be found at: www.internetnews.com

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