Report Card: James Jungjohann - TheStreet

Bio

B.S., University of Missouri; M.B.A., St. Louis University. Jungjohann joined CIBC World Markets in 1997 as senior telecommunications equipment analyst. He previously followed telecom service and equipment providers at A.G. Edwards for four years. Before becoming an analyst, he spent four years developing applications and accounting systems software.

Industry Outlook and Style

"I'd rather be in Denver having a beer with an engineer from

Qwest

or

US West

than in New York taking the same notes as a bunch of other analysts at a luncheon presentation."

This is third-place winner Jungjohann's half-joking explanation for the move that he and his CIBC team made from Wall Street to the Rocky Mountains in August. The facetious comment illuminates a serious element of his research style: Pursuit of information from sources other than company management. To find out the story behind management's story, he chats up not just those engineers but other employees of the companies buying the products of the companies he covers. He also consults with industry experts. And he admits to being a "trade-show junkie."

Moreover, Jungjohann contends, his Colorado-based fieldwork will give him an edge in the wake of the

Securities and Exchange Commission's

recent clamp-down on selective disclosure, the term for publicly traded companies' practice of divulging market-moving information only to certain people, such as analysts and professional investors. (The SEC passed

Regulation Fair Disclosure

on Aug. 10; see our related

story and

analysis.) Intended to level the playing field between the pros and individual investors, the SEC's new rules also will force analysts and investors to rely more on independent research for fundamental analysis to get a competitive advantage.

The CIBC analyst carved early a niche in the fast-growing optical communications market, which includes companies that build fiber-optic networks and those that supply the equipment for these networks: He initiated coverage of

Ortel

in December 1997 (it was acquired by

Lucent

(LU)

this year),

Uniphase

(now

JDS Uniphase

(JDSU)

) in April 1998 and

SDL

(SDLI)

in September 1998. This has been one of the hottest sectors in tech this summer, and it was a lucrative field for investors last year, too: Taken together, says Jungjohann, the stocks on his buy list -- largely optics names -- appreciated more than 400% in 1999.

Jungjohann is bullish on both the networking and components players, though he is concerned about current valuations. "I can guarantee that the group will continue to be a volatile performer, but we think on a long-term trend basis it's the place to be," he says. He notes that this burgeoning industry raked in $8 billion in revenues in 1999, a figure he expects to swell to well over $41 billion by 2003.

The CIBC analyst has buys on six optics names: JDS Uniphase and SDL, as well as

Corvis

(CORV) - Get Report

,

Finisar

(FNSR) - Get Report

,

New Focus

(NUFO)

and

Stratos Lightwave

(STLW)

. He recommends that investors diversify their holdings in this group rather than sticking with just one. "You've just got to own a basket of stocks in the optical industry," he urges. "Unlike the dot-com companies, these are

real

companies with

real

annual revenue growth of more than 100% for the past couple of years, with

real

tangible products and with

real

earnings. And this will be a decade-long upgrade cycle, because photons will continually be supplanting electrons in telecom networks."

Pressed to narrow his field of favorite stocks in the group, Jungjohann cited SDL as his No. 1 fiber-optic components play and Corvis as his top fiber-optic networking pick.

When Jungjohann initiated coverage of SDL two years ago, the stock traded at just $4. By the beginning of 2000, shares of the second-largest independent fiber-optic equipment maker were at $105, and they have since climbed to $419. Jungjohann kept a buy on the stock all along its ascent, even though other analysts began backing away from the stock earlier this year because of its high valuation. "We have been willing to pay up because the fundamentals of this business are unsurpassed," he says.

In July, JDS Uniphase, the market leader in fiber-optic components, announced a $41 billion acquisition of SDL, a transaction that CIBC is involved in. The terms of the merger are favorable for SDL's stock price, notes the analyst: "There's an 18% spread in arbitrage, plus the stock of the acquirer, JDS Uniphase, is very attractive. So buy SDL now, get that 18% upside going into the merger, and after the merger end up with a great long-term core holding in the sector, JDS Uniphase." (Jungjohann expects the deal to close by year-end.)

Jungjohann anticipates that SDL's revenue will jump from $459 million in 2000 to $742 million in 2001. For JDS Uniphase, he predicts a doubling of revenue, from $1.38 billion in 2000 to $3.01 billion in 2001.

Jungjohann forecasts an even more stellar future for Corvis, which went public on July 28. He expects revenue to swell nearly eightfold from 2000 to 2001. (The company currently has no revenue to date, but the analyst expects it to bring in $35 million by the end of the year.) Shares of Corvis have nearly tripled since the company's IPO. What's behind the frenzy for this newly public name? Corvis, he says, offers "true next-generation, all-optical networking solutions that enable a sweeping shift in telecom network design and efficiency." Translation: In Corvis's network, signals are transmitted only by light waves, instead of a combination of light and electricity, as is typical of existing fiber-optic networks. Jungjohann notes that customers such as Qwest

(Q)

,

Williams Communications

(WCG) - Get Report

and

BroadWing

(BRW)

have signed contracts totaling $550 million with the newly public network builder.

Institutional voters in

TheStreet.com's

Analyst Rankings -- Equity 2000

commend Jungjohann's "good knowledge of his industry and trends."

Stock Pick

Favorite stock for next 12 months:
Corvis

Comment:
Corvis lately trades at $90, having initiated its July 28 IPO at $36. Observes Jungjohann, "We look for Corvis' revenue to go from $35 million this year to $270 million next year based on initial deployments of optical networking equipment to telecom service providers."

Rate Their Stock Picks:

Which stock do you like best?

Geiling and Jungjohann: Corvis

Cena: Ericsson

Theodosopoulos: Nortel

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