Tuesday I laid out the trading principles I expect to try to follow this year. And I promised you my little list -- everyone has one now, eh? -- of stocks I think will fly high in 1999.
Here 'tis: My "25 for '99." As I said Tuesday, I think the first half of 1999 is going to be a lot better market than the last half, so we should really consider this a half-year list.
I've divided the list into four categories: Technology, Net, Bandwidth, and Retailing & E-tailing. You could call all 19 stocks in the first three categories "technology" issues; I break them out to make the pattern here easier to understand. And I include six nontech issues because I think they're going to be such moneymakers that I just can't resist. They also give the list a little buffering against the considerable tech-stock turbulence likely in 1999.
. If you believe in tech, you've
believe in Cisco, a powerhouse with no ceiling in sight. CSCO routers sit at the heart of the Web, and at the heart of virtually every corporate network around the world. Mr. Networks is headed for a great year, in which it not only feeds on an exploding market, but takes away market share from competitors, such as
and the hapless
. The only place CSCO hasn't had a presence is at the bottom of the market ... and Cisco has been working the aisles in Las Vegas this week at the
Consumer Electronics Show
, talking up its new multivendor alliance to get Cisco into America's homes and home PCs. CSCO will be a major player in cable modems, the primary route for fast Net access for most homeowners (also see
, below, for the other half of the home-Net-access market). Finally, CSCO is also another kind of Web play: It's by far the biggest seller of products over the Web, much bigger than
., which gets all the press.
. The Microsoft Money Machine is going to continue roaring ahead, at least for the next few months. But if and when the Y2K-driven nuclear winter of Q3 and Q4 1999 hits, MSFT will share the pain with its fellow tech stocks. (What about the aftereffects of The Trial? Even during the
party in Washington, the stock has continued upwards -- and MSFT hasn't put on its case yet. Judge Jackson's final ruling may cause a bobble in the market, but it seems increasingly clear he won't come in with a nutty ruling, such as breaking up the company. And even if he did, that would be reversed on appeal.) In this market, you have to own MSFT.
. A powerful, smart company, with a bagful of patents, lots of cash, and the freedom to acquire, acquire, acquire (read: grow, grow, grow) in the hottest industry of the next decade. LU's everywhere you look in telecom/datacom today: rolling out hot new chips for digital cordless phones, aggressively repricing its wireless-networking products for the office (if you haven't used a wireless notebook PC at work, you don't have a glimmer of just how important wireless LANs are going to be; if you have, I don't need to tell you), building technology and marketing alliances all over the world. Pretty soon, "Lucent inside" is going to be more common than "Intel inside." And a lot more profitable.
. Sleepy lately, but picking up steam again. As long as Corporate America keeps buying, Dell is going to prosper more than any other PC maker. Its increasing market share in servers augurs well for Dell's next earnings report, and its $10 million a day in Web sales is just a start: Michael Dell really is serious about getting 50% of his sales from the Net in a couple of years. If the Y2K slowdown hits midyear, it may be time to move on.
. Speaking as one who bailed on MRK in October, around 135 - but took a $100-a-share profit with me -- I have been, ahem, more than a little surprised at its continuing climb (to about $152 yesterday, a 50% gain over the past year). MRK has become the power player of the pharmas, the CSCO of drugs. With FDA approvals for its new drugs such as Vioxx, one of the first of the hot new Cox-2 no-side-effects pain-killers likely this year -- accelerated by MRK's legendary, rigorous field trials -- and a strong proprietary lineup already in place, MRK looks headed for another great year. Maybe this time I won't get out too soon. In 2000 and beyond, the new-product stream may thin out, but for 1999, MRK's going to be tough to beat.
. As companies replace inventory with information, i2 is riding the crest of one of the most powerful business-transformation trends. Just ask Dell, which, after getting stuck in an endless
R3 conversion process, dumped the Germans and later adopted i2's better, faster-to-implement answer. You've seen the results, as Dell's now-legendary supply-chain management system fueled its hypergrowth. ITWO builds similar systems for
and many more. A mid-1998 split didn't boost the stock price as fast as i2 had hoped, but i2 has doubled since September. i2's new
"sales configurator" system should fuel even faster growth in 1999.
. Yes, even at these prices: This is the future of e-commerce. But don't be broken-hearted when you can't find many shares to buy. I'm not so excited about Amazon's expansion of its franchise beyond books into CDs and videos -- three low-margin businesses if there ever were any -- as I am by its relentless refining of its business plan. That's going to play very well as AMZN moves this year into higher-margin businesses, abetting its considerable first-mover advantage. Together with AMZN's operating experience, supply-chain-management expertise, and Jeff Bezos' ability to manage the stock price, as well as the company, Amazon is likely to remain a winner well into 1999. Yes, when the Net market breaks, it's going to be ugly -- but a lot less ugly for AMZN than for the second- and third-tier Web-wannabes. Buy it and watch it. Closely.
. In the current pullback, this market's giving you a rare chance to get in. The company PC users love to hate and investors love to love, and an absolutely essential core holding for the Internet Economy. (A core holding with a P/E of 463? Yes.) Until recently, AOL was seen as the lucky beneficiary of being in the right time and place. Now it's becoming a real company, and making its own luck. AOL's deal, just announced, with
, the first serious online drugstore, is a good example: AOL pockets a $15 million fee, delivers 15 million potential customers, and has lots more coming up with this new vendor of prescription drugs, vitamins, and health and beauty aids. (I also expect big things this year from
, the start-up backed by
that opens in the spring. The online-drugstores market is going to be huge, vicious and incredibly profitable. Many of us like going to the drugstore with our 'scrips even less than we like going to bookstores, CD stores and computer stores. PlanetRx smells like a survivor, and the AOL partnership is part of that scent of success.
. Along with AMZN and AOL, one-third of the Holy Trinity of long-term-value Net stocks. A scary valuation, yes, but lots of growth left to go. Ergo, not so scary after all. Yahoo's done a better job than any other search engine or portal in building a collection of indispensable services around its brand. (Do you know that you can get daily historical stock quotes free from Yahoo...?) Indeed, Brand Yahoo is one of our economy's emerging, durable stars. What comes next? Besides more profits and a higher share price?
. Like XCIT, a portal-in-the-making which still has some juice left. Not a holding for the whole year, but good for more gains before it fades.
. Buy now, sell later -- maybe in the spring, maybe midyear. But don't miss the remainder of its run-up. I see both LCOS and XCIT as relatively short-term plays, but with too much energy and money to be made still to ignore.
As I said a couple of weeks
ago, the premier buy-and-hold tech growth company. The biggest danger is a takeover, but since founder Phil Anschutz still holds about 47% of the stock, clearly that's going to have to be a very friendly offer for a very substantial premium. So you get bought out and only double your money. Life is tough.
. The huge-market-cap analog to QWST, and just now getting unleashed. You've gotta love it, and it's one of the few truly big-cap stocks ($150B) that still has lots of room to move. WCOM's rumored bid for
Thursday scared some WCOM traders, hence the sag in the share price. WCOM wants all the profitable corners of telecom -- and has the management nerve and treasury to buy them. That dip -- over $3 on Thursday -- is another gift from the market, a chance to get in at a great price. And watch for a price-boosting split in six months. Or sooner.
. Nope, I'm not kidding; it's not your grandfather's telephone company any more. Michael Armstrong's making the right moves, and clearly understands how to wholesale bandwidth. (Did you see T's big win yesterday in
contest to pick a partner to go national?) If he can implement his plan to sell local-loop voice service over cable -- via the $48 billion
deal -- you'll be recalling for your grandkids how you bought Telephone in the 80s. Yesterday's talk about T spinning off its cable and wireless operations into a separate tracking stock is a great example of Armstrong's "stock-management" skills. I think those tracking shares alone, likely spun off to T holders in the spring, will top the present price for T before year's-end ... so you get T for free. Such a deal.
. Big pipe under the Atlantic. Big revenues ahead. Big losses now. Big play coming up. Big acquisition likely. If you missed buying it at the August IPO, you can still get in: it's only doubled.
. The glass-wire people, who own the fiber-optics business and patents, plus great high-tech ceramics and LCD-panel-glass lines. All the big bandwidth guys shop here. Awakening, but still underpriced.
. Yes, it has more than tripled since its IPO in early April ... but BRCM has the absolutely essential technology for the exploding high-speed datacom market, and sells its silicon to all the right partners. And at about a $7B market cap today, highly acquirable....
. Yep, the ugly one. Fell more than 80% from the 90s midyear, after the wedding was called off. Now around 15, this is a bottom-feeder's delight. ... Ciena is the place to go for DWDM (dense wavelength division multiplexing) technology, which wrings more value out of every mile of fiber optics cable for the datacom people. At just about $1.5B in market cap, a great acquisition play. Plus a big, big upside.
. Another small-cap essential-technology play, and another merger candidate. Aware's where you go to buy your license to use G.lite DSL, if you're a big carrier. And they do. Watch for more on AWRE and G.lite here soon, but for now all you need to know is that G.lite DSL and cable modems are going to be the ways fast Internet access gets into our homes and offices this year and next. Aware's proprietary G.lite flavor of DSL doesn't require the phone company to roll a truck to change anything on your premises...and truck rolls are the big worry about DSL costs for phone companies.
Retailing & E-Tailing
. Where America shops -- more and more, every day. WMT has a Web presence, and it's not bad ... but this is bricks-and-mortar country, and even if B&M do go away (unlikely!), WMT has a long, profitable future. A finely tuned cash machine -- which produced nice December numbers, with same-store sales, year-over-year, up 9.1% for the five weeks to Jan. 1, and overall sales up 15.8% for the same period -- with the best supply-chain-logistics management in the world. In an increasingly value-conscious society, Wal-Mart and
(a division of
, own the premier positioning.
. They're not just khakis any more, and they're not just in the mall any more: Gap has a serious Web presence, and could become a defining e-tailer. With nice Christmas sales -- the stock was up 4 3/4 Wednesday alone, and has nearly doubled since early October -- GPS has what it takes to continue to succeed in tags-and-bags, and also to corral Web sales: a well-defined image, a secure position as a specialty retailer and customer demographics to kill for.
. With their "Yeah, we've got that!" slogan and attitude, Staples stands astride the office-supplies business. A newly invigorated Web presence, and a management commitment to pushing Web sales, make SPLS a winner in '99. Office products and the Web are a marriage made in heaven, and Staples looks hot.
. Ditto. Plus, a nice PC sales play: Did you know Office Depot is the No. 3 reseller of PCs in America, moving an estimated $2.9B worth of beige boxes in 1998? There's plenty of room for both SPLS and ODP to succeed big ... and both will.
. The premier do-it-yourself store, with a better understanding of customer service than any retailer in America, HD plays into virtually every positive demographic and societal trend. Up by about half since early October, but still a buy around 60. (And since HD management likes to split back down into the 35-40 range, look for a spring two-fer.) Finally, there's a nice, and so far hidden, Web play here: HD is piloting a brand-new home-improvement and gardening-tips service, HomeMinder, on their Web site. HD says they signed up 5,300 HomeMinder members in November, the first month of the pilot...and a stunning 92% of them said they liked the service so much they'd recommend it to friends. But no one's reported the Web play yet. Uhh...journos? Excuse me? Wake-up time?
. What can you say about a company that's selling at about its price of five years ago (17)? That has a perfect demographic and product-line match with successful e-tailing, but put up a Web site only a mother could love? That hides its Web site under www.brookstoneonline.com, because it's too cheap to buy the right URL, brookstone.com, from a Georgia country club? That has nearly missed the whole Web opportunity? But with November-December same-store sales up 8%, and 1998 YTD sales up 13%-plus? A steal, I'd say -- if management gets some online religion. By Christmas 1999, BKST could be a great e-tailer, with more than 50% of its sales online -- and a clear path to a future minus its expensive, aging, mall storefronts. Or it could be...Dead Man Walking. Heck, by tomorrow afternoon it could be a $50 stock, if management just put out a press release about an intention to explode its current 1%-of-sales Web presence.
* * *
As of early afternoon today, my "25 for '99" portfolio is up almost 14%, after just three and a half trading days (up about 3% today). I'll keep you posted from time to time during the year on its performance.
Jim Seymour is president of Seymour Group, an information-strategies consulting firm working with corporate clients in the U.S., Europe and Asia, and a longtime columnist for PC Magazine. At time of publication, he was long Qwest, Aware, WorldCom, Wal-Mart, Gap, Dayton Hudson and Staples, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks.