I promised to answer reader questions at least once a month. So, here we go: Hey Modelman, you listed NII Holdings (NIHD) as one of your
Nasdaq All-Stars on April 10. It was a typical situation where a firm re-emerges from bankruptcy and nobody wants to own it. At the beginning of the year, it was just insanely cheap relative to comparable companies, but at $25 in April, there was no way I'd buy it. Now it's at $36! I wouldn't expect it to do too much more for the rest of the year, would you? Modelman: NII Holdings, the quasi-independent Latin American arm of Nextel Communications ( NXTL), is a great example of two key vectors in the market today. First, from a business standpoint, bankruptcy can help a troubled company eliminate its debts and lower its costs -- factors that give it a tremendous edge over competitors. Many of these are tigers when they return to public trading. Second, from a market standpoint, traders today love "story stocks" with big upside earnings surprises and upgrades from well-regarded independent stock analysts. Many jump the first day after news and keep rising. NII, which provides Nextel mobile phone service in Mexico, Brazil, Argentina and Peru, was already buzzing along on April 9, with a 109% year-to-date advance, when my screen for low-priced momentum stocks identified it as a stock with further potential. Three weeks later, the company announced blowout earnings -- exceeding analysts' expectations by a whopping 50 cents a share and recording $12 million in free cash flow in a quarter in which it was expected to report more than $20 million in cash burn. The stock moved up on that news, and then it climbed another $4.60 on the day Fulcrum Global Partners, one of the new-age stock research firms not affiliated with investment bankers, slapped a buy rating on the stock and a $44 12-month price target. The target price is based on the stock trading at 4.8 times 2004 earnings before interest, taxes, depreciation and amortization estimates, or 14.9 times its 2004 earnings per share estimates. That represents a 20% discount to comparable international wireless companies and a 25% discount to domestic wireless companies. Fulcrum said that risks to the target price -- besides obvious obstacles like currency and global economic volatility -- include the potential for a dilutive secondary stock offering. Considering that insiders dumped 163,300 shares of the stock worth $6 million from May 19 to May 23, at prices from $31.50 to $36, it's probably time to look for a pullback in the shares. But with money flow still strong and momentum continuing, in a speculative environment, there appears to be room for further advancement in this high-wire act.
A key reason for the company's slump was concern over federal securities regulators' questions about its accounting methods. Last week, the company announced it would restate earnings for 2000 through 2002, and actually book $1 million more in profits than it had previously. With the Securities and Exchange Commission overhang out of the way, Audiovox shares can start to participate in the small-cap rally. Besides its role as a fast-twitch deployer of cellular technology, Audiovox has become one of the leading deployers of low-cost radios for the satellite radio rollout. Thomas Kahn, whose firm is the largest institutional owner, told me Monday he believes the shares can double over the next three years, not just because of its role in the satellite radio food chain, but also because the cellular-phone replacement cycle is about to shift into high gear. Read on for a few more comments about satellite radio.
Modelman: When was the last time you heard people so excited about a technology that they wanted to proselytize it? It reminds me of the early days of DVD or the Internet or, more recently, Wi-Fi networking. And coincidentally, there's one major semiconductor supplier that feeds key products to both Wi-Fi and satellite radio makers: Agere Systems ( AGR.A). It makes a second-generation chipset for Sirius that dynamically combines signals broadcast from ground antennas and three satellites to provide powerful reception capabilities. Because Agere also is a leading supplier of Wi-Fi components, it was careful to ensure that sat-radio devices didn't conflict with wireless data signals. Agere was spun off from Lucent Technologies ( LU) in June 2001, and traded briefly in the $9 range before sinking to around 50 cents last October. The stock is up 325% from then, to around $2.40, which is a lot better than even the powerful 50% bounce in that period in the Philadelphia Semiconductor Index, or SOX. Agere has struggled to obtain profitability as its revenue has weakened, but if you believe the economy is shaping up, its dominance in two growing technology trends should restore its balance. Agere is probably relatively undervalued, and could well get back to the $3.50 to $6 range in the next year from its current perch around $2.44.