From - Thu Jul 06 13:39:14 2000 Received: from changewave.com (www.changewave.com [206.239.10.150]) by mail1.relaypoint.net (8.6.11/8.6.12) with ESMTP id OAA24274 for ; Wed, 5 Jul 2000 14:47:49 -0700 Received: (localhost) by changewave.com (8.9.4/8.9.4) Message-Id: <70585.962830477.5047@changewave.com> Date: Wed, 05 Jul 2000 16:54:37 -0400 From: Tobin Smith Subject: WaveWire Weekly, Volume 1, Issue 10 (07/05/00) To: wavewire@changewave.com Status: X-Mozilla-Status: 9001 X-Mozilla-Status2: 00000000 X-UIDL: 38ab8b21000009f3 ChangeWave.com's WaveWire Weekly Making Your New Economy A More Profitable Place to Live July 5, 2000: Volume 1, Issue 10 Over 51,000 Readers Strong! ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ You requested this ChangeWave Investing Weekly free e-newsletter by registering at http://www.changewave.com. Please feel free to forward this along to your friends and co-workers. If you wish to unsubscribe to this newsletter, please contact us at service@changewave.com. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ The companies mentioned in this week's WaveWire include: Xircom Inc. (XIRC); ARM Holdings (ARMHY); CTS Corporation (CTS); WorldCom (WCOM); Oracle (ORCL); Leap Wireless (LWIN); VeriSign (VRSN); Entrust Technologies (ENTU); Sirius Satellite Radio (SIRI). IN THIS WEEK'S ISSUE 1. Answers and Questions. 2. Short-Term Market Forecast - Riding The Dips To Your Advantage. 3. The Kahuna's Big-Picture Rant - Meltdowns Aren't All Bad. 4. Buzzwords Of The Week - Sinking Your Teeth Into Bluetooth. 5. Hot Sector Of The Week - Companies That Cut The Cord. 6. Investable News On Our Favorite New Economy Companies. 7. Question-And-Answer Time - Zombies, Buy Stops And Limits. 8. Check Out The Big Kahuna On AOL. 9. Wine Finds - Something To Celebrate Your Victories. 10. Our Advisory Service - Try It, You'll Like It. 1. LENDING A HELPING HAND OK, when you send questions, you really send questions. Our mailboxes continue to overflow and that's great, but we thought we better go over a couple things. Please read this before sending us any questions. * Keep your questions short. * Check the website first. We have a glossary of terms and a Frequently Asked Questions (FAQ) section. They can answer many of your questions. * Don't expect a direct answer. We may answer it in an upcoming Q&A. * The SEC forbids us from giving personal investment advice. Send your questions to research@changewave.com. Each week, we will try to address the questions that seem to crop up the most. 2. HOW'S THE WATER? OUR FEARLESS SHORT-TERM TECHNICAL MARKET FORECAST-Use Bumps in the Road As Buying Opportunities In the short term, the stock market is idling its engines in a classic standoff between bullish investors and bearish economists. The short-term quandary is this: Has A.G. really pulled off a "soft-landing" or non-recessionary economy slowdown? Or, has he hit the brakes too hard and set-off a downward cycle leading to a recession (two consecutive quarters of negative growth)? As stock investors and not traders, you want to be a buyer during times of general market confusion and be an owner when positive economic consensus takes hold and your equities soar. The confidence to execute this simple but courageous strategy has to come from personal confidence in sustainable economic power of the growth engines of our economy. Since the most powerful of all economic growth engines today lie within the ascending New Economy enabling Technology Industries (NETI), you have tremendous reasons to be long-term bullish. With the NETI industries going from 1-9% of our overall GDP since 1973, and with their 50% annual declining cost products generating over 32% of our entire GDP growth since 1995 (going to 40% of GDP growth by 2005), your long-term confidence in our economy is justified. Our economy's change from physical asset-based, price-driven earnings growth to declining-unit-cost, higher-productivity, information technology-based growth IS the dominant economic story of the decade. But short-term confidence is hard to muster when every day another conflicting index or report flashes across your TV screen or news page. To me, the flood of dry statistics gets noisy and makes it hard to see reality as it is. So when I get maxed-out on NAPM or BEA reports, I prefer anecdotal evidence-stuff that happens in real life. Try getting a contractor today versus 6-12 months ago. Today you get a call back from a couple-12 months ago you got a laugh. And check those "for sale" signs on homes. Last year you did not have them-houses sold in days. Today there are dozens of houses for sale on my drive to the office, and they have been there for months. My point? A.G. will raise interest rates one more time in August if we have a reversal in a majority of the now-slowing job and consumption data. But the combination of long-term economic bullishness and short-term reality testing should lead you to conclude that sell-off days in the Nasdaq or your favorite NETI leading company are buying opportunities because long term the economy is as sound as it ever has been. And by the way-we're months away from our next regularly scheduled market meltdown. 3. THE KAHUNA'S 21ST CENTURY INVESTING CONTEXT Meltdowns Mean The Market Is Healthy-By Tobin Smith One of the hardest parts of being an investor is understanding the regular market meltdowns that occur in the technology sector, and the New Economy enabling Technology Industries in particular. To understand this phenomenon, I go to the garden-literally. As I dutifully pulled weeds from my beloved flower garden this weekend, I was amazed how many of the weeds I was removing from my "portfolio" of vincas and pansies did not really look like weeds. A few weeds were even flowering. But we remove weeds to keep our valuable flowers healthy. Regular weeding keeps our really valuable plants healthy because we know eventually weeds turn ugly and make our garden less attractive. Now to the markets. Wall Street rightfully so establishes a premium valuation on the dominant winners of the long-term growth industries-the valuable flowers in my analogy. But sector bull rallies are a lot like a garden on super-high grade Miracle Gro-everything in the rallying sector gets bid up and grows in value-even the weeds. The problem with strong sector rallies like we had during the first quarter is EVERY company gets priced as if it is the Game-Over Dominator of its respective market space. Well, in the stock market as in life, there is only ONE winner in a race. (Yes, I switched metaphors for a second-deal with it) And the network effect of technology in our Internetworked world (i.e., value of a user network goes up exponentially and the number of network goes up arithmetically) means that each sub-category of enabling technology eventually does crown one dominant winner. We call that company the game-over dominator (G.O.D. stock for short). G.O.D. stocks develop market value in excess of all the remaining wanna-be leaders combined (i.e., the value of the winner's network of users becomes infinitely more valuable than its competitors because it's so much larger than other user networks). The reason is simple. Technology users value interoperability above all else, and the dominant/largest user network by definition makes it the most interoperable technology. Winner-takes-all valuations are proper and justified in the 21st century. The painful but necessary process of a violent market correction or meltdown takes down all stocks but really weeds out the stocks that are the most overvalued. And which ones are those? The companies that are not the dominant players in their industries but are priced like they are. The overvalued companies are the weeds that look like real flowers, but are not. The good news of this long-term bull market is that it takes the best companies-that is the right stock (dominant leader) in the right space (the subsectors of the fastest growing New Economy Enabling Technology Sectors)-and takes their value back up post-meltdown. We have seen this bounce-back in the stock prices of many of our favored Game-Over Dominators and Emerging Game-Over Dominator companies. This weeding out process is scary but healthy for the bull market. And should be a lesson to us all about our stock selections. In ChangeWave Investing we call this the Law of Disproportionate Reward. But if you think of your portfolio as a garden, then you get the idea. If you don't weed out your non-leader stocks, they will get weeded out for you in the next regularly scheduled six-month technology weeding-out or correction. 4. NEW ECONOMY INVESTING BUZZWORDS OF THE WEEK: BLUETOOTH: WIRELESS, NOT DENTAL What does a Danish king with poor dental hygiene have to do with a promising short-range radio technology? Meet Bluetooth, the technology ... not the Dane monarch. Bluetooth is a globally available, short-range radio technology standard that allows enabled devices to exchange or sync information automatically without user intervention. When two Bluetooth-enabled devices get within about 30 feet of each other, they form a radio link and exchange data at 400 to 700 kilobits per second (or at least seven times the speed of a 56K modem.). Nearly 1,900 companies are developing products for the standard, and the technology should really begin to take off when the price for Bluetooth chips reach $5 per unit. Leaders of the Bluetooth Special Interest Group include 3Com, IBM, Intel, Lucent, Microsoft, Motorola, Nokia and Toshiba. The advantages of Bluetooth technology are wide-ranging. Imagine a world where a Bluetooth-enabled headset cuts the cord from your 3G Bluetooth cellular phone which automatically syncs information with your PDA. Or perhaps you'd like to take pictures with your digital camera and transmit them directly to your printer for output or use your cell phone as a modem for your laptop without connecting a single cable. Bluetooth can make this possible without cords, without the line-of-sight pointing required of infrared-technology devices. And if the curiosity is killing you, Harald Bluetooth was the Danish Viking who unified Denmark and Norway in the 10th century. These days, Bluetooth also intends to unite the world. Hence the name. We never want to leave you searching for answers here at ChangeWave. Along those lines, if you'd like to read more about Bluetooth visit the Official Bluetooth SIG Website at http://www.bluetooth.com. What are your favorite hot New Economy buzzwords? Send your suggestions for the hottest emerging spaces in the New Economy to research@changewave.com. 5. HOT NEW ECONOMY SECTORS AND SPACES (i.e. SUBSECTORS): CUTTING THE CORD WITH BLUETOOTH The Revolutionary Monster ChangeWave We're Riding: The Broadband InfoGenesis ChangeWave allowing diverse devices, net-enabled or not, to communicate and sync information via a wireless short-range radio link. Bluetooth Killer Value Proposition: The convenience of cutting the cord on electronic devices while utilizing an open radio spectrum to ease the communication between them. As our lives become more wired, the need to have these different devices talk among themselves without connection hassles becomes more important. And the short-range radio technology beats competing infrared devices by not requiring a "line of sight" for effective use. The Addressed Market Opportunity: Analysts predict that 100 million Bluetooth-enabled devices-including cell phones, notebooks and handhelds-will ship by 2001. Market researchers at Cahners In-Stat Group estimate that Bluetooth technology will be a built-in feature in more than 670 million products by 2005. Revenues in the Bluetooth space are expected to exceed $1 billion by 2002 and $3 billion by 2005. How To Best Ride the Bluetooth ChangeWave: Look for pure plays in the Bluetooth sector to secure the most gains. As the technology proliferates, the companies closest to the core technology (which is royalty free) will be the ones making money on Bluetooth. Some of our favorite stocks in this sector include: Xircom Inc.-XIRC- Xircom is a leader in mobile networking systems with products that enable connectivity between portable PCs and corporate networks, the Internet and other online resources. Most of XIRC's sales come from network adapter/modem combination products, and Xircon sells its products to computer equipment distributors Ingram Micro and Tech Data and to computer makers including Compaq and IBM. Last month Xircom announced a strategy to provide wireless solutions in cooperation with Ericsson, Cisco and Voicestream for personal, local and wide-area networks. Its arrangement with Ericsson also will create wireless data products for notebook and handheld devices incorporating Bluetooth. About 51% of XIRC's sales come from outside the U.S. XIRC sales for the six months ending in March rose 17% to $235.4 million. XIRC was down 1 1/4 to 47 5/16 at the close of trading Wednesday. ARM Holdings-ARMHY-ARM Holdings has the inside track on wireless devices. They design efficient, high-performance, low-cost RISC (reduced instruction set computing) microprocessors for devices like pagers, cell phones and personal digital assistants like the Palm Pilot. In addition, the company sells development tools to electronics companies to help them improve the performance of their embedded applications. ARM has been working with Ericsson to develop software components and peripherals to facilitate system-on-chip integration for Bluetooth. About half of ARMHY's sales come from U.S. companies and revenues for the quarter ending in December rose 46.7% to $28.9 million. ARMHY was down 3 3/8 to 30 1/4 at the close of trading Wednesday. CTS Corporation-CTS-CTS Corp. is the largest maker of electronic components for wireless applications in North America and was ranked 16th on the Business Week Info Tech 100 list of top information technology companies. In addition to the wireless category, CTS also manufactures electronic components for the automotive and computer industries. Compaq and Motorola account for one-third of CTS's sales and the company has agreed to acquire Motorola's wireless communications component division. CTS reported 70% higher revenues of $204.5 million for the quarter ending April 2. CTS was down 2 3/16 to 45 1/8 near the close of trading Wednesday. 6. INVESTABLE NEWS: CLASSIC GROWTH SECTORS WorldCom-WCOM-(July 5, 2000) In the "no surprise" news of the week, WorldCom and Sprint are expected to call off their planned $152 billion merger as early as this week. The proposed union has run into regulatory trouble on both sides of the Atlantic as the European Union and the U.S. Department of Justice have given the merger, in its present incarnation, a big thumbs down. Upshot: Positive. What WorldCom really wanted from the Sprint deal, the PCS wireless unit, it wasn't getting the way it wanted anyway. WorldCom might be better off getting out of the consumer space altogether and concentrating on their higher-margin business phone and Internet services. WCOM closed Wednesday up 0.8% at 45 1/2. Oracle Corporation-ORCL-(July 5, 2000) Oracle was battered for a second day of trading as the market continued to react negatively to last week's resignation of company COO Ray Lane. The exit of ORCL's No.2 executive has led a J.P. Morgan analyst to cut the stock's rating, adding that the departure was "extremely negative" for the company. Lane was considered one of the heroes of the company when he arrived in the early 1990s by revising the company's sales and accounting practices that dragged down its stock price. Upshot: Positive. The departure is bad news for now, but the stock continues to have a long-term upside. If Oracle CEO Larry Ellison lets the company revert to its bad old ways of accounting, he'd probably have to give up yacht racing for radio-controlled boats. Investors aren't gonna let that happen. ORCL closed Wednesday down 9.8% at 72 5/16. INVESTABLE NEWS: AGGRESSIVE GROWTH SECTORS Leap Wireless-LWIN-(July 5, 2000) Leap Wireless has agreed to triple the amount of wireless phone equipment and services it buys from Lucent Technologies. The purchase advances plans by Cricket, a Leap division, to expand its coverage and increase network capacity. The Cricket service competes for local calling customers with traditional home phone service and is adding eight markets this year and 35 in 2001. Upshot: Positive. An order of this magnitude indicates the size of LWIN's rapidly growing market. Leap must be feeling pretty good about its local phone unit to make a $900 million equipment order. LWIN closed Wednesday up 3.7% at 46 15/16. VeriSign-VRSN-(June 30, 2000) President Clinton signed the Digital Signature Act into law last week giving digital John Hancocks the same weight as their pen-and-ink counterparts. The legislation is expected to give the greatest boost to e-commerce, as consumers and corporations will be able to process many transactions without the need to sign and mail official documents. "This is watershed legislation for e-commerce and will really help take it to the next level," said Anil Pereira, vice president of Internet Services at VeriSign, which markets technology for digital signatures. Upshot: Positive. We're sure VeriSign is excited about the passage of the E-Sign bill since it is positioned to benefit greatly as the leader of the digital signature business. There are still some legal obstacles to overcome before e-signatures are fully integrated into society (notarization issues, only 18 states on board with digital signatures, not legal for banking and insurance until 2001), but the future looks bright. VRSN closed Wednesday down 9.2% at 166 1/2. INVESTABLE NEWS: EMERGING GROWTH SECTORS Entrust Technologies-ENTU-(July 5, 2000) Entrust shares plunged more than 50% today after the company warned that second-quarter earnings will be 75% lower than expected. The warning came after the company related problems in closing sales of Public Key Infrastructure systems but said this does not mean that Entrust is losing business. The company is expected to post second-quarter results after the market close on July 18. By early Wednesday afternoon, ENTU nose-dived 41 3/8 points to 35 3/4. Upshot: Negative. Wait for the official results or any other bad news lurking in the shadows before making a move here. ENTU closed Wednesday down 52.5% at 36 5/8. Sirius Satellite Radio-SIRI-(July 3, 2000) Sirius announced the successful launch of its first satellite, Sirius-1, on Friday, June 30, and the company established a communications link about 2 1/2 hours later. Toward the later part of this year, Sirius will begin to deliver 50 channels of ad-free, digital-quality music and up to 50 channels of news, sports and information across the continental U.S. for a monthly charge of $9.95. Upshot: Positive. The first horse in this two-horse race has a six-month head start on the competition and is right on schedule to fulfill its promises. SIRI closed Wednesday down 2.1% at 47 1/16. 7. GOT A QUESTION? Question: What do you mean by "dead man walking" and "Zombie" stocks? The above are two descriptions we use for stocks that are in big trouble. And we mean big. "Dead man walking" stocks are generally e-tailers in distress. In this list, you will find troubled online companies or "dot-bombs" as we like to refer to them. They've had their run, their day in the sun. While they gave away the store to attract customers and burned through money like there was no tomorrow, they thought the bankers and venture capitalists would never notice. They were wrong. Suddenly, after piling up quarters and quarters of big losses, they've been educated about one of the most important aspects of business-profits. Now the stock valuations have fallen to levels that reflect the companies' worth (Surprise ... it's not too much), and it's only a matter of time before they are taken over or someone pulls the plug on the respirator. Woe be unto those who bought these losers just a few months ago at triple-digit prices reflective of nothing but the exuberance of day traders and Wall Street-types who oughta know better. Keep these companies in mind only if you're looking for a place to pick up some cheap Herman Miller Aeron office chairs after they flatline. "Zombie" stocks are old tech companies trying to masquerade as New Economy firms, but they will never fool us. Granted, they are usually more mature businesses and even manage to turn a profit for the most part. Take some time to pull back the curtain and discover what's behind some of those profits, and you might find an endangered monopoly hanging on to the past or a major stock buy-back. But the numbers will never soar like our ChangeWave favorites. We don't have time for companies that lack the zing to compete with their New Economy brethren who move at New Economy speed. The pace of change has left some of these behemoths gasping for air as they try to keep up with ChangeWave firms in emerging sectors that will change our future. The companies that do this might not be household names now, but we'll know them before everyone else. We want companies that have the potential for aggressive growth, these firms don't. * * * * Question: I keep reading about buy stops and limit orders. What the heck are they? These are two types of orders. Most of you are familiar with a market order. That asks your broker to buy or sell stock at the current price. A buy stop is a way of protecting yourself in case a stock goes up. If a stock is selling at $55 and you are afraid it might take off soon, but don't want to waste time on it otherwise, use a buy stop. Place a buy stop at $60, for instance. If the stock moves suddenly, your buy is executed at the market price when it hits $60. A limit order is very similar. Since many of our stocks are volatile, it is good to buy them on down days. To accomplish this, simply place a limit order a couple points below the current price. Then, if the stock has a bad day or the market drives everything down, your buy occurs at the market price once that limit is reached. Using both types of orders simultaneously (two separate orders) allows you to bracket a desired stock-without actually buying it. You can use a buy stop to catch it on the way up and a limit order to nab it if the stock goes down. 8. THE BIG KAHUNA ONLINE If you use AOL, catch Tobin Smith on the Sage Online on America Online every Thursday this summer at 6 p.m. EST. For AOL browsers only, you can view AOL MarketTalk produced by Sage via AOL keyword: MarketTalk. 9. WINE FINDS Life is too short to buy Old Economy stocks and bad (or overpriced) wine. This week we start our favorite wine find of the last week with the Cabernet Sauvignon and Zinfandel from St. Francis Winery of Sonoma, Calif. First you must know I am not a Zin nut many Zin drinkers. But the St. Francis' Old Vines '96-'97 Zin is like opening a jar of Smucker's Blackberry jam-oh my! Great with grilled food of any kind and reasonably priced (less than $20). If you are not a Zin fan, try this one-it'll convert you. Their Cabernet is also a fruit feast-must be that Dry Creek Sonoma terroir (i.e.soil). It matched perfectly with my world-famous marinated pork tenderloin we grilled for the Fourth. Did you discover a wine recently that made a lasting impression? Send your favorite wine find to me and I'll give it try. Cheers! Go to http://www.changewave.com/winefind.html 10. IF YOU LIKE THE WAVEWIRE, YOU'LL LOVE OUR CHANGEWAVE INVESTING ADVISOR SERVICE. Congratulations! As a WaveWire fan (a.k.a. Wave Watcher) you've discovered one of the best-kept secrets-and values-for New Economy investors anywhere! Each week, you're getting a huge 10+ page inside look at the current New Economy investment climate from Toby's perspective, as well as free access to multiple parts of our website like Waves and Wipeouts O' The Day. Many WaveWatchers take our basic analysis and do the rest of the investment analysis and research work themselves. Cool. But if you're looking for the whole buy/sell/hold ChangeWave Investing enchilada (and frankly looking for us to do the heavy investment research lifting for you), you're going to love our ChangeWave Investing advisory service. As a subscriber (a.k.a. WaveRider) you'll get Toby's specific stock selections with weekly e-mail updates keeping you on top of the stocks we're buying and helping you own them well. Next, when you need to act fast to seize an opportunity or sidestep a sudden storm, you'll get immediate e-mail alerts. Some of these alerts in the past two weeks alone have helped our subscribers capture 50-150% gains in just a few days. Add unlimited access to the subscriber-only sections of the website and the ChangeWave Investing monthly newsletter, and you're in perfect position for the next Nasdaq breakout. If you are ready to get off the beach and into the waves, reserve your spot today and Toby's FREE intelligence briefing "Seven More 1,000% Gainers" at: http://www.changewave.com/a/cwi/ww0705.html. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ You are subscribed to ChangeWave.com's WaveWire Weekly WaveWire Weekly delivers to your mailbox timely investment advice from ChangeWave.com. WaveWire is sent out weekly by your request only. If at any time you wish to unsubscribe, just follow the directions below. Editor: Tobin Smith Executive Editor: Dan Gainor Managing Editor: Greg Tucker HOW TO UNSUBSCRIBE: We hope this free digest of investing advice will be valuable to you each week. If, however, you do not wish to receive our e-letter, you can unsubscribe by sending an e-mail to the following address: service@changewave.com with unsubscribe in the subject Questions & Comments: Send e-mail to service@changewave.com ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Copyright (c) 2000 Phillips International Inc. All rights reserved.