Newsletter Watch: High-tech sector
This week, we look at a trio of high-tech ideas that come from three of the savviest advisors in the newsletter field. Mark Mowrey looks at a high-tech stock that offers both high growth and value, Bill Martin offers a "swing for the fences" idea that is also backed by a "pristine balance sheet" and Vivian Lewis finds a tech play with the added potential of takeover appeal.
Technology stock expert Mowrey finds the server virtualization market of recent IPO VMware, Inc. (NYSE: VMW) attractive, but as a strict value and growth manager, he is not interested in the highly valued shares.
"How about a company that sells VMware's software?" he asks in his industry-leading The Prudent Speculator TechValue Report. Here, he looks at Wayside Technology Group (Nasdaq: WSTG), which meets his value criteria.
"As we watched shares in VMware soar after they made their IPO, we wondered how we might take advantage of the tremendous growth in server virtualization solutions," Mowrey says.
Wayside Technology, he says, has grown in part because of VMware's top-line surge and should continue to do so as an important distributor of the latter's software.
"Wayside, formerly Programmer's Paradise, is a technology services company targeting software developers and IT professionals.,” Mowrey says. “In 2006, more than half of the software Wayside purchased for resale carried the VMware label."
According to Mowrey, the cash-flush balance sheet now includes $4.34 per share in cash and near cash and no long-term debt. The shares currently trade at under 17 times trailing earnings, which is attractive, he says, considering the balance sheet and the stock's current 4.3% dividend yield.
Meanwhile, Bill Martin is also attracted to a high-tech firm with a strong balance sheet—Extreme Networks, Inc. (Nasdaq: EXTR). Citing the stock as a "swing for the fence idea," the editor of FindProfit says, "We're going to step up and purchase Extreme Networks, a high-end networking company that is in the midst of a turnaround."
Martin says that EXTR, led by a new CEO who joined the company last fall, returned to break-even in its latest quarter as it delivered its best revenue growth numbers in some time.
"While the networking space is extremely competitive, it is also a fast-growing sector with numerous growth opportunities as video, voice and other capabilities get layered into enterprise networks. We've spoken to a number of CTOs, all who have had good things to say about EXTR's products,” he says.
"We also like the fact that the company is sitting on a pristine balance sheet with roughly $215 million in cash as well as excess real estate that we estimate is worth between $50 million and $75 million," Martin says.
According to Martin, if you strip out EXTR's cash and real estate, the company is being valued at around $100 million on an enterprise value basis—or less than one-third of revenues and only marginally above what the company spends annually on research and development.
"We think EXTR's intellectual property is worth far more than that sum. Add it all up, and we love the risk/reward," Martin says.
Speaking seven languages, Vivian Lewis travels the world to uncover ideas for her Global Investing newsletter. She also monitors research from leading investment firms around the globe to add to her analysis.
To support her own bullish outlook on Israel-based Alvarion Ltd. (Nasdaq: ALVR), she cites analyst Ehud Eisenstein of Oscar Gruss, who speculates that the firm could be a takeover target for Cisco.
"Oscar Gruss did an update on WiMAX solutions company Alvarion, in which it reiterated its 'buy' rating and raised its target price to $17 per share from $13,” Lewis says. The analyst also seems to think it can be a target for a Cisco Systems takeover bid.
"Eisenstein writes, ‘Alvarion continues to lead emerging WiMAX. Our recent visit to the WiMAX World Conference in Chicago, and a comprehensive session with Alvarion management, lead us to believe that the WiMAX industry continues to make important strides and Alvarion is well-positioned to maintain its leadership position in that space,’”
she says.
According to Lewis, Eisenstein notes: “We view Alvarion as a clear growth name,” adding that "Alvarion stands out as the most obvious acquisition target for Cisco if the latter decided to play the WiMAX Radio segment."
He also says that Cisco and Alvarion have been working together for several years and that Cisco deploys its ASN Gateway (IP access) in Alvarion's accounts.
