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Investing Recommendations and 
thoughts on specific companies

(Updated Feb. 2, 2000)

Software 

Microsoft (MSFT) (recommend owning this stock)

The leader is PC software is Microsoft. While they have their share of problems with the antitrust law suit, the company is doing well overall. The company does an excellent job at providing a broad range of software applications and operating systems to meet people's needs. They generally build a leadership position in the segments they go after. While Microsoft has it share of failures or limited successes, they keep on working at things until they understand the customers needs and get the products right for those needs. Over the past 5 years (7/1/94 to 6/30/99) The revenues have grown at 35% CAGR and earnings grew at 52% CAGR. At the same time EPS grew at 46% CAGR due to new shares issued. You have a hard time finding quality companies with that good a record of success. For the future I expect them to continue growing at 30% (revenues and earnings) as Windows 2000 gets rolled out to customers and then following that will be a new version of Windows 98 (Millennium) as well as new versions of their software development tools and office applications in 2001. Microsoft is seeing growing competition from Linux. In the handheld market Palm OS has a 70% share and Windows CE is getting under 30% share. On the desktop and laptop markets Windows has a large share with limited competition from Apple Mac.
Internet Companies CMGI (CMGI) (recommend owning this stock)
CMGI operates and invests in a number of internet companies. Buying CMGI stock is an investment in an Internet conglomerate that is also building strong cross company synergies and support networks. In my opinion CMGI is one of the leaders at building new Internet companies.
Engage (ENGA) (recommend owning this stock)
Is a CMGI company that has a key role in the sale of ad banners for internet web pages. Engage has a database and software system that tracks what web pages a user views (keep the user information completely private) and uses that past viewing history to display ad banners that would be the most appropriate for that user. They can then sell higher value, targeted ads to advertisers.
Semiconductors 

The worldwide semiconductor market is expected to grow by 16.9% in 2000 to reach $147B. (The Semiconductor Industry Assoc. forecasts 2000 sales to be $174B, growing at 21%. Source: WSJ 10/28/99, page B8) With a lot of this growth taking place in the wireless communications market segments (phones, base stations, wireless internet.) This growth is expected to continue at this rate in through 2002. In fact the CAGR for the semiconductor industry is expected to be 25% over the next 3 years. (Source: Cahners In-Stat Group, reported in Electronic News 1/3/2000 P4). 

ARM Holdings (ARMHY) - (recommend owning this stock)

 

Intel (INTC) - (recommend not owning this stock)

Dominates the PC chip CPU market. The PC market is growing around 15% per year now so that seems to be a limit on Intels' overall growth. Sets the overall pricing levels based on their production and competitive pressures. They are converting their manufacturing to use 0.18 micron processes in 1999 and 2000. Major PC CPU chip competitor is AMD. AMD is keeping up, but losing money. Intel is also working hard to expand it's share in networking related chips for future growth. Over the past 5 years (ending 12/99), Intel' revenues grew at CAGR of 16% and earnings have grown at 19%. This is growth is slowing down and I am expect INTC to have a stable or declining stock price. As of 1/14/2000 the stock was a t $103.06.
Texas Instruments (TXN)
This company has gone through a turn around and I expect them to be growing revenues and earnings rapidly again. The company is now focused on producing critical chips for implementing wireless phones and communications devices.
Diversified Tyco (TYC)
Tyco has become a powerhouse in supplying passive electronics (resisters, capacitors, inductors, connectors) for the electronics industry. Tyco Electronics has acquired a number of the independent companies in this area. Passive electronics are critical pieces for implementing equipment. While they have none of the glamour of semiconductors they are heavily used in every device. For example a cell phone may have a few IC's, but they also have some 600 passives per phone. And, cell phones are a disposable item. You use it for a couple of years and then get a new one from your phone company, because of all the new features that get added to the phones every year.

Tyco also has a big business in home security and in the business of laying down undersea communications cables. Tyco now is the dominate company for deploying undersea communications (optical) cables to link the world together.

Financials  General Electric (GE) -
Computers  The PC market is estimated to be growing about 10% to 15% a year on a revenue basis. Most companies keep their PC's for 3 to 4 years before users get newer PC's. This may lengthen out to a 4 to 5 year time frame. PC's companies are working to bring out a new generation of low cost PC's that companies could update/replace existing desktop systems with.

Dell Computers (DELL) - Dell is the industry leader in building and selling PC's direct to the end customers through telephone, internet and catalog sales. Dell is growing faster than the overall PC industry by gain market share from second tier PC companies as well as the existing leaders of Compaq, IBM and HP.

Pharmaceuticals  (Updated Jan. 3, 2000)

No company to recommend here. This industry is going to be under long term pressure on pricing and competitive issues. The US government is going to have to find an acceptable way to reduce drug prices for the elderly and Medicare users. Currently, these folks are one of the only major markets in the world where there is not government price controls or industry price limits (e.g. HMO's). These people are the least able to afford drugs and they are generally being charged list prices when everyone else is getting discounts. With this as a political issue in the 2000 elections, drug company profit margins are going to be under continual pressure. At the same time as drug companies try to merge to increase scale and reduce the costs of operations governments in the US and Europe are likely to take a very hard look at the anti-competitive issues in the new rounds of large mergers.

Ideas to Explore Wireless Towers - Crown Castle International, one of the nations leading operators of towers. They rent out space on the towers for cell phone operators to hang their antennas. Tower placement is a challenging issue since many communities do not want towers located near homes and view them as eyesores. Crown Castle is working closely with Bell Atlantic and GTE.
Mutual Funds Thoughts on mutual funds and index funds. Click here
Disclaimer and notice - I may invest in the companies written up here and will buy and sell shares in these companies as I see the market opportunities change. I also recommend people do their own individual research on a company before investing in it. There are a number of good sources of information on the web. You can start from some of these sources I use (click here). 

There are some 8850 company stocks traded on the US major exchanges: 5,100 on NASDAQ, 3,100 on NYSE, and 650 on the American Stock Exchange. (WSJ 11/29/1999, page C1). 

 

Copyright 2000 John Giudice, All Rights Reserved