ELE:
(Endesa) This electrical
utility has benefited from pre privatization fever. ELE jumped from 16 to 27
in 6 months. After privatization is completed, we expect this stock's price to come down.
Distribution has been taking place during the last 2 months of ELE's bull run. We believe
this divergence will lead to a fall in Endesa's valuation. Trading at 19.4 times next
year's estimates, with a PEG of 1.5 this utility is overvalued by any standard.(5/27/98)
DCLK
(DOUBLECLICK): DCLK provides ad services for internet
advertisers and web publishers. The stock, which went public in February, has benefited
from the mania for internet stocks in the U.S.A. as anything remotely internet
connected has been accorded stratospheric valuations. The shares rose from 41 to 76 this
week after the company issued a press release touting a recent study that showed the
DoubleClick network of websites to have the third largest online market share reach. This
huge surge in price was largely due to a massive short squeeze that forced the shares up
rapidly. We expect this excessive rise to correct itself shortly. The optimism
created by the shares rise is unwarranted. Several factors could drive these shares down
over the coming months. Controversy erupted after competitor LinkExchange accused DCLK of
overstating its percentage market share. Any continuation of this controversy could prove
to be a drag on the stock price. This company trades on a bubble of investor optimism, not
on fundamentals. We find the company's reliance on the AltaVista search engine for over
35% of their business as worrying. This reliance exposes the company to great risk.
Revenues rose strongly in the latest quarter, but losses also rose as profit margins came
under pressure. We expect profit margins in the online advertising business to continue to
fall as competitive pressures rise. We also feel that it's only a matter of time before
the giant traditional ad agencies muscle in on the smaller internet based ad agencies
turf. The financial clout of the traditional advertisers will allow them to mount an all
out war for ad dollars in the expanding internet marketplace. Trading at 18 times trailing
sales, and with the endof the 6 month post-IPO lockup period looming,we expect DCLK to
fall heavily when internet stocks begin to be valued on fundamentals rather than the word
internet. We look for DCLK to give up all of the gains it made last week and would be
sellers/shorters of the shares at these inflated levels. (7/2/98)
ALA:
(Alcatel Alsthom) Shares of this French telecom,power,
and transport equipment maker have almost doubled since it announced plans to enhance
shareholder value. We feel that the stock's rise has more than discounted the benefits to
be gained from restructuring. Trading at 28.5X this year's earnings and 21.4 times next
year's estimates this stock is overbought. We look for a correction back to April 27th's
low of 35. OBV has turned down and is showing a divergence to price. We believe
that sentiment towards this stock is at a positive extreme. Now is the time to short this
overbought equipment maker. (5/26/98)
BAANF:
(Baan N.V.) This Dutch enterprise resource
planning software group's stock went on a tear earlier this year to $55 a share. Its
rise was stopped by a first quarter earnings report that showed narrowing margins and
increasing competitive pressures. Earnings are growing at 44% a year, but we expect
this to slow as competition heats up. We also expect year 2000 spending to cut into the
software industry's sales. BAANF is currently trading at 79X this year's and 54 times next
years earnings. We look for BAANF's PE ratio to contract to near its growth rate.
Based on next year's earnings this gives us a target of $35 for BAANF. Technically this
stock is in a downtrend. There is strong distribution occurring, and the 21 day moving
average has fallen below the 55 day. This stock is completing a head and shoulders top
pattern. We rate it a short on both valuation and technicals. (5/26/98) This Dutch enterprise resource
planning software group's stock went on a tear earlier this year to $55 a share. Its
rise was stopped by a first quarter earnings report that showed narrowing margins and
increasing competitive pressures. Earnings are growing at 44% a year, but we expect
this to slow as competition heats up. We also expect year 2000 spending to cut into the
software industry's sales. BAANF is currently trading at 79X this year's and 54 times next
years earnings. We look for BAANF's PE ratio to contract to near its growth rate.
Based on next year's earnings this gives us a target of $35 for BAANF. Technically this
stock is in a downtrend. There is strong distribution occurring, and the 21 day moving
average has fallen below the 55 day. This stock is completing a head and shoulders top
pattern. We rate it a short on both valuation and technicals. (5/26/98)
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Last modified: April 02, 2000
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