UTStarcom: Wireless Wonder
08/27/2004 12:00 am EST
Nikhil Hutheesing, editor of the Forbes Wireless Stock Watch, is new to our coverage at The Money Show Digest. Prior to his focus on this newsletter, he was the long-time technology editor atForbes magazine. Last year, his portfolio gained 110%. Here's his latest.
"The wireless boom is definitely for real. We are in an environment where we have rising interest rates, we have rising worries over terror, we have rising worries over oil prices, etc. and all that has put tremendous pressure on stocks. When you look at the wireless and communications sector, prices have come down so much that the p/e multiples are within 5% of their historic lows. So I think there is a lot of opportunity in stocks in this sector. Meanwhile, things are not slowing down in wireless. The sector is moving along very, very rapidly.
"Broadband wireless is on its way in the US. It’s already very big in Korea and other countries around the world. Over here, when I talk about broadband, I’m talking about third generation networks. These are wireless networks being set up by carriers like Verizon, Sprint, PCS, etc. They are going to cover entire cities and towns. The idea is that eventually you will have access to the Internet from everywhere. It won’t matter where you are, with your PDA or laptop. And you will be able to get decent speed as well. That’s beginning to happen and five years from now, that will be pervasive. That leads to the development of new applications. There are all kinds of new applications in the works, such as downloadable ring tones, video, etc. The sector is for real.
"One company that I really feel very confident about is a player in a very high growth Chinese market— UTStarcom (UTSI NASDAQ). The firm signed on about $1 billion in business over the past 12 months. It’s the biggest provider of PAS technology— which is the technology that’s most widely used in China for service. Revenues are up 70%, year over year. The company has been acquiring other companies recently and as a result, it stumbled in the last quarter. Earnings recently came up a penny a share less than expected. And gross margins were expected to be 28%, but came in at 25%. The stock fell 29% in price. This is an incredibly good company. It is fast growing, with terrific management. It has a p/e of 8 right now. It has price-earnings to growth rate of 0.76. I feel very confident right now that this is a good buy."