...and Wireless "Extremes"
01/28/2005 12:00 am EST
Nikhil Hutheesing, a leading authority on the wireless sector, believes that recent weakness offers a "great opportunity" in industry leader, Qualcomm. At the other end of the spectrum, he offers a play on Dwango, a "highly speculative, unknown micro-cap stock."
"Qualcomm (QCOM NASDAQ) recently announced terrific first quarter earnings. The company said that its first quarter net profit jumped nearly 50% to $513 million from $352 million one year earlier. Revenues climbed 15% to $1.4 billion from $1.21 billion. But you may be worried because the stock has dropped more than 7% on the news to around $38. Don't worry. While Qualcomm's outlook for 2005 remains good, the stock fell because the company said that the second quarter could be soft. My view is that investors should not have such a short horizon when it comes to a company like Qualcomm. The company is in a terrific position to benefit from the expansion of CDMA networks around the world and the upgrades to high-speed 3G networks.
"A soft outlook for the second quarter offers a buying opportunity for investors. I believe that the second half will be strong and that the company will meet its revenue guidance for the 2005 fiscal year, which ends in September. For the year, the company says revenue should come in between $5.8 billion and $6.3 billion. As for earnings, Qualcomm has raised its 2005 earnings forecast and now says it expects to earn $1.16 to $1.20 a share—Wall Street had been forecasting $1.18 a share. This is a great company and a core holding for a wireless portfolio. If you don't own it, or if you'd like to add to your position, now may be a great opportunity.
At the opposite end of the spectrum from Qualcomm, a well-known, large-cap stock, comes Hutheesing’s latest recommendation—a highly speculative, unknown micro-cap. He explains: "Dwango Wireless (DWGN OTC BB), officially called Dwango North America, is a virtually unknown content developer for wireless handsets based in Seattle, Washington. Let me be straight. Dwango has a rocky background and it is risky. And, while making an investment in a relatively risky micro-cap company such as Dwango ($12 million market cap) is not the usual approach of this newsletter, I am willing to make an exception for this stock because I believe the company is positioning itself well to benefit as the market for wireless applications grows over the next few years.
"While the firm’s original mission was to create games for mobile devices, since late 2004, new management has signed up some impressive content providers covering highly popular entertainment categories. Dwango now offers adult entertainment thanks to its partnership with Playboy Enterprises, to bring adult content to your cell phone such as video clips and pictures, sports coverage, and games thanks to its partnership with ESPN, religious content through BeliefNet, and video clips, ring tones, and audio tones under the Rolling Stone brand. The company forged an agreement with Napster to offer wireless customers access to ring tones. The service will launch in the US and Canada early this year. Its audio tones can be found at Rolling Stone’s Web site, among others. Besides music, Dwango also signed on with Playboy Enterprises. Dwango is pursuing more big name brands to partner with and I believe that its business is only going to grow as demand for wireless applications increases. Investors willing to take a risk with this development stage company should be rewarded handsomely.
"In September 2003, Dwango went public though a reverse merger. I’m not a big fan of reverse mergers, as they have often been very popular among sleazy micro-cap promoters. Since then, Dwango’s shares have risen from 70 cents last August to as high as $2.05 in December. The bulletin board stock now trades around $1.60 per share. Remember, though, that the shares of this company are very thinly traded and investors need to understand that Dwango is a high-risk developing stage company and highly risky as an investment. For these reasons, I recommend the shares of DWGN only for investors able to withstand the enormous risks involved. I have a target price of $3.20 within one year—an increase of 100%."