Oberweis: Communications Trio
02/06/2004 12:00 am EST
"We look for ‘Megastocks’ - stocks that have the potential to appreciate by 300%, 500%, or even 1000%," says Jim Oberweis, money manager, small-cap specialist, and editor of The Oberweis Report, which uses a system of eight criteria in selecting growth stocks. Among his latest buys are three high-tech communications stocks.
"We believe that investors should look first at the company, then at the stock. If sales are growing at a 30% rate or faster, excluding any acquisitions, and profits are growing at a similar rate, we have a potentially explosive situation. Whether that growth is occurring because of a technological advantage or just because of stronger marketing or management is not of prime importance, assuming that the catalyst is sustainable amid competitive pressures. McDonalds certainly had no technological advantage 30 years ago but ended up a huge success. If a company makes widgets and manages to sell 40% or 50% more each year, chances are it’s doing something right and we ought to look at its stock. We must next be sure that this company has a product or service that has the potential for continued growth in the future and that we are not paying too much for that future growth.
"Arel Communications and Software (ARLC NASDAQ) provides end-to-end interactive distance learning systems in real-time communication through a combination of satellite, Internet, and intranet networks. Arel Communications breakthrough video, audio, and networking technology interoperates within existing converged IP networks. Clients include Countrywide Home Loans, Inc., Harrahs Entertainment, Pharmacia Corporation, Lucent Technologies, Hebrew University, and the Texas Department of Health. Revenue in the third quarter increased 219%. Earnings grew to $.03 per share versus a loss in the year ago period.
"Harmonic (HLIT NASDAQ) sells broadband solutions to customers including EchoStar, Time Warner, Comcast, and Siemens. The company enables service providers to deliver video, voice, and data to their subscribers. Its fiber optic and digital video systems enable network operators to provide a range of interactive and advanced digital services that include HDTV, digital video, high-speed Internet access, telephony, and video-on-demand. Revenue in the most recent fourth quarter increased approximately 43% to $56.3 million from $39.3 million in the year-ago fourth quarter. Earnings per share grew to $.02 versus a loss in the same year-ago period.
"YAK Communications (YAKC NASDAQ) provides international long distance discount services to both business and residential customers. Established in 1998, the company specializes in offering these services to consumers by way of what is known as 10-10 dial-around. The company is a facilities-based reseller which utilizes its own switching systems. Its networks use varying technologies over fiber lines, satellite and wireless systems, or the Internet. Revenues for the quarter ended September 30, 2003 increased 130% to $18.8 million from $8.2 million in the comparable year-ago period. Earnings per share also rose 145% over the year-ago fiscal first quarter."