Two from the m100

03/04/2005 12:00 am EST


Ken Kam

CEO, Marketocracy, Inc.

On his Marketocracy Web site, Ken Kam monitors some 60,000 virtual portfolios, to find the 100 best stock pickers. Here, in a new feature in his Marketscope newsletter, Ken "gives the floor" to two of those top performers for them to share their latest investment ideas.

"The m100 are the most skilled stock pickers we can find. David Insel ranks as one of the top portfolio managers on our Web site. Since August of 2002, he has ran a virtual fund most heavily invested in the telecom sector (51% presently). His performance since inception is impressive. He began his portfolio in August 2002; it has since gained 240%, vs. a 44% gain in the S&P 500. Mark Verlinde is also a top ranked investor. He runs a largely value-based portfolio with a concentration in information technology (47.9% of total investments). His performance since inception in May 2002 is also outstanding, with a gain of 124% versus a 13.5% gain in the S&P."

"Is negative investor sentiment in Russia creating compelling investment opportunities?" asks David Insel. "For those investors who can tolerate volatility, I would argue that the answer is ‘yes’. In recent weeks, a number of factors have contributed to the build up of negative investor sentiment in Russia. Despite well-known concerns such as the ongoing Yukos saga, the Russian economy has been performing incredibly well, spawning the emergence of a growing middle class. In addition, equity valuations are cheap across the board. Confirmation of the strength came recently as Standard & Poor’s became the last of the big three credit agencies to upgrade Russia’s sovereign rating to investment grade. One sector of the Russian economy that looks particularly poised to shine in 2005 is the wireless phone sector.

"Unlike the highly competitive and saturated US market, the Russian cell phone industry is dominated by just 3 firms, which combined account for 85% of total wireless market share. Mobile Telesystems (MBT NYSE) leads the big 3 with 36% market share, followed by VimpelCom (VIP NYSE) at 33% and the unlisted MegaFon at 16%. There are 144 million people living in Russia, and the Russian wireless market has been one of the fastest growing in the world, doubling in growth almost every single year. While this rate of growth cannot continue indefinitely, new customer additions will continue growing at a rapid rate, with the vast majority of new customers coming from the less-penetrated regions outside of Moscow and St. Petersburg.

"Unlike Yukos, these two leading cellular companies were never privatized from the government and thus have very little risk of being nationalized down the road. Given the good prospects for the Russian wireless sector, these two companies worth considering for investment. Both are well managed and considerably undervalued. For now, it appears that MBT may be the better buy as it currently trades at a discount to VIP while it also has exposure to the fast growing and very lucrative Ukrainian market (only 25% penetrated) and has not been impacted by recent negative events regarding the payment of back taxes that have targeted at Vimplecom."

"Fed up with the high cost of lugging paper all over the globe, banks have called upon the Federal Reserve Board for help," notes Mark Verlinde. "With the support of Congress, President Bush signed into law The Check Clearing for the 21st Century Act (Check 21), which became effective last October. The act requires banks to accept a ‘substitute check’ as a legal negotiable instrument, meaning that a digital copy of the front and back of a check is now the legal equivalent of the original check. I’m looking to the firms that supply the technology involved with Check 21 to deliver exceptional revenue growth.

"Foremost on the radar screen is First Data Corp. (FDC NYSE). TeleCheck, a subsidiary of First Data boasts that it already handles an annual load of over 3.4 Billion electronic transactions. With that big of a footprint already sunk into the landscape, it’s easy to predict more revenues coming in. FDC saw a series of three downgrades in the later months of 2004, making where we’re at today a prime buying opportunity. FDC reported a 19% revenue growth on January 27 and set the stage for a rising tide within the entire industry by forecasting ‘double-digit revenue growth and superior cash flow."

"Unisys (UIS NYSE) has developed software that helps the transition from paper to digital check record substitutes. The stock was down on a bad earnings report with weak guidance and hit 52 week lows as Smith Barney Citigroup downgraded UIS to ‘hold’ while Goldman Sachs reiterated an ‘underperform’ rating. I plan on using this out-of-favor period to slowly accumulate shares. Meanwhile, a solid tech company completely oriented towards the benefits of Check 21 growth is CheckFree (CKFR NASDAQ). Its stock chart shows a recent positive market reaction and I see more to come simply because more electronic transactions brings more revenue. The only complaint about Checkfree is their methodology of sending ‘batches’ of similar payments for the whole day at once is antiquated. A speculative play would be to buy an emerging competitor, US Dataworks (UDW ASE). Its system does not ‘batch’ the payments making it an attractive alternative to CheckFree."

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