Prudent Techs

06/18/2004 12:00 am EST

Focus:

John Buckingham

Editor, The Prudent Speculator

Growth and value investor, John Buckingham, will only buy a stock for half of his estimate of its worth. With this approach, his Prudent Speculator has become the top performing newsletter for the past 20 years. Here, he looks at two low-priced techsNet2Phone and Sun.

"Net2Phone (NTOP NASDAQ) was one of the first companies to offer voice services that took advantage of cheaper delivery over Internet networks. It's taken about eight years, but VoIP technologies are finally beginning to see some real traction. To take advantage of that foothold, NTOP is aggressively marketing its experience and technology to cable operators, which can then offer VoIP solutions to their own customers. We'd be remiss if we didn't mention that the space is chock full of technology- and service-based competition. Still, there are a few aspects that make Net2Phone's story just a bit more attractive. First, the company has been in the VoIP business for a very long time. That experience and early technology lead must offer it a leg up on its peers. Second, the company completed a $63 million secondary offering late last year that has left it with a sizeable cash position ($137 million) to fund the cable telephony and hosted communications initiatives. Finally, NTOP is an attractive target for purchase, especially as the company inks additional agreements with cable operators. In response to hints of a solid foundation developing in the cable telephony space, we upped our FG price to $9 on the shares, which now trade very near our buy limit of $4.38. NTOP trades for a relatively inexpensive 2.3 times tangible book value and four times revenues."

"With news of the end of its battle with Microsoft already stale, Sun Microsystems (SUNW NASDAQ) has been taking far more important strides to counteract three years of failure in its core business. In perhaps its most groundbreaking move, late last year, Sun said that it would expand its execution of the ‘on-demand’ model, saying that it would offer storage hardware and data center management services to customers on pay-as-you-go and subscription bases. Like many companies in the software space that have gone through this shift, Sun believes that the model better matches an ongoing evolution in the purchasing habits of technology customers. Sun also announced a slew of new and updated products, including software for the fast growing Radio Frequency Identification (RFID) market. RFID products use a combination of tiny radio transmitters and sophisticated location software for tracking objects in scenarios ranging from products in distribution centers and retail outlets to items in home refrigerators and even inmates in prisons. Overall, we are impressed by what we would characterize is a significant uptick in creative momentum at Sun, and are glad to see that the company is not content to apply band-aids to the gushing wounds caused by competition. There are significant financial and execution risks in each of the transitionary steps. Nonetheless, we are left with more of a sense of optimism for potential growth. Our long-term and fundamental goal prices remain $10 and $8, and we are buyers up to $5.14."

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