UTSI: China's Shining Star

11/14/2003 12:00 am EST


Gregory Spear

Editor and President, The Spear Report

The Buy List at The Spear Report has returned over 53% since its inception on 2/7/2003.  Editor Gregory Spear is extremely bullish on the latest addition to this list. He says,  "This play on China is a rare ‘bargain growth’ stock and one of the sparkling diamonds in that setting. We are absolutely pounding the table on this stock."

"Every now and then we want to call attention to just one special company," says Gregory Spear, editor of The Spear Report. "That is the case with this stock, which has fabulous fundamentals and also happens to be in an ideal long-term buying position. We also believe that after this rally has run its course only a relatively few stocks will be able to continue higher independently of the behavior of the broader indices. This as we did with the homebuilders, gold stocks, and Chinese Internet stocks earlier in the year.

"UTStarcom (UTSI NASDAQ) is an odd fish, but it may end up being your phone company. The telecom outfit has offices in California but it is a global operation that does most of its business in mainland China, where it has made a name for itself as the principal supplier of low-cost mobile phone equipment in local Chinese markets. Like Cricket, which is a local-only wireless phone service available in certain cities in the US for about half the cost of regular wireless, UTSI has the corner on the people's cell-phone market in China.

"UTStarcom also makes and sells switching gear that allows developing countries to upgrade existing low-tech wireline systems to broadband as well as leap-frogging straight to wireless. Apart from China, UTSI focuses on fast-growing telecom markets around the world, including Japan, India, Vietnam, Taiwan, Thailand, Mexico, and South America. The company even has its eyes on the US market.

"But UTStarcom doesn't stand still. The company, which is growing revenues at 100% annually, is very focused on broadening its repertoire of services and products. Among its new initiatives, it is prepared to demonstrate a full-featured 3G wireless system at the major telecom trade show in Beijing next week, leading to a full-scale 3G field trial in early 2004. 3G turns your cell phone or 3G-enabled personal digital assistant (PDA) into a hand-held entertainment console with the capacity to download and play music and video as well as browse the Web at desktop speeds.

"Third-quarter revenues soared 120% year-over-year and 44% sequentially to $584 million. And the company is making money. Earnings growth was commensurate at 92% year-over-year, coming in at $59 million, or 96 cents a share. The company has been boosting revenue guidance all year, and it is now expected to take in around $2 billion, which means the company is selling for less than two times sales. At a price-to-earnings ratio of 24, and a price-to-earnings growth ratio of 0.8, UTSI is selling at a steep discount to other world-class telecom equipment companies. Technically the stock has pulled back to test its breakout level from a three-year consolidation around $34. Where could it go? Back up to old highs in the $90s. But you would probably be satisfied with a double, wouldn't you?"


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