3G: Wireless Wonder
12/26/2003 12:00 am EST
"This new generation of technological capability in cellular phones is just getting off the ground, so the leaders are innovating like crazy and racking up profits hand-over-fist, and sitting on very undervalued stocks," says Nancy Zambell and Sherri Parker. "This is a ripe time for investors."
"Mobile phone sales are once again booming. Demand is fueled by voice- and increasingly data-intensive services such as Internet access, email, gaming, m-commerce, and audio and video streaming. That interest in the latest technologies is wonderful, but it is stressing the current capabilities of the 2G and 2.5G capacities. Thus, the time is right for the next technology phase—third generation (3G)—which will open up additional radio spectrums, feature higher data speeds, and deliver more voice and data-rich applications to clients. It is projected that by 2010, two-thirds of next-generation revenues will come from data-centric applications and services, requiring much faster technologies with greater data capacities.
"Our latest buy recommendation is InterDigital Communications (IDCC NASDAQ). The prime end-products for IDC's technologies are cell phones, PDAs, notebook and laptop computers, base stations, and infrastructure equipment—used by hundreds of millions of consumers worldwide—are. The company's products and technologies are embedded in the chips inside these mobile devices, allowing them to communicate with networks through the use of radio frequencies. In addition to being a technological pioneer and leader, the company is making a mint from licensing its patented technologies. IDC holds 240 US and 520 foreign patents with 375 US and 1,443 foreign applications pending. Its licensees are household names, too: Nokia, Infineon Technologies, NEC, Sharp, Samsung, Sony Ericsson, and Matsushita (Panasonic).
"IDC is also showing fabulous results for 2003. For the first nine months, the company's sales grew 48% to $89.9 million, while net income was 55 cents per share vs. a loss of 6 cents per share the prior year. Another positive: IDC repurchased 2 million shares of stock in the third quarter. With virtually no debt and a healthy dose of cash, the company's shares should be trading much higher. To top all of this off: Its ratios beat its competition on every level, yet its stock trades at a 36% discount to its peers and at 47% less than its 52-week high. Just three analysts cover the stock—a situation destined to be short-lived. Buy up to $23.50. Our forecast is for the shares to climb to $32, an attractive 66% increase from current levels."