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Published on 12/15/1999 All articles from this issue

The Town Crier Stock Index - a look at the past, present and future

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By Clyde Noel

Special to the Town Crier

Invest $50,000 in the stock market and within a year watch it grow to $91,540. Sounds too good to be true? That's what the 50 stocks in the Town Crier Stock Index have done so far in 1999.

With executives of these 50 listed stocks living in Los Altos or Los Altos Hills, it's a fair bet that such concentrated success would be hard to find elsewhere. Many of the most successful people in Silicon Valley call this quiet area their home, and Silicon Valley is setting the pace for the stock market - and much of the world.

The Town Crier Index is up 90.56 percent because of stocks like BEA Systems which increased its stock price 845.92. percent since Jan. 1. Elantic is up 683.33 percent, Harmonic 648.00 and LSI Logic 273.64 percent. Twenty-three of the 50 stocks in the index are up more than 100 percent.

The stock market's rally of recent weeks comes as no surprise to investors who follow technology stocks, though three-fourths of all stocks on the New York Stock Exchange have lost money this year. While blue chips have recovered much of their post-summer slump, the tech stocks have led the way and have made a phenomenal jump since Jan. 1.

The Town Crier Index is up 90.56 percent and the tech-heavy Nasdaq composite index is up 65.15 percent for the year, while the Dow Jones Industrials are only up 22.25 for the year.

Investors' insatiable appetite for tech issues can be attributed to the Internet and the new e-economy. Companies like BEA Systems Inc. are poised to capture the lion's share of e-commerce business. Cisco Systems, the worldwide leader in networking for the Internet, is expected to continue its rise; and Intel Corp. has created brand recognition for "Intel Inside," a product that consumers rarely, if ever, touch.

Like most Internet concepts, e-tailing is hyped as the greatest thing since sliced bread and something that is destined to reinvent the retailing industry. In reality, it represents nothing more than a new distribution channel called the Internet where retailers can sell their products.

It's so new that estimated e-sales on the Internet are currently about $20 billion, but the growth potential is huge and merchants are scrambling to get a piece of the pie.

The Internet is one of the biggest revolutions of the 20th century, and the long-term winners in the software arena are now establishing their presence and replacing traditional procedures. Most of these innovations are coming from Silicon Valley companies.

The following stocks will be added to the Town Crier 50 for the year 2000:

Acuson (ACN): Located in Mountain View, ACN manufactures, markets and provides high-performance medical diagnostic ultrasound systems and imaging products. Clinics, hospitals and health-care delivery systems across the world use Acuson for various clinical applications. For the nine months ending 10/2/99, sales rose 3 percent to $340.9 million.

Agilent (A): This Palo Alto company is a split-off from Hewlett-Packard. It's a diversified technology company that provides enabling solutions to high growth markets within the communications, electronics, life sciences and health-care industries. For the nine months ending July 31, total net revenues after the spin-off decreased 1 percent to $5.88 billion.

Covad Communications (COVD): This Santa Clara company is a competitive Local Exchange Carrier that provides high-speed digital communications services using Digital Subscriber Line technology to Internet Service Providers and enterprise customers. For the nine months ending in September, revenues totaled $35.6 million, up from $2.6 million. Net loss applicable to common stock totaled $126 million, up from $28. This is typical of a new technology company.

Lam Research (LRCX): Lam Research Corp. designs, manufactures, markets and services semiconductor processing equipment used in the fabrication of integrated circuits. For the three months ending Sept. 26, revenues increased 70 percent to $241.6 million. Net income totaled $24.7 million vs. a loss of $26.8 million. Revenues reflect the upturn in the global semiconductor equipment industry. Earnings reflect cost reductions, economies of scale and the continued focus on improving efficiency.

Oracle (ORCL): This Redwood City company is the world's second largest software company and the leading provider of software for information management. The $8.8 billion company's products include databases, tools and enterprise applications for the Internet (Oracle 8i).

The outlook for the year 2000 and beyond is a combination of low inflation and strong corporate earnings which should continue to add fuel to the bull market in stocks.

The economy shows few signs of slowing down and money will flow into sectors that show the strongest earnings momentum. With that criteria, the Town Crier asked several Los Altos based people who work with stocks all year round to make their predictions for the future.

Gene Sinclair, a Los Altos resident and long time stock broker with the Pruneyard Financial Group in Campbell, looks for dominant technologies that owe their supremacy to excellent management.

"I like companies that have proven their ability to prosper in today's ferociously competitive and rapidly changing business environment. "I like to stay with winning management teams," Sinclair said. "After the run we had this year in high-tech stocks, it will be difficult." His technology picks to lead the market in 2000 are:

(1) Intel Corp., (2) Applied Materials, (3) Cisco Systems, (4) Sun Microsystems and (5) Safeway. (The first four are Town Crier Stocks and the last is included for its low industry price.)

Alex Ng, broker agent for Edward Jones at 1000 Fremont Ave. in Los Altos, provides interesting selections for the year 2000. His selections are (1) Oracle Corp., (2) Cisco Systems, (3) Conexant Systems, (4) Sprint PCS and (5) Lucent Technologies Inc.

Peter Liesenfelt, financial services advisor and Chamber of Commerce member, selects companies that have a significant chance of out-performing the Standard & Poor 500, with a target holding period of 3 to 5 years. Through an extensive knowledge of technology, Liesenfelt has selected five stocks for 2000.

(1) Intel (INTC) This leader in micro-processors will continue to lead the market. (2) Applied Materials (AMAT) Makes equipment that companies like Intel need. As long as they make chips, companies like Applied will have customers. (3) IBM - largest computer company makes more profit from the Internet than the total of the 25 largest .com companies combined. (4) AT&T The old "widows and orphans'" stock has emerged and set its sites on integrating communications to homes and businesses. (5) Digital Origin (DODV - This small company has remade itself and now sells software.

Stan Mok, Los Altos financial advisor, suggested Covad Communications, a stock he recommends to his clients and one that is an addition to the Town Crier Index for 2000.