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The Midyear Winners
By
Richard McCaffery (TMF Gibson)
July 18, 2000
The following companies are among the biggest and most noteworthy movers of the past six months. Stocks on this list were chosen because of their stories, their industries, and their returns since the beginning of the year. Prices and returns are as of July 14, 2000.
Advanced Micro Devices
Investors of Advanced Micro Devices (NYSE: AMD), arch rival of Intel (Nasdaq: INTC), have something to cheer about through the first half of 2000: Success of the company's popular Athlon chip, smooth production and rollout of new products, and a chip market that can't get enough microprocessors. AMD shares stand 209% higher today than in early January. First quarter sales topped $1 billion for the first time, up 73% from a year ago, and net income of $189 million is a 180-degree turnaround from a net loss of $128 million a year ago. PC processor and flash memory sales are strong and the company gained a powerful new customer -- direct-sales PC company Gateway (NYSE: GTW) -- after Intel failed to provide the company with sufficient microprocessors. AMD doesn't have the market share or financial strength of Intel, but it's having a great year.
Ballard Power
If 2000 is the year of the fuel cell phenomenon, then 2000 is the year for Ballard Power Systems (Nasdaq: BLDP). Through a subsidiary, Ballard is developing fuel cell technology for use in everything from utility companies to cars and homes. The stock is up more than 269% this year on the belief that Ballard Power is at the forefront of a movement to commercialize a clean and efficient alternative fuel source. As with any emerging technology and market, investors should tread carefully and do plenty of research. The Rule Breaker portfolio took a look at fuel cells and Ballard and followed it up with an interview with the CEO on the Fool Radio Show.
Brocade
One of the fastest companies out of the gate this year is fibre channel technology company Brocade Communications (Nasdaq: BRCD), a San Jose, California outfit that makes switches to connect data storage systems in local area networks.
Brocade is the lead steer in an emerging market many industry observers view as very promising. Its shares are up 133% this year and more than 700% over the last year. In addition to being the first mover and market-share leader, the company ramped revenues and net income quickly by focusing on distribution. Its distribution partners include original equipment vendors such as EMC (NYSE: EMC), Dell (Nasdaq: DELL), and IBM (NYSE: IBM). In addition, it has been quick to sign integration partners -- a key move for a new company hawking complex technology. Brocade certified 12 integrator partners last quarter, and integrators generated 25% of the company's revenues, up from 5% a year ago. In the latest quarter, sales jumped 489% to $62.1 million, up from $10.5 million a year ago. The company is profitable and cranked out $15.1 million in free cash flow last quarter. Check out this Motley Fool interview with Brocade CEO Greg Reyes.
Ciena
After a slugging in 1998 that would knock Rocky Balboa sideways, optical networking equipment company Ciena (Nasdaq: CIEN) diversified its customer base, broadened its product portfolio, and caught the wave of demand fueled by the push for broadband services. It goes like this: telecom equipment companies can't buy the fiber optic gear that speeds the flow of traffic in communications networks fast enough, and Ciena provides the dense wavelength division multiplexing optical transport technology that makes it happen. As such, the company's stock soared in 1999 and is up another 183% this year. Despite this success, the company recently scaled back revenue forecasts for two of its new products, citing weak customer response, higher component prices, and difficulty obtaining parts.
Disney
The mouse is on its feet again! After a string of disappointing quarters related to losses at Disney's (NYSE: DIS) Infoseek Internet venture, and declining home video and retail store sales, Disney entered the new millennium with new shoes on its feet. Shares are up 28% so far this year, as revenues and operating income at its broadcast division (which includes television network ABC) soared as a result of high ratings for Who Wants to Be a Millionaire and a strong advertising environment. Disney's media networks and theme parks continue performing well, and the company recently replaced management in its studio and consumer products division to cut costs and speed a turnaround. While studio division returns will always be volatile, movies like Beauty and the Beast, Snow White, and Pinocchio are the heart of Disney's franchise, driving new generations of consumers to its theme parks, networks, and stores.
MGM Grand
With its $6.4 billion acquisition of Mirage Resorts, MGM Grand (NYSE: MGG) is now the 800-pound gorilla in the casino industry. It operates the Bellagio and City of Entertainment properties, two of the highest-profile gaming resorts in the business, as well as numerous other luxury properties on the Las Vegas Strip. In addition, it has expanded to Detroit and South Africa, and is already a presence in Atlantic City, New Jersey and Stateline, Nevada. MGM shares have enjoyed a 37% climb this year as investors rewarded its purchase of Mirage from gaming company mogul Steve Wynn, as well as steady earnings growth. The gaming industry is a mature business and concerns regarding overcapacity in Las Vegas increased of late, as a host of new casinos opened their doors in the last two years. Nevertheless, MGM's management has guided the company to the top of the heap.
Nabisco Group
A hunger for Ritz Crackers, Chips Ahoy! cookies, and Triscuits led to a bidding war this year for Nabisco Group's (NYSE: NGH) Nabisco Holdings (NYSE: NA), the number one cookie and cracker maker in the U.S. In late June, tobacco company Philip Morris (NYSE: MO) swooped in and agreed to buy Nabisco Holdings for $14.9 billion. Alas, it's very confusing, but Nabisco Group owns 80.6% of Nabisco Holdings, which means the company stands to profit from the deal. Nabisco Group's shares are up 142% this year. After the Philip Morris deal is completed, RJ Reynolds (NYSE: RJR) will acquire Nabisco Group for $30 a share, or about $9.8 billion. What does RJ Reynolds get out of the deal? Cash. The primary asset of Nabisco Group after the sale to Philip Morris is about $11.8 billion in cash.
Pepsi Bottling
Investors who didn't think a bottling company would end up making the list of winners through the first half of this year can count me as a member, especially since Pepsi Bottling (NYSE: PBG) rival Coca-Cola Enterprises (NYSE: CCE) has had a rough ride due to volume declines and currency issues. Nevertheless, shares of Pepsi Bottling have risen 78%, as higher cola prices and more-profitable distribution methods drove the bottom line higher. The company recently guided analysts to expect higher year-end earnings from pricing gains and cost management efforts. Company officials expect operating free cash flow to hit $185 million this year, up 23% from $150 million a year ago. If you're tired of trying to figure out how your neighborhood Internet commerce company makes money, Pepsi Bottling is like a cool drink of water. What do they do? Ask the company. "We sell soda."
Siebel Systems
When investors think of customer relationship management software -- if they think of it at all -- they think of CRM honcho Siebel Systems (Nasdaq: SEBL), a company with leading market share, an aggressive sales team, and success spurred by the growth of the Internet as a major business channel. Siebel shares skyrocketed 131%, as the company expanded its customer base, seeding the market with what some observers think could be an industry standard. What's CRM? It's business software that helps companies get closer to customers, understand their needs, and boost sales. While Siebel is clearly one of the top companies in the space, it's facing down tough competitors such as cash-rich Oracle (Nasdaq: ORCL). Will the company have what it takes? It should be a good foot race. For a closer look at Siebel, check out Fool John Del Vecchio's free research report.
Starbucks
After a lackluster 1999, coffeehouse retailer Starbucks' (Nasdaq: SBUX) shares returned to form with a 65% gain to about $40 as strong comparable-store sales drove revenues higher. Adding to the excitement is the success of the Seattle company's international expansion. Retailers never know how a concept is going to play in different regions of the U.S., let alone other countries. Yet, Starbucks stores in the U.K. and Japan are packed, and the company is expanding throughout China and other countries in Southeast Asia. In fact, Starbucks officials expect the Japanese operations to break even later this year, well ahead of schedule. If success in Asia is any indication of Starbucks' potential, the company could be in the early phases of a long growth cycle.
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