Monday, June 8, 2009
(Cont'd from above)...

Jim (cont'd):   


Jim:       When we have a once in a lifetime tech rally, that is like this, “buried in a bear market”… this is reigniting long forgotten names… Wall Street slang for companies names… it is my job to shine a light on this bull market… so you can judge what is cooking for yourself… and I can cut thru the clutter… so far the two things that have really been driving the tech move are the massive $40B Chinese wireless stimulus package… which has given a huge boost to the semi conductor stocks, like Texas Instruments and that great update tonight… and our insatiable demand for more band width whether it be the ultra fast broad band, like Verizon’s FiOs… or thru smart phones, or other mobile internet plays, like the iPhone… which we learned today is straining AT&T’s network… or Hulu, which each bandwidth, like Godzilla, tried to eat Tokyo… what was with Godzilla’s endless quest for eating subway cars.

Tonight I have got a speculative tech stock that I think benefits from both of these angles… it is not a new story… but it is a great one… and I am talking about… ADC Telecommunications Inc. (ADCT)...

...the company makes high speed connectivity equipment… it is the guts of broadband, it is like the intestines of broadband… like the lower intestine… with all kinds of cables, distribution panels, racks, frames, like my intestines have… for telephone, cable, internet, and wireless networks… ADCT, one of the leaders in the market for copper and fiber connectivity equipment, what cable and telco companies need to wire up your home and business with high speed broadband connections… and it is also a direct, absolute direct play, on our friends the Chinese, and their wireless stimulus… thanks to their acquisition of Wireless Century Man, which allowed ADCT to benefit from China’s 3G wireless network build out...

ADCT is a way to get in on Chinese communist action… man the heir to the capitalist fortune… without taking the risk of owning stocks that trade on the Chinese market… which does not exactly have the reputation for safety… I consider it like marching with the great Chinese 8th Army, without having to build endless bridges, or sweeping Tiananmen Square for those post rebellion festivities… as much as Chris Cox, the former chair of the SEC, turned his organization into a joke… and in a bear of short sellers, at the expense of a level playing field, not to mention billions of dollars in Federal bailout money that would not have been needed if not for the bear raids that Cox condoned, if not made possible… I would still much rather have them watching my back than whatever the equivalent regulatory body is in China… the peoples republic still has a tinge of that good old fashioned iron fist… even if the iron comes from Vail, or Cramer fave BHP.

But back to ADCT, which essentially benefits from increased spending on all flavors of broadband… all flavors of broadband and triple play equipment… remember the triple play, television, phone service and internet all in one… it is a big part of ADCT earnings… and one of the reasons that this $7 and change traded as low as $2.47 at its low… ADCT is hostage to the capitalist spending cycles of the AT&T’s and the Verizon’s… which are its two biggest customers… counting for 20% and 19% of ADC’s sales respectively…so when they stopped spending… this one got pummeled… but now they are back at it… making it a buy, buy, buy… last Thursday, June 4th, no one cared… ADCT came out with a better than expected quarter… it delivered .05 cents over earnings per share… the street was only looking for a red cent… sales $275M… the street was looking for $266M… that was a genuine, real deal, upside surprise… not driven by cost cutting… or any kind of financial hocus pocus… but by stronger business caused by the fact that telcos started spending on their fiber optic networks… and the pin action was great ADCT… their sales to Verizon grew 21% sequentially, to $52M, thanks to our friend Phios and its build out… and sales to AT&T grew 17% to $55M… and then there was China, where sales more than doubled for a quarter… that is right, 101% increase year over year… thanks to their wireless infrastructure package.

ADC’s management is optimistic that there probably would be a slowdown in regional spending until 2010... while the Chinese communists are definitely the most important movers and shakers in this business, since they devoted a whole separate $40B stimulus package for wireless infra… our own stimulus package did include a tiny bit, $7.2B for broadband stimulus… we are not even going to start spending that until January 2010... nothing to really write home about yet… but when these funds do start flowing, ADCT is one of the two equipment suppliers that I think stands to benefit more than ever… I will be calling this my Obama infra play… as always with these tech specs… you have to be careful… make sure to check out the balance sheet… so you are not walking into a financial death trap/roach motel… and ADCT looks to me like it is just fine, with $514M in cash and equivalents… some auction rate securities which have been written down to $26M, that was stupid to have those… from the original par value $170M, and that could offer some serious upside now that the credit markets are not completely frozen... so I say the balance sheet is fine.

ADCT, you have got to use limit orders… it has more than double off of its low… but it probably never should have been there in the first place… the stock is still trading at less than half of its 52 week high, so I think that it could go higher… especially since the last round of spending from the teleco companies has just started.

Here is the bottom line…

Read Jim's next Segment here  
    

Read Jim's next Segment here