Monday, June 22, 2009
(Cont'd from above)...

Jim (cont'd):   


Jim:       Over the weekend, while everyone else was having the time of their lives, sipping the J&T’s… going and doing cool things, games and stuff… not me… that is when I sit down and crack open, after reading the charts, my Digitimes… one of the trade publications that I find indispensable… especially if, like me, you are all over this internet thesis… there is an article in Digitimes which at first causes me to panic… and for a moment I am wishing I am owning my Depends… it says “China operators slow down 3G expansion projects”… oh know, oh know I figure… my whole thesis is predicated on a crest of world wide rollout of fancy cell phones… I am sweating… especially fueled by China’s massive $40B wireless stimulus package… but then I keep reading… what is the problem… it is poor 3G network performance… to summarize, the article states that the great leap forward to having everyone in China buying a smart phone is being delayed to fix the network… so that it can handle all of the new calls and bandwidth devouring functions and I quote Digitimes.

“The three 3G mobile operators have reduced their subsidies for the purchases of 3G handsets… while channeling more resources to improve basic network infrastructure and the quality of communications.”… wow, wow, I said.. there was no reason to panic… because someone is going to make a fortune here… if they can build out wireless infrastructure and break the bottle neck on phone calls… anyway, someone who improves networks is really going to clean up after the bottle necks crack… the only company that I remember doing exactly this kind of thing though… is Andrew Corp., but when I hit up ANDW, the symbol for Andrew… the foremost maker of soup to nuts antennas… along with base stations and amplifiers that work for sophisticated networks… I get acquired… CTV.

No Andrew left to recommend… and then I remember it, a caller… this is actually how B block worked, this is how B block got together… including the bottle neck, which is something that I added at the end just for a pure ratings gamut… and then I remember a caller, just last week… Stephen from North Carolina, and he asked about CTV… he asked about Commscope Inc. (CTV)… I said that I liked it because it had the best exposure to our nations broad band build out… but that I would rather be in Ciena or Cisco… but know I think that I was wrong to say that… because this one is definitely worth owning just as much as Ciena… if not Cisco, which I own for ActionAlertsPlus.com, my charitable trust.

See, at the time I thought of this CommScope as strictly an Obama play on the build out… it has got that sure… but it is the Digitimes piece that had me crack the file… now, it turns out that with the acquisition of Andrew at the end of 2007... CTV went from being a pretty boring cable and fiber optic company, to what I know regard as the single best play on the aggressive rollout of worldwide internet… so I go to the website, that is the next thing you do when you do research… I read the last presentation… they are all on there, they do these presentations, you know they used to have to spend millions of dollars to send people the presentations… but the rule changed, now you can go look at the presentation… and it is mostly about how India is rolling out… do you know that 45 million customers in the first quarter for 3G phones in India… 100 million by year end, new customers.

And about China, where the government is putting that $40B behind it… of which I predict CommScope will get among the biggest junks relative to the rest of the other companies… and to me it sounds like a screaming buy… so why hadn’t CommScope been on my radar screen… why wasn’t I looking at CommScope… simple… it is one of these binary plays that I talk about… like the real estate investment trusts… the company owed so much money from the Andrew acquisition… that I began to think that it did not even matter… that it would be crushed under the weight of its own debt… I just looked at the balance sheet… and I said that you cannot do much with this.

But you last month it issued 9.1 million shares at $22... it raised about $200M in stock… and then it raised another $250M in bonds… and CommScope took the money and paid down a massive amount of debt… so this went from a situation where I was worried about the company being insolvent… to one to where its earning could be bountiful… even as the additional stock created was known as major dilution… that means that you have to share the profits with more people… I saw that and said so what… if it is even .40 cent diluted which is what the analysts are saying… .40 cent dilution vs. no more bankruptcy risk… sounds pretty good to me.

Then we look at the earnings… what are the numbers… CommScope should earn between $2.20 and $2.30 a year… that is next year, as the big spending both here and especially in China is all in front of them… now, like most companies in this area the first quarter was weak… so if you look at the previous quarter it looks wildly expensive… but you cannot judge them based on the past earnings per quarter… you have to use your own earnings model… or look at what the analysts are saying to predict what it will make in the future… that is far more important than the past.

Now, CommScope does have some legacy commodity business… running old fashioned to your house… and this is a tough one, although today was pretty good… they buy about a hundred million pounds of copper a year… so the company benefits from the pull back in commodity prices, as copper is lower than it was last year… something that should absolutely help earnings.

The company also has the synergies from the Andrew acquisition, which closed in December of 2007... that could be $115M in cost savings just in 2009... I think the streets estimates now giving what I am thinking about… in terms of copper, what I am thinking about in terms of Digitimes, and the bottle neck… I think that the streets estimates are way too low… given what I read in Digitimes… I think the analysts are either going to have to raise numbers… or CommScope will beat them… either way, I think that you have got a recipe for a higher stock price… because this company can break the bottle neck… particularly because this vicious market just knocked down the stock pretty close to the $22 secondary… I think that this company is the best play on the Chinese wireless build on… and the old CommScope, the one that I really ohpined on when I said that it was just okay last week… isn’t the right CommScope… the right one is the builder of the new wires and antennas that are needed to handle all of the 3G wireless build out and break the bottle neck both here and in China.

Where is the kicker, I do not know if you have been following all of the stories about how AT&T’s network is being overloaded by the new iPhone… I would like to hear from them because that is just commentary… I have not heard it from AT&T… but wherever you hear about overload caused by poor infrastructure by any company… you need to think that the call will be place to CommScope to fix things up… this stock is the winner… and it has been flying under the radar screen… including the Cramerica radar screen… until now.

The bottom line…

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