Tech Guru Michael Cahill's Picks for 2007

Excerpt from Barron's Weekly Magazine. Receive all our excerpts by signing up here:

INTERVIEW: Cycling Into a Big Year for Tech Stocks by Sandra Ward

Summary: Michael Cahill's Chilton Investment global technology, telecommunications and media fund has delivered 119% net since 2000, while the Nasdaq shed 45%. The stocks he likes for 2007:

• Microsoft Corp. (MSFT) -- Vista is five years in the making and is hitting the PC-refresh cycle perfectly. Its Xbox 360 is also on the crest of a new game console cycle.
• Video on demand is another big trend: Google Inc. (GOOG) with its YouTube acquisition and Telefonaktiebolaget LM Ericsson ADR (ERIC) have positioned themselves to take advantage.
• ANADIGICS Inc. (ANAD) is positioned to capture the internet-going-mobile theme with highly regarded cell chips, and also make chips for video-over-internet infrastructure. From breakeven in 2006, Cahill sees EPS of $0.50 in 2007 and up to $1 in 2008: "they are on the verge of massive earnings acceleration." Chilton owns 11.5% of the company.
• EchoStar Communications Corp. (DISH) -- at 7.7x Ebitda and 16x free cash flow, DISH is a great play on a takeover. Subscriber numbers have been fantastic as have earnings. This is the year AT&T Inc. (T) buys EchoStar, in order to beef up their video shortfall and pick up their 13 million subscriber base.
• MEMC Electronic Materials Inc. (WFR) is a world-leading polysilicon maker; the material is used in semiconductor wafers and solar cells. The latter promises to be a huge growth industry for many years to come. At 17x '07 and 13x '08 earnings, its trading at a very significant discount to the semiconductor industry and its own unbelievable growth.
• Sify (SIFY) owns 3,500+ internet cafes in India. They have also began hosting data on their servers from some big companies, and have 208,000 broadband subscribers. They announced a deal with The Western Union Co. (WU) for money transfers, which is important in a county with so few credit card holders.

Related Links: Credit Suisse Suggests Cable Pair Trade: Long EchoStar, Short DirecTV • Anadigics Has Serious Growth Potential - Barron's • MEMC: No Reason For Growth To Slow • The Long and Short on Sify

Comments

[CrossProfit]

Why the data mining comparison from 2000? Show me year for year stats including 2005 and 2006 on a stand alone basis comparing Chilton vs. NASDAQ, or better yet – vs. S&P 500.

1) MSFT - has a 10% upside within next 6 months. ROE is back up to 28.6 for 2006. It is hard not to like a company with zero long term debt and a $27B cushion of current assets over current liabilities. Not to mention $13.5B a year in free cash flow plus a current ratio of 2.2 coupled with a whopping 28.5% net income as percent of revenue. The latter seems to fluctuate between 22% and 41%. BA, GE, GM, IBM, heck, the rest of the Dow including GOOG would love to duplicate these numbers.
2) GOOG – will probably level off at $520 for sometime in 2007. Yahoo! Finance poll shows 75% wouldn’t buy GOOG today at current levels, if that means something to you. Personally I have a problem with the reliability of the accountability pertaining to the accounting and auditing standards. Aside from that, a great company to work for.
3) ANAD – definitely talking their own book to some extent. ANAD has underperformed the semiconductor index since mid 2002; however stock has made a strong comeback in H2 2006. So far, ANAD has posted 27 consecutive quarterly losses. Will they go for the record and make it 28? ATHR may be a better play going from 24 to 30 by yearend, if they can keep their option expenses under control.
4) DISH – never relied on takeover talk unless I knew or saw something that others missed that confirmed ‘something’ was in the works. This is true even with over $2.5 billion of net operating loss carry-forward credits. If rumors are your game, DTV has been named as a possible merger candidate. On its own merit, DISH is a tasty dish. As a duopoly, it should be able to sustain subscription growth. On the downside are regulatory issues and the TIVO lawsuit.
5) MEMC – no opinion.
6) SIFY – no opinion.

Disclosure: This information/comment was submitted by a CrossProfit analyst and may not reflect the opinion of CrossProfit.com. No positions in above (excluding Dow Ind) held by analyst, no conflicts.
Posted by CrossProfit (IL)
CrossProfit’s new and improved website scheduled to re-open on 2/15/07
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[Ron Coleman]

Eli, I just read your article over on my website FeedTheBull.

CrossProfit, you have a lot of great points in your comments, we would love to hear more from you on our site and have your comments on any articles you like or dislike, or submitting your own articles for the rest of the community to see.

[sufiy sufiy]

Regarding Google:

I have already wrote about Slowing Growth, MC/FCF=95 against Yahoo!'s 28.9, falling Operational cash flow by 9% in Q4 over Q3, saturation point in traffic with Down Trend, Technical Damage, trimming of CAPEX to save Free Cash Flow which is barely flat, but everybody was exited about Earnings and how they "beat" the street. Another surprise here: 13% "Efficient Tax rate" was very handy this Q they have reported EPS 3.29. If we will read ER we will find out that Income before income tax was 1184733, we will apply stated by Google 26% Tax (which is also rather interesting rate) and so normalise tax rate within the year without One Time Benefit due to deal with IRS (they call it "APA" :"Our effective tax rate will be greater in 2007 under the APA than it would have been without it." Surprise, Never Sacrify Party for Tomorrow's Morning.) In plane English if this One Time benefit would not happen now Earnings will be ONLY 1184733*(1-0.26)=876.7... mln USD against 313459 mln shares with Q4 EPS=2.80! way below Street expectations.

sufiy.blogspot.com/200...

Regards,

Sufiy.