TRIPLE BAGGER INTERNET STOCKS

My prediction that the Dow had made a classic short term top in last weeks column was on the mark. The Dow has already slide 400 points from its recent high and the SP500 is down to 1315 in this three days since my column was published. With a full fledged dollar-yen crisis, malaise in the US debt market, disenchment with the quasi-indexing Nifty Fifty superstars and the resurgence of Japanese equities with their attendant capital flows reversals all reinforce my reluctance to chase the big cap market basket just yet. As readers of this column know all too well, my strategic objective is to find technology stocks where I can double or treble my money. In other worlds, to borrow language from the New York singles sune, the hunt for the proverbial triple bagger. My track record has several triple baggers in the last twelve months. Last summers call on Sun Microsystems at a pre-split price of 24 was a classic 3X triple bagger now that SUNW is 85. So were the successive market calls to buy Double Click, Lycos, Juno Online (a pre-IPO play), AOL (at 25 in '98), Inktomi and the new age telcos Redback and Juniper Networks. Earlier, my calls to buy Lucent, Yahoo, Amazon.com and Orange in 1996-97 when they were floated performed even better than my 3X benchmark. Amazon and Yahoo rose twenty times above or more the price I recommended them at their IPO.

Yet, in this merciless profession, it is futile to rest on past glories or 3X winners. Triple baggers are rare gems, impossible to find without insightful intelligence, macro-strategic brilliance and a sixth sense for the hard instincts of the top tech fund managers who call the big shots on NASDAQ. In short, these are not the kind of ideas your neighborhood retail broker will recite to you from his "morning call" research sheet. And as for relying on your private banker to give market class, I bet you throwing darts at the financial pages is probably more helpful for your net worth! So do your own thing. Ignore the crowd. Fine tune your own strategy. Respect risk. Remember, only the Pope is infallible but the following three stocks now seem potential triple baggers to me.

CRITICAL PATH (CPTH)

Talk about an Internet fallen angel! CPTH soared from its IPO price to 24 last March to 150 and has since plunged to 32 - 34. At a mere $1.3 billion market cap for the next millenium's leading B2B e-mail hosting infrastructure, I can think CPTH can at least double to 65 - 70 in next four months. Their revenue growth is 400%. They will achieve positive gross margins by Christmas. The fabled Internet laws of exponential return and scale economies are at work here. This San Francisco firms is the world's leading provider of state of the art E-mail boxes/messaging services to corporations, ISPs, Web portals and governments. The market for outsourced E-mail applications and Web hosting services are going from zero in '96 to $7.5 billion next year. Some time in three years almost a billion E-mail boxes will exist in cyber space with 10 billion messages. This is a phenomenal opportunity for Critical Path as it has the first mover, scalable technology infrastructure and embryonic global footprint to seize this fabulous price. My call? Critical Path rises to $100, a classic potential triple bagger.

CHEMDEX (CMDX)

This Morgan Stanley IPO in August was a victim of the tech swoon last month. CMDX was priced at 15 and is now 21, a respectable performance but not fabulous. Yet this is a fabulous B2B commerce electronic market place, the world's first secure web based procurement system that streamline the supply chain of industrial chemical and life sciences. This is not a Mickey Mouse B2B niche but a $20 billion global market whose fragmented, information intensive and distribution bottlenecks makes it ideal for an E-commerce platform. Chemdex is not just the first mover, it is the monopolist in this niche because like EBAY in person to person auctions, it has achieved the critical mass of suppliers and customers that creates a liquid, real time electronic hub for a vertical industry critical to international pharmaceuticals, agribusiness, chemicals and research. This is no trivial achievement. Chemdex is a $700 million market cap now. I predict it will be a $2 billion market cap next year. In other words, another B2B E-commerce triple bagger.

CREDENCE SYSTEM (CMOS)

Telecom networking, communications pipelines, high speed Internet data links and digital media are transforming the world via their exponential global rollout. Yet who tests the logic chips and signals that power these specialized microprocessors? Credence is perfectly positioned to supply automated test equipment to the semicon business via its proprietary technology. Better still, it has no volatile DRAM exposure. Its bookings are exploding, particularly to key clients like Samsung and Intel. Thus, CMOS is a classic "arms merchant" of the Internet, communications and digital media chip revolution. I bought CMOS in June at 26 when it was worth only $500 million. It is 48 now. I will not sell, as this is another triple bagger.

Sadly, I think a Fed tightening is on the cards in October. The dollar crisis, an economic rebound in Europe and Asia, $24 crude oil and rising/metal prices, the imported inflation implicit in a $300 billion US trade budget deficit, strong customer spending, tight labour markets and creeping wage inflation, a possible 4% GNP in the 30 - all suggest that Chairman Greenspan has no choice but to hike the Fed funds rate. The only silver lining in this dismal scenario is that the Fed has not warned US about an impending rate hike, their pattern this year to date. Until the October FOMC meets, the stock markets are going to tread water. Still, what do I care? I hunt for triple bagger not chase market indices. Rate hike or no rate hike, Chemdex, Critical Path and Credence are some of the most compelling tech stories on NASDAQ. Time will tell if I hit the 3X bullseye once again and, as usual, you will be my ultimate judge. Meanwhile, as the Italians say, que sera sera.

MATEIN KHALID
PORTFOLIO MANAGER
GULF AL BARAKA INVESTMENT LLC

The opinions expressed by the writer are his own and not endorsed by Press Release Network.

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