Jonathan Cohen, the director of investor relations at Mercator Software, has received several calls recently from portfolio managers wanting to "kick the tires" of that small company, which helps other businesses integrate their computer systems.
Some professional investors have taken the trouble to study the client lists of the company, which is based in Wilton, Connecticut, and to scrutinize its financial statements, Cohen said. But that has not led to heightened demand for its stock, which is languishing at US$2.35 a share, down from a high of almost US$150 in early 2000.
Many investors have been studying small and midsize high-technology companies like Mercator, hoping to uncover a stock that will soar whenever the two-year tech slump ends. But there has hardly been a stampede back into the sector. With the pain of recent losses still fresh, many professionals are especially cautious, demanding lean operations, clean balance sheets, substantial cash reserves and significant market share in companies' core businesses.
"I want to find a company that has aligned itself with a major trend, has a clean story and knows what it wants to be when it grows up," said Jeff Bernstein, co-manager of the ING Midcap Opportunities fund. He is based in New York with ING Investments, a unit of ING, the Dutch investment bank.
Investing in a technology stock today requires "stepping back and looking at the whole landscape to see where dollars are being spent right now," said Hank Hagey, an analyst on the technology team of Citigroup Asset Management.
Mercator has been hurt by the fact that companies have not been spending heavily on information technology, acknowledged Kenneth Hall, its chief financial officer. "We can't control how long the information technology recession will last," Hall said. "But we can control our costs and cash flow to weather these times and do enough research and development to be in a strong position to recapture revenues" when higher spending resumes.
Now run by a management team hired in January 2001, Mercator raised US$16 million cash from private investors in December and reduced its work force by 29 percent. It cut its negative cash flow from operations to US$650,000 in the first quarter from US$8.1 million in the year-earlier period. The time that its customers take to pay bills, an important consideration for tech companies, has fallen to 63 days, on average, from 107.
Scary declines
Carl Palmieri, a private investor who runs a computer distribution firm in Bridgeport, Connecticut, said he started buying Mercator stock 18 months ago; in that time, the stock once dropped to US$0.95 a share. Palmieri said that he now owns 44,000 shares and that he expects to buy an additional 20,000 in the next month.
"I've played with technology stocks in the past, but I think at this point there are software stocks that are undervalued, especially in system integration, which is still in its infancy," he said. He is impressed, he added, with Mercator's client list, which includes IBM, Nestle and major health care and banking companies.
The stock rallied briefly to US$10.15 in January, but much of its recent fall can be attributed to the company's declining revenue, which slipped to US$27.4 million in the first quarter of 2002 from US$28.7 million in the period last year.
Many investors remain on the sidelines. "There are investors who have recognized and appreciated what management has done, and others who are disappointed because of the year-over-year revenues," Hall, the chief financial officer, said.
Across the sector, revenues may not improve substantially until corporate technology spending ramps up. Analysts like Hagey have been assessing whether the prices of individual stocks already reflect expectations of future returns. They are also looking closely at balance sheets.
"We want to see killer balance sheets because we don't know when an investment is going to work," said John Morosani, a managing director at ING Furman Selz Capital Management in New York, a private asset management arm of ING. Morosani focuses on small-capitalization value stocks. "If a company's not making money," he said, "we want something where there's so much cash, it can survive for a few years."
Among companies with adequate cash reserves, he said, are Ultratech Stepper, a leader in technology to solder wires to microchips in flat panel displays and mobile communication devices. Its shares, which he owns in client accounts, are at US$15.05, down from a 52-week high of US$26.56; he said he has paid an average of US$16.80. The company has $7.50 a share in cash, he said.
Similarly, Forrester Research, a technology consulting company in Cambridge, Massachusetts, is trading at US$19.98, down more than 60 percent in the last two years, but has almost US$9 a share in cash, he said.
In the case of Ultratech, he said the company's technology, which allows thinner products to be made, gave it a competitive edge in its field. It already holds a 90 percent market share in one important business and 60 percent in another, he said.
Other investors are avoiding prominent technology companies -- like Cisco Systems, Sun Microsystems and EMC. Bernstein, for one, said he believes that they are too mature to benefit as much as some smaller companies when the sector recovers. "When their businesses come back, their growth rates aren't going to be that exciting," he said.
ROLLER-COASTER RIDE: More than five earthquakes ranging from magnitude 4.4 to 5.5 on the Richter scale shook eastern Taiwan in rapid succession yesterday afternoon Back-to-back weather fronts are forecast to hit Taiwan this week, resulting in rain across the nation in the coming days, the Central Weather Administration said yesterday, as it also warned residents in mountainous regions to be wary of landslides and rockfalls. As the first front approached, sporadic rainfall began in central and northern parts of Taiwan yesterday, the agency said, adding that rain is forecast to intensify in those regions today, while brief showers would also affect other parts of the nation. A second weather system is forecast to arrive on Thursday, bringing additional rain to the whole nation until Sunday, it
LANDSLIDES POSSIBLE: The agency advised the public to avoid visiting mountainous regions due to more expected aftershocks and rainfall from a series of weather fronts A series of earthquakes over the past few days were likely aftershocks of the April 3 earthquake in Hualien County, with further aftershocks to be expected for up to a year, the Central Weather Administration (CWA) said yesterday. Based on the nation’s experience after the quake on Sept. 21, 1999, more aftershocks are possible over the next six months to a year, the agency said. A total of 103 earthquakes of magnitude 4 on the local magnitude scale or higher hit Hualien County from 5:08pm on Monday to 10:27am yesterday, with 27 of them exceeding magnitude 5. They included two, of magnitude
CONDITIONAL: The PRC imposes secret requirements that the funding it provides cannot be spent in states with diplomatic relations with Taiwan, Emma Reilly said China has been bribing UN officials to obtain “special benefits” and to block funding from countries that have diplomatic ties with Taiwan, a former UN employee told the British House of Commons on Tuesday. At a House of Commons Foreign Affairs Committee hearing into “international relations within the multilateral system,” former Office of the UN High Commissioner for Human Rights (OHCHR) employee Emma Reilly said in a written statement that “Beijing paid bribes to the two successive Presidents of the [UN] General Assembly” during the two-year negotiation of the Sustainable Development Goals. Another way China exercises influence within the UN Secretariat is
Taiwan’s first drag queen to compete on the internationally acclaimed RuPaul’s Drag Race, Nymphia Wind (妮妃雅), was on Friday crowned the “Next Drag Superstar.” Dressed in a sparkling banana dress, Nymphia Wind swept onto the stage for the final, and stole the show. “Taiwan this is for you,” she said right after show host RuPaul announced her as the winner. “To those who feel like they don’t belong, just remember to live fearlessly and to live their truth,” she said on stage. One of the frontrunners for the past 15 episodes, the 28-year-old breezed through to the final after weeks of showcasing her unique