Cashing in on TECH STOCKS - technology stock picks

Black Enterprise, March, 1999 by James A. Anderson

TODAY'S STARS

So, which companies are the stars of the tech sector? Below, we have identified the best buys in each segment and the reasons you may want to invest in these issues. They include the following:

INTERNET

   LEADER: AMERICA ONLINE (NYSE: AOL) Honorable Mention: MCI-Worldcom (Nasdaq:
   WCOM)

Internet stocks have been some of the hottest shares around in 1998. The reason: the World Wide Web looks to be as much a communications breakthrough as the telephone. In fact, it's estimated that online traffic is doubling every three months.

The explosion of the Internet has certainly taken the stock market by storm. It's hard to gauge the overall impact; S&P doesn't chart the group by an index, but instead lumps it together with computer software and services. Nonetheless, that group, which includes Net stocks, had risen almost 65% in 1998.

Without a doubt, the group leader is AOL, the No. 1 Internet access provider. The company's profits are currently in the black, and analysts predict it will grow earnings at an average 48% annually over the next five years. At press time, all 32 Wall Street analysts who cover the stock rated it a "buy."

Another way to play the boom of the Internet is through long distance carrier MCI-Worldcom. The company may play second fiddle to AT&T when it comes to reaching out and touching someone, but it's a bona fide leader on the World Wide Web, owning approximately 50% of the Internet's network. In other words, when you log onto AOL your communication in chat groups and online shipping goes through MCI Worldcom's infrastructure.

MCI Worldcom is rated a "strong buy" or "buy" by 32 of the 34 analysts that cover the stock on Wall Street. The company is predicted to grow earnings about 30% annually over the next five years.

COMPUTER NETWORKING

   LEADER: CIsco SYSTEMS (NASDAQ: CSCO) Honorable Mention: Lucent Technologies
   (NYSE: LU)

Think of computer networking as the surefire way to bet on the Internet. That's because corporations and phone companies will likely suspend billions on the networking equipment designed to help companies plug into the biggest network going: the Web. That kind of demand, by some estimates, should help the computer networking sector grow sales by 30%-40% a year.

Leading the pack is Cisco Systems, a company whose market share hovers around 70%. Wall Street has the utmost confidence in Cisco's continued dominance. Analysts believe the company can grow earnings by 28% annually over the next five years. That was enough to convince all 30 Wall Street analysts who cover the stock to rate it a "buy" or "strong buy."

Lucent Technologies is another name you might want to look at. Formerly AT&T's research and equipment manufacturing arm, Lucent is the leading maker of equipment phone companies from coast to coast use to keep everyone in touch. But now that the worlds of computer networking and telephone communications are colliding, Lucent has been busy snatching up companies such as the proposed $20 billion acquisition of Ascend Communications, that will help it better compete with Cisco. Wall Street projects Lucent to grow earnings by 22% annually over the next five years, and of the 29 analysts that follow the company, 17 rate it a "buy" or "strong buy."