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Get Four
|  | MARCH 1, 2005
Playing in Today's IPOs and M&A [Page 2 of 2] Q: Are there any other IPOs coming down the lane that you think investors should look out for? A: Yeah, take a look at a company called International Securities Exchange (proposed ticker as ISE). They're looking to list on the NYSE -- they may go public in the next few weeks. They've filed with the SEC already. I do have a Web site (www.currentofferings.com) where I provide research on IPOs. I will probably put out a research report on this company next week. This is a relatively new company that believes in using the Internet to build a better securities exchange. This is actually the first time since 1973 that a company has had the approval to build a stock exchange. The company has a management team and board of directors who are all from the Who's Who of Wall Street. The company is fully electronic and focuses on equity options -- call and put options. It's currently the largest options exchange in the world. The options market is growing at a tremendous rate right now and will continue to do so. Investors see the value in the liquidity of options. ISE, in fact, is going to try to focus more on institutional investors and will have growth for years. The Chicago Mercantile Exchange (CME ) went public last year -- that company has done wildly well in the aftermarket. Not to say that that will be the same with ISE, but some investors are betting on strong growth going forward for the company. Q: Speaking of options, what's new in the options market, and what does it tell us about the investment climate? A: What's new in the options market is that it's becoming easier to use through automation. There is a company called optionsXpress (OXPS ) that went public several months ago and is a provider of services for investors to automate the process of options strategy. The traditional notion about options is that it's high-risk, but in actuality, options can be an effective way to generate income and protect the portfolio. What does this mean for the market? It means investors are trying to protect their downside and look for more conservative strategies. As investors continue to do this, ISE and optionsXpress as well as other companies like them will benefit. Q: ExxonMobil (XOM ) -- buy, sell, or hold? And are there any small growth opportunities in the energy sector? A: I never thought I'd say this, but I'm thinking of buying Exxon! The stock has had a good move, but I believe for the long term, the global oil companies should continue to do well. You'll have both capital appreciation and dividend growth for a while. It's hard to see oil prices coming down significantly. I do think it makes sense for investors to start thinking more about commodity-type businesses. One of the better ones happens to be energy. Q: With the baby boomers aging, are there interesting new companies in the assisted-living area or elsewhere in health care? A: A company that you may want to look at is called Lifeline Systems (LIFE ). They've been around over 30 years and develop alert technologies, with which if you're at home and suffer medical problems, the nearest facilities will be alerted to provide assistance to you. From a demographic standpoint, that business stands to go into a growth phase. As baby boomers get older, they certainly don't want to live in facilities but want to stay in their homes as long as possible. Lifeline enables this and also helps insurance companies avoid unnecessary hospital costs. Lifeline also has gone to a subscription model, rather than a hardware-selling model, and this should be a great benefit to the stock. The stock has moved somewhat, but I do think it's a diamond in the rough. As it continues to grow and earn money, it will continue to catch on. Q: Among the IPOs you've seen -- or anticipate -- do you see any industry patterns like tech in the last boom? A: The pattern I'm seeing in the IPO market consists of two trends. One is diversification across industry. Not just technology, but real estate, insurance, chemical companies -- we've seen a huge array. This is a healthy change for the market. It's more traditional. IPOs are not about just the latest and the greatest, but about providing any growth company with the opportunity to get extra capital and grow even faster. Another new facet: The companies are more consistently high-quality companies with consistent models that have barriers to entry. There are still duds in the area, but for the most part we're seeing an assortment of companies that are high-quality. Q: So these IPOs have a better quality than the ones we saw in the tech bubble? A: Yeah. No doubt about it. Some of these are legends -- we saw Dolby Labs (DLB ) go public in the last week. This is a company that was founded 40 years ago and has become a global brand. The company is growing at a fast rate for what you'd think is a mature business. It will also probably continue to grow, since almost every DVD player and disk has some Dolby technology built in. You have a great brand, great revenue model, and great technology rolled up into an IPO for investors. Q: Do you have any favorites among successful growth companies that are long past the IPO stage? A: There's one company I'm an investor in that's clearly well beyond its IPO stage. It's called Entrust (ENTU ). The company has had difficulties over the past couple of years, but a new CEO and management team have come in to restructure operations. The company's now profitable and is growing very nicely. A recent report shows that it has beaten Wall Street by a great margin. It got its start in digital certificates that provide security for online transactions. Verisign (VRSN ) managed to win in that area, though, so Entrust has had to find other places to grow. They have a great suite of products, though. Identity theft is becoming a huge problem, and Entrust has launched a new product to deal with this. Entrust has also come up with an artificial intelligence e-mail scanner that companies can use to ensure compliance with federal regulations. The company has been overshadowed in the marketplace, but has turned the corner and has products that appear to be at the right place at the right time.
 Edited by Jack Dierdorff
BW MALL
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