Favorite Stock: Novell
Fund manager: Integrated security log-in system sure to be a winner.
February 26, 2002: 11:55 a.m. ET
By Staff Writer Meghan Collins
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NEW YORK (CNN/Money) - While most employees use a password to enter their company's computer network, many systems require users to then log-in to several programs separately -- a task that could be cumbersome.
But Novell Corp.'s single log-in security software could change this behavior, said Greg Jackson, portfolio manager for Oakmark Funds, who chose the company as his favorite stock.
Novell, which made its name in local area network (LAN) technology and packaged software, has fallen from investor grace in the past year. But the company is on its way back up with its move to Web technology and, specifically, its integrated log-in system, Jackson said.
Novell (NOVL: up $0.02 to $3.94, Research, Estimates) shares are trading in a 52-week range between $7.03 and $2.96.
Jackson explained in greater detail why he thinks Novell is a turnaround story and his reasons for picking the company as his favorite stock:
What draws you to this stock? What do investors need to know about it?
The valuation. We think the company is worth $10 per share and it's trading at $4 per share. It has an upside of greater than 100 percent. The company has more than $800 million in cash and securities -- $705 of that in cash. It has $100 million in other investments and real estate worth $496 million at depreciated book value. We believe that this number is understated if you take cash, securities and real estate. If we liquidated the company today we would get between $4.50 and $5.00 per share just for real estate, and it's trading at $3.66 per share. The downside protection is $4.50, which is not much at all.
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Greg Jackson | |
Why will it do well? What do you attribute it to?
They are the dominant player in Netware and LAN administration. People are moving towards the Web. Novell came up with the seamless integration of intranets, extranets and the Internet -- one net system where you can log in to all areas at one time. Novell is very well positioned. Everyone believes this in the next evolution of computing.
After Sept. 11, security has become a major issue. Novell is a very big security network. Some networks have 30 different log-ins for different systems -- what Novell's system allows you to do is to log on with one single password.
What other companies are a threat? What type and how much?
Sun (Microsystems)'s I-Planet is the only competitor and it's not as technically advanced. The French taxing authority replaced this product with Novell's.
What growth prospects do you expect over the next 12 months?
We think Novell's technology has a bright future and no downside. I think the thing people are missing is that executives have said it's an area in which they are willing to spend. Quarter over quarter, Novell improved in 2001. If you look at differed revenue, the new backlog of those waiting to be installed, that suggests this isn't pie-in-the-sky -- this is real.
What are the potential negatives to investors buying it now?
It's a turnaround story. Novell is known for LAN -- they made a lot of money on packaged software. The revenues have been declining for two years. The stock went from $44 per share to $4 per share on the "old" Novell -- the packaged software piece. Some investors are skeptical of the turnaround.
What is your financial interest in the stock? Do you or your company own it?
We are by far the largest holder. We own almost 10 percent of the company. I don't own it personally. 
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