Personal Finance > Investing
Favorite Stock: Metro One
July 3, 2001: 12:44 p.m. ET

Gunnar's Selkin offers ringing endorsement of wireless directory service
By Staff Writer Alexandra Twin
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NEW YORK (CNNfn) - With more than two dozen warnings issued since late Monday, it's pretty rare to find a company that is actually raising its guidance for the quarter just ended. But Metro One Telecommunications, a provider of directory assistance for wireless companies, did just that.

Boosting its per share earnings guidance by eight to 11 cents could build on the momentum of a stock that is up approximately 160 percent year-to-date.

Within the communication services sector, it's even more unusual. The sector is down year-to-date through the end of June by 5 percent, according to Standard & Poor's. The market as a whole was down 7.3 percent.

"What's interesting is it's rare to break new highs in an industry that's pretty much bombed this year," said Donald Selkin, chief investment strategist at Joseph Gunnar, in recommending Metro One. "Many stocks go sideways. This one is moving up."

What appeals to you about the stock?

No matter what the market does, Metro One (MTON: down $0.84 to $43.30, Research, Estimates) goes up. It's in the telecom services group and it does well, so they must do something unusual. The company deals in enhanced directory assistance, a highly automated way of getting info. They handled 100 million requests for info in the last year. They were number 14 on Fortune magazine's current list of the 100 fastest-growing small companies.

Donald Selkin
They look good technically, have a strong uptrend, the multiple is 60-to-1, which is a little on the high side. The P/E ratio is 63. The company has a five-year growth rate of 50 percent. It's doing very well.

The company had a 3-for-2 stock split that went through before the open of trade on Monday, July 1. So when investors look at the price and it looks like it's trading low, that's why.

Who are its competitors and what makes it stand out for you in the sector?

I'd say Infospace (INSP: Research, Estimates), Amdocs Ltd. (DOX: Research, Estimates), Global Crossing (GX: Research, Estimates), Time Warner Telecom (TWTC: Research, Estimates) and Avaya (AV: Research, Estimates). Of all the telecom services companies, Avaya is the only one that's done well. The rest are all down for the year.

On June 14, the company issued a better-than-expected outlook for the second quarter of a profit per share between 38 cents and 41 cents and full-year earnings of $1.33 to $1.40 a share. Analysts polled by First Call on average were expecting 30 cents per share for the quarter and $1.25 per share for the full year. How does this fit into your own expectations for the stock?

They raised guidance. Most companies in the sector issue warnings, offer rationalizations for why they won't meet estimates. For the quarter, my estimate is 40 cents per share. So their outlook falls within that.

At around $64, before the stock split, the stock is basically trading right near its 52-week highs. Should investors be concerned about its long-term growth potential?

The way people should approach this is they should average into it. Buy a small amount, maybe 1,000 shares at a time. It's in a very good uptrend right now. Historically, whenever this stock makes a new high, it pulls back a little. I'd buy from the mid-50s through the low-60s. It's a pretty dynamic story. It's not overvalued.

I'd say in six months, it'll hit $80, in a year, $85.

What risks are associated with this kind of growth? What other risks do analysts need to know about?

The stock has run up a lot. You can make the argument that if they don't meet the higher estimates that they issued, it's going to be a disappointment. But the action of the market is telling you that people have faith in the stock.

What is your financial interest in the stock?

This is not a major holding for us. It's a much smaller holding. It's a $1 billion market cap, which puts it in the Russell 2000, S&P 600 Small-Cap.

It's a specialty area. It's not one of those stocks you buy and hold forever. I'd buy it and hold it for another year and see how it's doing then. graphic

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