Friday, March 08, 2002

Bottom Fishing For Cash-Rich Companies

NEW YORK - The market has knocked the stuffing out of Avici Systems, a North Billerica, Mass.-based maker of fiber-optic products. From a 52-week high, the stock has fallen 88% to $2.19. But with cash and equivalents of $129 million and not much long-term debt, Avici has $2.62 per share in cash.

Sound interesting? It does to John Buckingham, co-editor of the Prudent Speculator investment newsletter and manager of the value-oriented Al Frank Fund, a mutual fund with $60 million in assets. Buckingham suggests that companies in situations such as that of Avici (nasdaq: AVCI - news - people ) are often candidates for buyouts.

"We're not the only ones who see all that cash," he says, "and if you like the business, why not buy the company when you can basically get it for free?"

Of course, a downtrodden company such as Avici could confirm the market's fears and go bust. Public since July 2000, Avici has yet to turn a profit, and given the oversupply in fiber-optic cable and equipment, it's not surprising that the firm shows discouraging consensus forecasts for 2002 and 2003.

Analysts expect Avici to post a loss of $1.25 per share this year, narrowing to a loss of 92 cents in 2003. Over the next several quarters, Avici will probably have to tap into its cash hoard to pay for day-to-day operating expenses.

Still, at just over half book value, shares of Avici might be worth a flier, particularly if one has faith that there's still enormous untapped demand for broadband communications. Another positive: Over the past six months insiders have bought 50,000 shares, while refraining from selling.

Full story at