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A Feisty Little Telecom

Time Warner Telecom (TWTC), no longer part of Time Warner, is the David battling Goliaths AT&T (T) and Verizon (VZ). But investors looking for fast growth in the $110 billion business-enterprise telecom market are betting on TWTC, which offers broadband connections for data, high-speed Web access, local voice, and long-distance service. AT&T and Verizon combined have 77% of the market, vs. TWTC's 1%. Even so, TWTC's "core enterprise revenue" grew 19% in the second quarter and is expected to speed up in the years ahead. AT&T and Verizon are the largest buyers of TWTC's services: They use TWTC in areas they don't serve. "TWTC has become a very effective competitor and second-source supplier to companies that need regional or metro telecom services," says Joan Lappin, president of Gramercy Capital Management. Lappin bought in at 5 in 2005 and expects the stock, now at 22.47, to hit 35 in 18 months. After years of losses, TWTC has finally turned around, says Lappin, partly due to acquisitions. In 1998, Time Warner spun off TWTC and later sold its 44% stake. Donna Jaegers of Janco Partners, which has done banking for TWTC, sees "pretty dramatic" growth ahead. In 2008, she expects earnings of 68? a share on sales of $1.25 billion, vs. a 10? loss in 2007 on $1 billion. Jaegers, who owns shares, rates TWTC a buy.

Plum Creek Timber (PCL) is flying high despite the housing slump and market decline driven by the subprime mortgage crisis. The largest private timberland owner in the U.S., with 8.2 millon acres in 18 states, Plum hit a high of 45.46 on Sept. 19, vs. 33 a year ago. Even so, "the stock is trading at a big discount to the total value of Plum's assets," says Benjamin Segal, president of Winchester Capital Management, which owns shares. Based on recent purchases, including deals in Montana and Wisconsin, Plum's timberland is worth $14 billion, Segal estimates. Adjusted for debt and other factors, Plum, now at 44.06, is worth 60, he figures. Its raw timber operations account for 50% of sales, production (lumber and plywood) for 30%, and real estate for 19%. A hidden value, Segal says, is the use of Plum's timber for renewable energy. Rating the stock a buy, Ross Gilardi of Merrill Lynch (MER) (Plum is a client) in a report says Plum's "bigger long-term opportunity could be as a supplier to producers of cellulosic ethanol." He says Plum could enter longer-term wood fiber supply agreements for new cellulosic ethanol facilities over the next several years.

Universal Electronics (UEIC), which makes the remote controls for TVs and other appliances, has caught the Street's eye. Of nine major analysts who track it, eight rate it a buy. Sales and earnings have been steadily rising, it is true. But the stock is down from a high of 39 in July to 32.04 on Sept. 25. So what's behind the optimism? Universal's dominance in making pre-programmed remotes, wireless keyboards, and gaming controls for home video and audio entertainment. And soon it may dominate the huge Asian market, say some pros, who expect Universal to sign a pact to supply Hong Kong's PCCW (PCCWY)'s NOW television service. PCCW, an Asian communication titan, collaborated with Universal to customize Stealth universal remotes for Asia. Michael Coady of investment firm B. Riley (Universal is a client) rates the stock a buy, with a 12-month target of 42. John Bright of Avondale Partners, rating the stock "outperform," says its drop is an "excellent entry point for investors." Universal's fundamentals remain strong, says Bright, who sees it earning $1.45 a share in 2007 and $1.79 in 2008, up from $1.06 in 2006.

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