Charlie Wolf

Executive Director,

UBS Warburg

CATEGORY: Computers and peripherals

STOCK PICKS: Apple Computer (AAPL), Gateway (GTW), EMC (EMC)

Thanks to the return three years ago of CEO Steve Jobs, Apple Computer Inc. is hot again. Now, to complement its candy-colored computers, early next year Apple plans to roll out a new operating system. It should more easily handle multitasking and will feature a "stunning" redesign that includes translucent scroll bars and drop-down menus that show what's on the window behind, Wolf says. With software developers planning to release new versions of their programs at the same time, Mac users will want to upgrade to the new operating system--boosting revenues by nearly $150 million next year, Wolf says. "Revenues won't look like much, but with gross margins close to 100%, the contribution to the bottom line will be enormous," he says. Apple's stock, trading at about $84, will slide by $100 "like a knife through soft butter" and could hit $150 within 12 months, Wolf says.

Charlie Wolf

He's betting Gateway Inc. will prosper because of its unique ability to sell lucrative services such as training and Internet access along with PCs. While Gateway sells directly to consumers over the phone and the Web, it has a "killer" distribution channel in its Country Stores. There, customers can ask questions and try out machines, but they place their orders online so the stores don't carry costly inventory. Best of all, store sales are more likely to include services and other extras such as extended warranties and financing, which generate operating margins north of 20%, compared with 7% for hardware. Wolf thinks Gateway's stock, now about $50, could hit $80 over the next year.

Outside the PC arena, Wolf likes EMC, a maker of storage systems for computer data. Its "storage and only storage" focus has allowed it to extend its technological lead over such rivals as Sun Microsystems, Hewlett-Packard, and IBM. At the same time, the rise of the Net has made storage strategically important. "A company like eBay must be up 24/7, and the reality is, the one company that can guarantee it most is EMC," says Wolf. He predicts the company's shares, now trading at about $67, could hit $83 within 12 months.

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