Filed under: Blogs, Microsoft (MSFT), Dell (DELL), Hewlett-Packard (HPQ), Oracle Corp (ORCL), Opsware Inc (OPSW), 25 Stocks for Next 25 Years, Color Kinetics (CLRK)
I wrote the series, Top 25 Stocks for the NEXT 25 Years during the months of May and June. It was a labor of love as I examined more than 300 companies to come up with what I thought would be the best of the best going forward. The series came to me as a result of a USA Today article back in early May detailing the top 25 stocks of the PAST 25 years. So many of the names were surprising, as many were obvious.
Since I finished the series, three of the top 25 are about to be acquired by larger, well-funded companies. Color Kinetics (NASDAQ: CLRK) will be bought by Royal Philips Electronics (NYSE: PHG) for $791 million, or $34 per share. Opsware (NASDAQ: OPSW) will be swallowed by Hewlett-Packard (NYSE: HPQ) for $1.45 billion or $14.25 per share and finally, Medtronic (NYSE: MDT) will acquire Kyphon (NASDAQ: KYPH) for $3.9 billion or $71 per share. All three transactions are for 100% cash -- no stock, which in itself is very interesting. But what happened and why are these three going to melt into larger organizations?
For emerging growth companies to become truly great, several factors need to be in place for shareholders to benefit. 1) Great and talented senior management needs to be committed and feel the passion of its company's direction. 2) A large addressable market, preferably global in nature, and 3) the opportunity to operate under the radar screen of larger, needy companies. Well, two out of three ain't bad!!
Color Kinetics was revolutionizing the massive lighting market. With the traditional incandescent bulb going the way of the dinosaur, Color Kinetics' comprehensive patent portfolio of next generation systems and products became too valuable for a larger suitor to pass up...enter Philips.
Opsware was re-defining the way large companies and governments service and maintain their massive server farms. Servers run the entire information technology (IT) of most companies and servicing them was traditionally a manual operation. Enter Opsware with state-of-the-art automation software, and companies saw the biggest IT expenditure come way down with efficiency going way up...a win-win situation...enter Hewlett-Packard.
Kyphon has a portfolio of spinal surgery products, all proprietary, that addressed the growing affliction of osteoporosis. Some 700,000 new cases annually in the United States alone, with triple that amount world-wide. Medtronic, the premier cardiac care company, has had its struggles in the spinal segments of the market. With Kyphon's products and Medtronic's mature distribution system, Medtronic should emerge as the premier spinal-care company to compliment its huge cardiac franchise.
The three will be gone from our list, all very profitably from the initial recommendation prices. The sad part is not being able to watch them grow and mature...but that is the reality of investing life.
The fun part about investing (although not recently!) is to hopefully catch some of these rising stars early in their growth cycle. Twenty-five years ago we never heard of Oracle Corp. (NASDAQ: ORCL) or Dell Inc. (NASDAQ: DELL) or Microsoft Corp. (NASDAQ: MSFT), and today they are part of our everyday vocabulary. Google was something toddlers did until nine years ago! Yahoo! was the reaction many young men screamed after that first kiss with a new girlfriend!
Times have changed and with it our vocabulary. I don't know if the remaining 22 companies on the list of the NEXT 25 will alter our vocabulary, but it will sure be fun watching.
The three replacement names to our list of 25 will be published before the end of the week. Watch this space.
Georges Yared is the CIO of Yared Investment Research.
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