JAN/FEB 1996

S. A. Advisory's Undervalued Hotline
1-900-990-0909 Ext. 192

Bullish But Nervous

We envision a 6000 on the Dow, but may also feel a 4000 as well. Low inflation, low interest rates, slow growth, good corporate earnings and strong investor appetite for equity bodes well for pricey market to stampede to higher highs.

We would avoid new issue after market participation, Internet frenzy stories and most other high PE multiple technologies stocks.

We are accumulating obscure fun-damentally undervalue small caps, out-of-favors and depressed emerging market situations.

At this stage of the game a fine tuned and diverse portfolio needs to be secured in order to soften the blow from a potential volitile market that may be looming


Super Fast Phone Service & 900#

  1. 900# investors were notified on October 23, 1995 to buy Imaging Diagnostic Systems, Inc. (IMDS) at .78/share.
  2. 900# investors were notified on October 29, 1995 to buy EMC Corp. (EMC - NYSE) @ $17.00. See Buy Recommendation in current newsletter.
  3. 900# investors were notified on November 15, 1995, to sell half position in Imaging Diagnostic Systems, Inc. (IMDS) @ $3.00 - a quick 284% gain.
  4. On December 8, 1995, Super Fast Phone Service subscribers were notified to purchase 15,000 shares of CTIG (CTI Group Inc.) @ .41. A cheap technology growth stock - see recommendation in this issue.
  5. On December 10, 1995 our 900# investors were notified to purchase 5 stocks:
    1. CTI Group Inc. (CTIG)
    2. Sequoia Systems (SEQS) ($5.625)
    3. ASM Pacific Tech LTD Hong Kong ($.90)
    4. Varitronix Hong Kong ($1.65)
    5. Eurodisney 2004 Wt France ($.27)

Attractive New Buy Recommendation

Teleco Software, & Windows 95 Software Intro, Robust Revenue & Earnings Growth Foreseen. All for under 50¢ CTI Group Inc. (CTIG-NASDAQ BB)

The company performs billing services (data processing, subscriber invoices and mailing services) for companies that provide long distance telephone, cellular, telephone, international callback and FAX services to business and residential customers. In addition to telecom service providers, the company markets its billing services to the cable TV industry in anticipation of joint cable/telephone delivery systems. The company also markets telemanagement software and services used by business, institutional and government clients to control costs associated with operating private telecommunications networks. CTI Data Solution (International) LTD markets the billing and telemanagement products in Europe and anticipates opening data processing and engineering support facilities to this region.

The company has recently completed its new generation billing software (runs on Windows 95) and expects to be Beta testing this software both internationally and domestically during the quarter ending December 31, 1995. This new product that should be introduced during early fourth quarter of fiscal 96 ending March 31, should enable the company to further penetrate the billing services market.

The company anticipates completing its new licensed software product by the end of its current fiscal year. All bodes well for continued rapid revenue and earnings growth. Management currently is actively pursuing a synergistic acquisition.

Please review the select financial data from enhanced European sales, Windows 95 software and growth in core business; that is, from .06 to .17.

If we were to assign conservative fundamental variables to CTIG, that is, a PE of 15, PSR of 1 and P/CF of 6, our share valuation would be dramatically different than current levels based up current estimations. Pursuant to fiscal 96 if CTIG were to trade at a values according to our theoretical values, then CTIG's share valuation would be .90, 1.00 and .67, respectively. If we use the same standards and base them upon our revenue and earnings estimates for fiscal 97, then our resulting share valuations would equal 2.55, 2.00 and 1.56.

It is quite obvious that if CTIG comes close to these estimates during the next 15 months or so that CTIG is going to be a huge winner. The standard valuations that we have assigned to CTIG we believe are very suitable when one considers that CTIG is a very small company - it is not NASDAQ and its revenue and earnings track records is not proven.

Upon review of select financial data, an astute investor should easily conclude that CTIG is extremely cheap based upon current revenue and earnings as well as future estimations. From fiscal 95 to fiscal 96 revenues are anticipated to grow by 56% - fiscal 96 to fiscal 97 revenues explode by 100%. The earnings picture is just as dramatic - from a (.09) loss during fiscal 95 to an estimated .06 for fiscal 96 - we see an impressive turnaround. The numbers are even more compelling from fiscal 96 to fiscal 97. We see a 183% earnings growth (Note: fiscal 97 growth anticipated).

Included in Chart B we have displayed a cross-section of companies that are primarily providers of software to enhance telecommunications. Obviously, MSFT was included due to the Windows 95 product that was recently introduced. As earlier verbiage described, CTIG will be introducing a Windows product of their own.

Chart A
Recommended price $5.625

Select Financial - Year Ended March 31
1994A 1995A 1996E 1997E 1996E 1995A
Revenues 3.4 ml 3.2 ml 5 ml 10 ml 2.1 ml 1.6 ml
Net income (loss) 91K (477K) 312K 867K 155K (17K)
Income/sh (loss) .02 (.09) .06 .17 .03 --
Shares Outstanding 5.1 mil
Cash as of Sept 30, 1995 10¢/sh
Book Value as of Sept 30, 1995 20¢
LTD as of Sept 30, 1995 18K
Price to earning E 6.83x 2.4x
Price to sales E .41 .20
Price to Cash flow E 3.7x 12.5x

Our main purpose of this comparison is to demonstrate how expensive most software companies are trading with respect to PE valuation for the current fiscal as well as next year's fiscal earnings projections.

CTIG offers investors a very attractive growth story - though small, its PE multiple is very attractive. Upon reviewing Chart A, not only is CTIG's PE attractive, but also the PSR and P/CF offers compelling valuations.

CTIG's enhanced as well as new product introduction, European expansion, growing revenue and earnings and sound balance sheet create a low priced opportunity with very attractive upside potential during the next 1 1/2 years.

If the company can live up to or exceed these estimates, CTIG could and should trade at substantially higher levels.

Our Super Fast Phone Service investors were notified to purchase CTIG @ .41 on December 8. Our 900# investors were notified on December 10. We will be monitoring 15,000 shares in our $100,000 model portfolio for percentage gain performance. We will also monitor CTIG in our 900# portfolio as well

For more information: Corporate - 610-666-1700; Broker Contact - Mike Chesler at 1-800-453-9408.

International Buys

Emerging markets will offer the richest returns for the next ten years. Capitalism around the world is on a roll, transforming Eastern Europe, Latin America, and the Pacific Rim. As heavyweight economies inch ahead over the next ten years, GDP in emerging markets will grow on average 4.9% annually, according to the World Bank, and perhaps twice that fast in countries like China. Developed, as well as developing Asian markets that are expected to grow significantly are Hong Kong, China, Singapore, Thailand, Malaysia, Korea, Taiwan, and the Philippines. (Note: many emerging markets have been declining since the end of 1993, when the emerging markets bubble was at a peak, you can buy into them now at ridiculously cheap prices; i.e., Hong Kong and Singapore.)

The Asian stocks listed below in our opinion offers the patient investor exceptional price appreciation during the next three to five years. They all offer cheap fundamentals, high technology and great growth potential!

ASM Pacific Technology LTD
(Hong Kong) US $1.00 - HK $7.7 •
Traded in the US as ordinary shares - current price US $.90

ASM Pacific designs, manufactures and markets industrial equipment and material for the assembly of semiconductors. Principal products include lead frames, die and wire bonders, and encapsulation equipment. Major customers are Hewlett Packard, Motorola, Siemens, Intel, National Semiconductor, Sanyo, Samsung, and Hyundai. Production facilities are located in Hong Kong, Singapore and the PRC. Over 80% of sales are directed to customers who operate in the Far East. ASM Pacific Tech is considered as one of the world's top five semiconductor assembly and packaging equipment suppliers. During 1995 the company spent HK$140 million on capital investment to improve its production capabilities and boost capacity. The company is the only major semiconductor assembly and packaging equipment manufacturer based in Southeast Asia.

At present there are 368m shares outstanding. ASM International, a Dutch concern, owns 51%. The current dividend yield is around 4% and anticipated at 4.5% for fiscal 96. LTD is only US $19.4 million. Book value is around US$.23. Cash flow is very good and allows self funding.

Economic recoveries in developed nations should help fuel continued demand for semiconductor equipment as purchases of personal computers and telecom equipment pick up further. Rising income in emerging economies also will drive growth in semiconductor usage. It is anticipated that revenue and earnings growth should exceed 20% during the next few years.

Upon review of select financial data, one can easily conclude that revenue and earnings are growing at over 20% annually. At present ASM currently trades at only 10x 1995 earnings and 8.1x fiscal 1996. We do not believe that anyone could show us a high-tech semiconductor play that trades at 10x this year and 8x next year earnings estimate. If you consider the huge growth potential for this company long term, in our opinion it should be assigned a PE valuation of at least 20x and probably closer to 25x. As smart money leaves the expensive US markets and searches for less risk with high growth, companies like ASM Pacific should appreciate dramatically. In our opinion, ASM Pacific should trade at US$2.00 to US$3.00 within the next 6 to 12 months. While we wait, the dividend yield is quite attractive. ASM Pacific offers international diversification, high technology, cheap fundamentals and allows us to reduce exposure to the rich US market. We own it, like it, believe in it and will profit from it. We will monitor ASM Pacific in our 900# and Global portfolios for percentage gain performance.

Broker contact: Greg Nelson at 1-800-453-9408.

Varitronix (Hong Kong)
US $1.00 - HK $7.7
Traded in the US as ordinary shares - current price US $1.65

The company was established in 1978. Varitronix designs and manufactures LCDs and related products. The product range includes standard and custom LCDs; LCD modules; patented customer input terminals; and OEM products. It is one of the world's leading manufacturers of LCDs for customized industrial applications. The company also patented the world's first proprietary touch sensitive hand-held customer input terminal. The customer base is diversified as it covers a wide range of industrial sectors from automotive, avionics and nuclear instrumentation to medical, telecommunication and the military. Likewise; market risk is spread over a wide geographical area, including Hong Kong (29% of sales); Europe (43%); and North America (22%). Customers include international firms such as Ericsson, Grundig, Racal and Siemens and local companies.

Two-thirds of the company's sales are concentrated in the high margin displays used in specific industrial and commercial applications. A quarter of sales are aimed at the local consumer electronics sector. The company stays on the cutting edge of new technologies, for which it is able to create new displays with viable commercial potential.

Solid earnings growth and return on equity. The company has consistently delivered strong earnings of 30%/year during the last three years. The spectacular growth was attributed to expanded production capacity, a better product mix, and improved operational efficiencies.

The balance sheet has been consistently healthy. Debt levels remain low. The cash flow supports investment. Due to high margins on sales, the business is largely self-financing as operations consistently generate strong cash flow.

Following robust sales in 1994 (over 40%), we anticipate sales growth to slow to a more substantial level of around 25%/year during the next few years. Earnings are anticipated to grow by 30% through 1996.

Electronic displays using LCD technology are fast replacing cathode ray tubes in numerous applications. Customer input terminals (CITS) are expected to radically alter the way businesses and individuals handle transactions. This development has important implications for the retailing and banking industries in addition to leisure activities. Two new plants recently built will effectively double existing production, which will contribute to profits by 1996. New technology such as active matrix displays are currently being developed. This technology is anticipated to account for about 1/2 of the world LCD market by the year 2,000.

Upon review of select financial data one can see that revenue and earnings growth has been consistently strong and is anticipated to remain consistent at 25%/year. Based upon current PE values Varitronix International is only trading at 13.7x and 11x, respectively for 1995E and 1996E. When one considers the consistent revenue and earnings growth, it is in our opinion that Varitronix should trade at a much higher multiple. Actually, a 25 PE multiple should be assigned due to the technology, the consistent revenue and earnings growth (25%), large cash position, low debt and attractive dividend yield. If Varitronix traded at a multiple of 25, then its current share valuation would equal US$3.00 and US$3.75, respectively, a dramatic share appreciation from current levels; that is, US$1.65/share.

The Hong Kong market as mentioned in the preceding recommendation has never quite recovered from the 1993 Bear raid, thereby in our pinion offers investors a very attractive opportunity with little downside risk and excellent upside potential during the next 3 to 5 years. When one considers how pricey technology stocks are in the US market, it is our opinion that this Hong Kong based company deserves a serious look and purchase should be considered for the diverse International portfolio looking for discounted revenue and earnings growth. We will monitor for percentage gain performance of Varitronix International in our Global as well as our 900# portfolios.

Our 900# investors were notified to purchase ASM Pacific Technology LTD and Varitronix International on December 10, 1995.

Broker contact: Greg Nelson at 1-800-453-9408.

Snake Bits I

New Buy Recommendation ($5.25) Sequoia Systems, Inc. (NASDAQ SEQS)

Sequoia Systems, Inc. designs, manufactures and markets differentiated computer systems, servers, microcomputers and central processor unit boards for critical information processing environments that require the highest degree of data reliabil ity and availability. These products are based on industry standard components from the Intel Corp., Sun Microsystems, Inc. and Motorola, Inc. with Sequoia-developed technology added to provide fault tolerance and ruggedness as required by the application and user environment.

Extremely Bullish Development - November 15 - Sequoia's Texas Microsystems Sign Distribution Contracts with four of the Nations largest Electronic Firms.

Arrow Electronics; Avnet, Inc.; Pioneer Standard; and Wyle Electronics will distribute ruggedized and rack mounted PC-based systems for industrial and mobile computing environments. Note: last year these distributors accounted for $15 billion in worldwide sales of electronic products.

Upon review of Chart A it is easy to conclude that based upon PE, PSR and P/CF that SEQS is cheap and undervalued with little downside risk. Revenue growth is conservatively estimated at around 18%, while earning growth is anticipated to accelerate to 50% over fiscal 96. When one considers that SEQS has virtually no long-term debt, a major distribution agreement recently signed, a PE multiple that should be 50% higher, twice the growth rate of its peers, namely, Stratus Computer and Tandem Computer and no internal problem that seems to be plaguing Stratus and Tandem, is in our opinion the investment choice for investors wishing to diversify into the computer fault-tolerant group.

From chart B a clear picture is not present. This is due to sluggish growth and slashed earnings projections for SRA and TDM. SRA's PE multiple is on the high side and we would avoid. TDM on the other hand estimates low growth and flat earnings. We would avoid this one as well. SEQS, of course, is the smallest of the three, but revenue and earnings growth anticipated, in our opinion, should sport a PE based upon fiscal 96 of at least 15x. This, of course, would result in a stock trending towards $8.00 over the next 6 - 12 months. This value may be low due to SEQS's conservative estimations, especially when concerning this recent agreement. Our 900# investors were notified to purchase SEQS share on December 10. SEQS geared towards growth oriented investors seeking above average appreciation with limited downside risk. Note: At present two regional brokerage firms are following SEQS. Both estimate earnings for fiscal 96 at 70¢/share. Remember management says 52¢, but they say that they are conservative. Any way you slice it, it looks like a big winner.

For more information: Corporate at 508-480-0800, attn: John Murzycki; Broker contact - Karl Birkenfeld at 1-800-548-8180.

Snake Bits II

New Buy Recommendation EMC Corporation (NYSE - EMC) - (Price $15.625) EMC Corporation designs, manufactures, markets and supports high-performance storage products and provides related services for selected mainframe and mid-range computer systems primarily manufactured by IBM and UNISYS. Based upon earnings projections for fiscal 95 and fiscal 96 for 1.35 and 1.65, respectively, it is in our opinion that EMC deserves to trade at a high multiple of 12.7 and 10.4. Even though growth in revenue and earnings is slowing, a growth rate of 25% is still realistic. Earnings anticipated to grow by 22%. Given the current valuation of EMC shares, we believe perceived negatives associated with increasing competition and slowing growth have been more than priced into the stock. We believe that EMC represents a very attractive investment from a risk/reward standpoint. The PE should expand to at least 16, and assuming EMC achieves anticipated earnings projections, the shares have the potential to appreciate to the mid twenties within the next 12 months. Roughly, a 53% increase from current levels. Please keep in mind that EMC is a high quality, high technology and, in our opinion, highly undervalued at current levels. We see limited downside risk and substantial upside potential long term.

Our 900# investors were notified to purchase EMC shares on October 29 @ $17.00. We will monitor EMC in our 900# portfolio.

Corporate # 508-435-1000; Broker Contact: Greg Nelson at 1-800-453-9408.

Snake Bits III Euro-Disney

2004 Warrants A New Buy Recommendation

We first recommended Euro-Disney warrants 10-26-94 at .12. They ran to .80 within a few months and now they are .27. We find this warrant price to be a super bargain with extraordinary leverage. The common is around $2.50. The exercise price of the warrants is $6.00. They are noncallable and are good to the year 2004.

Euro-Disney surprised even Mickey Mouse by reporting a small profit this year, which by the way was not anticipated until next year. We have so much time for these warrants to work, it is almost a riskless opportunity. The upside potential is enormous. Why the recent stock sell off?

  1. Tax selling season
  2. Nervous French market due to civil strikes
  3. Huge block of stock owned by Prince Al Waleed had to be sold (4% or 28 million shares) - near term pressure on common shares thereby pressuring the warrants.

Just consider if the stock goes to $10.00 by the year 2004 your investment would appreciate by 300%. If the above scenario were to happen, your warrants would be worth around $4.50 that results in a 1566% appreciation. Even the road runner would stop and ponder such an opportunity.

Euro-Disney has turned the corner and in our opinion offers investors a serious international portfolio candidate. New rides and attractions, lower hotel and ticket prices, streamlined operations (job reduction), better marketing strategies, banks waived interest owed, suspended royalty payments to Disney USA until 1998, European Economies growing again, little competition, common stock dividend most likely declared during 1996, will be Bullish for common and warrant appreciation and convention center complex coming on line, all bodes well for Euro-Disney to become shining success, which in turn will make warrants holder very wealthy. We have no interest in common shares - only the 2004 warrants. Again, the leverage is mind-blowing. The ride of your life for only 27¢/warrant. Don't be a Daffy Duck!

We will monitor 10K warrants in our low price portfolio. Will also be monitoring in the Global and 900# portfolios.

Broker Contact: Greg Nelson at 1-800-453-9408.

Quick Bits

  1. Data One, Inc. (DMEM- NASDAQ BB) - Big problem, complete new management team from Digital Equipment (Dec- NYSE) on board to redesign corporate mission. Patience is strongly recommended. Speculative in nature - HOLD.
  2. Other Buys:
    1. (4) A. PST Vans (NASDAQ - PSTV)
    2. (5) B. Tenny Engineering Inc. (NASDAQ BB -TNGI)
    3. (3) C. Meridian National (NASDAQ - MRCO)
    4. (5) D. Quantum Corp (NASDAQ - QNTM)
    5. (3) E. Center Core (NASDAQ BB CCOR - Speculative)
    6. (5) F. Electrocon International (NASDAQ - EPLTF)
    7. (3) G. Wiltek Inc. (NASDAQ BB - WLTK)
    8. (4) H. Cray Research (NASDAQ - CYR)
    9. (5) I. Plasma Therm (NASDAQ - PTIS)
    10. (4) J. ABATIX Environmental (NASDAQ - ABIX)
    11. (3) K. AFP Imaging (NASDAQ AFPC)
    5 = strongest; 4 = stronger; 3 = strong
    Other holds with problems:
    1. DTC Data Tech (NASDAQ BB - DTEC) latest quarter losses and pending merger.
    2. Digital Products (NASDAQ BB - DIPC) latest quarter losses and pending merger.
    3. Pacific International (NASDAQ BB - PISC) may be headed for Chapter 11.
    4. December 18 - we intend to monitor in our low-priced 100K portfolio additional shares . . . 5,000 shs. PTIS @ $2.18, 1,000 shs. QNTM @ $16.25, 5,000 shs. EPLTF @ $2.37, 2,000 shs. AFPC @ $1.44, and 10,000 CCOR @$.18.

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