You Can't Take it With You

Lately, the market hasn’t been able to hold a profitable tune. Instead, it’s been silent as a morgue. The dot-com corpses lie toe to toe with the elder statesmen of their tech times. Six feet under? You wish. Try 20,000 leagues and you’re getting warmer. With the big chill still in the air, I thought a necessary service stock might lift your spirits.

My high flyer? Rock of Ages (ROAC), an integrated quarrier, manufacturer, and retailer primarily of granite gravestones and memorials (no kidding). For a ground-level business, funerals are a high mark-up industry.

Founded in 1883, just a few years after Edison harnessed electricity, and operating under its current name since 1908, Rock of Ages has been constantly growing, acquiring smaller memorial dealers and retailers as well as quarries and manufacturing plants. Their plan to take it all with them has resulted in their current total of 13 active quarries, 10 manufacturing and sawing facilities, and 110 company-owned memorial retail stores.

Quarrying and manufacturing are principally carried out in Vermont, Georgia, and Quebec. Based in Barre, Vermont, the firm primarily offers the funereal classic–Barre Gray Granite–but also carries imported varieties and variations of stone. They supply four different brands of “Rock of Ages” memorials as well as non-branded memorials to an additional 1,200 independent retailers, and can also do custom work the likes of which can be seen on their Web site (www.rockofages.com boasts of a full-sized Mercedes Benz carved from a single piece of granite–leaving me to ponder the fate of the car, not the owner. I mean, wouldn’t it have been more fitting to have bronzed the damn thing?). They also sell unrefined granite blocks to other memorial companies, but they claim that they save the best for their own lasting product lines.

Along with their memorial business, the company also runs the Rock of Ages Precision Granite Products Division, producing industrial granite products such as machine bases (of up to 60,000 pounds) and rollers for the paper and steel industries. The Precision division has also found ways to seal granite for use in wet or ultra-clean environments, too. And you thought a slab was just a slab.

Rock of Ages went public at $18.50 per share in October of 1997 and promptly flatlined, but lately it’s begun to show signs of life. The firm’s net income for the second quarter of 2001 is up a record 30%, or $0.54 a share, with revenue up 9% from the same quarter last year.

Kurt Swenson, the firm’s CEO, president, and chairman of the board (try fitting all those titles on a marker), attributes this success in part to the “operational enhancements” the company implemented over the last year. The enhancements include system-wide branding and pricing, sales and marketing programming, and a computerized MIS system. The company is standing firm with its guidance for the remainder of the year, anticipating revenue of $100 million for fiscal 2001. At a recent price of $7 per share (just under the five-day rental cost of “A Weekend At Bernie’s”), the company is a haunting half of its IPO price. Its market cap is just $52 million.

The company currently feels that its stock is not truly representing its value, and the board has authorized a repurchase of up to 500,000 shares. (Rock of Ages trades at a 63% discount P/E multiple of 11.4, versus the average multiple of 31 at which the funeral services sub-industry is priced.)

While such activity could be seen as just shy of trying to resurrect the dead, I think this Lazarus may be able to prop itself up.

Technology

High-Tech Traffic Cop

Tech meltdown survivor Pericom makes chips that control the transfer of data

Pericom Semiconductor Corp. was founded in 1990 and went public the same time that Rock of Ages did–October of ’97. At a recent share price of $18.67, the firm has a $466 million market cap, and trades for two times trailing earnings. The company makes more than 650 interface integrated circuit devices in four different families of products. Unlike tombstones, however, its integrated circuit products could no doubt use a down-to-earth definition, to help the lay person better understand the ups and downs of its industry.

Digital electronic systems have three primary types of integrated circuits. Memory chips, such as DRAMs, store data for later use. Data processing chips, such as the Pentium, perform calculations and other complex processing. And interface chips control the transfer, routing, and timing of data. Pericom is focused on this third category of interface circuits, such as interface logic, data switches, and clock management circuits. It’s the fastest-growing category, and Pericom has delivered heavenly gains and hellish retrenchments (see chart at right).

This third category of chips is relatively overlooked by most lay people, but among the true tech believers, it arguably bears more resemblance to the high-innovation, high-margin business of making microprocessors than to the commodity-like business of making DRAMs and other memory chips. As microprocessor power continues to increase (doubling about every 18 months, according to “Moore’s Law”), the speed with which data can be retrieved from memory and sent to and from various devices (bus speed) must also increase to fully take advantage of the improved processing. That means faster bus clock speeds (and/or “wider” buses–basically with more data wires) that require more precise data timing, since the data must be more closely synchronized to avoid errors at the higher speeds. The growing use of parallel processing also requires much more sophisticated interface circuits to move data into and out of multiple processors. Some interface devices need to accurately mix analog and digital circuits. And finally, the needs of portable computers include reliable performance at lower powers and voltages.

Enter Pericom Semiconductor Corp. (PSEM) and its four product lines, known as SiliconInterface, SiliconSwitch, SiliconClock, and SiliconConnect. They’re all aimed at increasing the speed and performance of the various aspects of integrated circuit interfaces, and the company has sustained a rapid rate of new product introductions. Pericom is not lacking in major competitors. There’s Texas Instruments, IDT, Maxim, ICS, Cypress Semiconductor, IMI, and Motorola, to name but a few. But Pericom has made inroads nonetheless. Its customers are OEMs (original equipment manufacturers) in the computer, peripherals, networking, and telecommunications markets, including 3Com, Apple, Sony, Xerox, IBM, Dell, Compaq, and Lucent. They have collaborative relationships to ensure an adequate product supply at any given time to Chartered Semiconductor, Taiwan Semiconductor Manufacturing, Hyundai Electronics, Austria Mikro Systeme International, and New Japan Radio Corporation.

For the second quarter of 2001 (the fourth quarter of Pericom’s fiscal year), the company’s revenue was down 56% from a year before and down 49% from the first quarter. Net income was down 91% from the year-earlier quarter. However, it was still a record year for Pericom, with revenues up 19% to a record $108 million and net income up 31% or $0.64 diluted earnings per share. Pericom’s “turns” business (orders received and shipped in the same quarter) also improved over the quarter, although it was not up to what the company itself had expected it to be.

Over the past year, Pericom has introduced 73 new products, 58 of them proprietary, and has won recognition from Compaq, earning its 2000 Strategic Commodity Excellence Award. In addition, Pericom was also ranked 20th on Fortune Small Business Magazine’s 100 list of fastest-growing, publicly-held small businesses in the U.S.

Are the accolades worth the current stock price and potential future of less pain and more gains? With its current $466 million market cap, Pericom trades at a 65% discount price/earnings multiple of 24.4, versus the 70.7 average multiple at which the semiconductors sub-industry is priced. Like Rock of Ages, I think it won’t take too much to breathe new life into a stock that looks moribund at the moment.

Telecommunications

Testing, Testing, 1, 2, 3 . . .

Tollgrade Communications keeps tabs on your phone, cable, and Internet connections

T ollgrade Communications makes testing devices and status monitoring systems for the telecommunications and cable TV industries. This Pittsburgh-based company was founded in 1988 and got its start developing products for the telephone industry, expanding to the telephone, cable, and DSL testing industries over the past 10 years. Their IPO was in 1995 and they’re listed on the Nasdaq.