In my view, the weakness in the stock is utterly unjustified. At current levels, CLCX is trading at just 1.1x book value and 0.4x sales. On an enterprise value (EV)/student multiple basis, CLCX is only valued at US$9,530 -- a 57% discount to the industry average. The softness, in part, has been triggered by general weakness in the education stock sector.

Total and same store enrollments seemed to have turned the corner in July 1999. Since CLCX has high fixed costs, profits are highly leveraged to enrollment growth. Rebounding enrollments, together with the popularity of higher-cost programs and continued cost control, should result in a rapid return to net profitability. In my opinion, CLCX is potentially a highly cash-generative franchise.

Despite operational losses, CLCX continues to manage its net cash position. Receivables remain under control. While its balance sheet is not flush with liquidity, there's nothing to suggest any imminent disasters. CLCX's operating margins are still depressed from unusual litigation expenses. I expect that gross margins can return to the upper 30% range within a few quarters.

The only big negative is the 1 million share overhang resulting from the shareholder lawsuit settlement. However, this should be easily absorbed by the 2.2 million share short position.

The shorts have been gradually covering on stock price weakness. Reported short interest has been dropping by approximately 100,000 shares every month. Netting out the share settlement overhang, it would take short sellers approximately 10 months to exit their position at the current rate of reported covering. CLCX remains vulnerable to a technical "short squeeze."

Recently, CLCX announced that it hired Piper Jaffray "to assist it in exploring various alternatives to maximize shareholder value, including the possible sale of the Company." I believe that CLCX is a very attractive target at current prices. It is possible that management or strategic investors will attempt to privatize the company, given the low level of gearing. The odds of a successful takeover will increase the longer the stock remains depressed. I believe that the minimum price required to take out minority shareholders is around US$6.

I am very bullish on the IT education industry. There is huge demand for computer programmers and engineers. If the job market loosens up, IT workers will begin to feel less confident about their job prospects--and the number of applicants to adult IT education programs will explode. CLCX's brand name and campus portfolio should allow the company to capitalize on this trend.

Of course, commodities were in the early stages of a profound and sustained recovery. And semiconductors were no exception. DRAM chip prices more than doubled as robust demand overwhelmed supply.

As memory prices soared, the capital budgets of semiconductor manufacturers were ramped up. Based on previous semiconductor capex cycles, there's still substantial room for capex expansion. The industry migration to copper and sub 0.18 micron technology necessitate major capital spending, regardless of spot memory prices.

The Internet revolution, the impending post-Y2K IT spending boom, the sub-US$1,000 PC, wireless/Internet convergence, and the bandwidth explosion are all igniting an unending appetite for chips. In my view, it will take at least three years for semiconductor demand to catch up with supply--even with the industry-wide capex ramp up.

Following my initial coverage, GGNS ran up 135% to US$4. Unfortunately, profit-taking eventually knocked GGNS back below US$2. Volume dried up during most of the decline, which suggests that weak hands are selling. GGNS's market cap of US$35 million is ridiculous.

At current levels, GGNS is trading at just 1.2x sales and 1.7x book value. This is a cheap price to pay for a solid tech stock in a hot sector. GGNS is on track to break even in FY99 (depending on the timing of some orders due in Q4). GGNS has maintained a firm hand over balance sheet liquidity. The low share price is unwarranted.

GGNS suffers from a total lack of analyst coverage. No one cares about the stock. When small caps return to favor, GGNS will pick up institutional support. Based on projected 2001 earnings multiples, GGNS is a steal. GGNS remains a Strong Buy at current levels.

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