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TLStockPicks (90.23)

So long, 3Com. You taught me well.

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November 11, 2009 – Comments (2) | RELATED TICKERS: COMS

I consider 3Com to be my mentor in my foray into stock analysis.  Back in 2006, COMS was one of the first stocks I ever bought with real money... not because I knew anything about 3Com, or even stocks in general, but because of the allure that came with being $4 bucks/share, when it used to be so much more expensive.  I can't believe how much I didn't know back then.

3Com is a company with a history of reinventing themselves.  They went from ethernet pioneers to complete network systems to Palm Pilots.  When I got into 3Com, it was gaining a foothold in Chinese networking, leveraging its joint venture with Huawei, H3C, to do so.  As the company emerged from steady losses to non-GAAP black and finally to GAAP profitability, it went through: an attempt from Bain Capital to buy it out for over $5 bucks/share, a rejection of Bain's buyout by the government (citing national security) that sent the share pricing plummetting to <$2.00 a share, a highly questioned decision in 3Com's buying out Huawei's interest in H3C, the hiring of a Chinese CEO and relocation of headquarters to China, the subsequent refocusing of H3C to compete outside of China, and a subsequent rally in the stock markets that propelled 3Com to... well, back to $5 bucks/share.

I had written a blog about a year and a half ago about 3Com under this user name proclaiming 3Com as a misunderstood company. http://caps.fool.com/Blogs/ViewPost.aspx?bpid=64737&t=01008107200910675910 (I've written about them ad nauseam under my previous name).  And because 3Com was so misunderstood, I felt that there was a lot of unrealized value in the company.  The markets disagreed with me for quite some time, so rather than hanging out long, I found a way to trade 3Com in short-term swing trades to make a moderate bit of money.  But that strategy proved foolish as 3Com unexpectedly popped up and I was left watching from the sidelines this spring.  I sat around hoping it would come back down to earth so I could continue my trading strategy, but alas, HP saw value in 3Com today and has put in a bid to buy the company at almost $8/share.

Through these past few years, I cut my teeth on 3Com, applying valuation techniques, analyzing metrics, and disagreeing with fellow Fools who damned 3Com into the 2 star cellar.  At the end of the day, I made a little money, had a little fun, and came out a smarter man.  A few nuggets that I picked up along the way:

1) Value and short-term pricing have nothing to do with each other.

1) (corollary) If you believe a company is truly undervalued, don't get cute with short-term trades.

2) Acquisitions can go bust for the darndest reasons.

2) (corollary) Busted acquisitions can create a lot of opportunity as the arb buyers unload.

3) Never underestimate the power of good management.

3) (corollary) Well managed companies that have a history of reinventing themselves can adapt to almost anything.

4) If you feel your analysis is correct, don't let the opinion of others get in the way.

4) (corollary) If your stock pops and you think you missed the train, re-evaluate--see if there may be another train.

5) Your analysis is useless if you don't act on it.

5) (corollary) Not playing when you should have won is a loss.

Well, 3Com, you will be missed.  I'll be there to catch you if the deal gets killed again!

2 Comments – Post Your Own

#1) On November 11, 2009 at 6:33 PM, Teacherman1 (26.53) wrote:

I guess I need to go ahead and take it off my Watch List. Looks like I watched too long.

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#2) On November 11, 2009 at 6:33 PM, bridgeboy0 (30.97) wrote:

Nice blog!

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