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January 6, 2006 Stock Pick: NetGear, Inc. (NTGR)

Stock Price: $18.00

NetGear, Inc. designs, develops and markets networking products for small business and home users. The company's product offerings enable users to share Internet access, peripherals, files, digital multimedia content and applications among multiple personal computers and other Internet-enabled devices.

This company is involved mainly in the wireless connectivity market. The wireless market is only growing as more and more people want a wireless network within their house for their lap top and other devices such as personal digital assistants. Colleges want wireless Internet within their library and other major campus buildings. Cities want their citizens to be able to access the Internet wherever they go. Wi-Fi and Wi-Max will drive productivity. NTGR has the equipment to make all this happen.

NetGear just announced their intention to offer the first Wi-Fi phone for Skype calling. Skype is a free VoIP service on the Internet. Skype users can call other Skype users for free and call anyone for a small fee. We expect this phone to be marketed by Skype and become popular in hot spot zones.

NTGR is trading at a P/E of only 18.2 and at 1.36 times sales. Revenue for the fourth quarter is expected to be between $124 million and $130 million. Profit margins are expected to be pinched in the fourth quarter, but NTGR has already been priced down because of this and will only go up from here. NTGR is currently at major support and yet 12.11% of the float is still being shorted. Expect some covering to occur this week and NTGR to return to $20.00.

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