“One Company Dominates the Future” Oxford Club

I don’t know exactly when this email might have first circulated, but it touts a stock that the folks at the Oxford Club believe should be the top grower, and best performer, of 2008.

Naturally, they’d like you to subscribe to receive their special report — it’ll cost you $79 a year, which may or may be your cup of tea. Oxford Club Communique, their newsletter that you get when you join the club, does indeed have a good long term record. Not outlandishly good, but they have outperformed the Wilshire 5000, on average, over many years.

But of course, if you just want the name of their “one stock” that will be the best this year … read on!

It’s all about speech recognition software, and they tease this as a “David beats Goliath” idea, since the big guys like Microsoft have almost all had buckets of trouble trying to develop accurate speech recognition software. They further explain that this is the actual practical kind of speech recognition — the kind that is supposed to be able to recognize anyone’s voice, not the personal voice recognition software that you have to train to recognize your individual voice, which has been pretty successful for many years but has limited utility because each instance needs to be customized.

There are several speech recognition companies, though — so which one is this?

We get a few clues, naturally … here’s a snippet:

“However, all that has changed due to advances by our favorite company – the world leader in state-of-the-art speech-recognition software.

“In fact, this company sells more speech and imaging software to businesses and consumers than anyone. The company has more than 2,000 corporate customers, including automobile manufacturers, doctors, lawyers, hospitals, and cell-phone makers.

“And why has the company been so successful?

“In a word, savings. Their low-cost software provides customers with dramatic cost reduction and efficiencies in their operations.

“For example, it costs about 40 cents per call to have an automated system handle a company’s customer service inquiries, versus about $4 for a human. That’s a 90% cost reduction.”

OK, that’s a pretty good start. Anything else to feed into the mighty Stock Gumshoe Thinkolator?

“This company already owns the killer application in [medicine]. It’s used by over 50,000 physicians in North America alone. It converts speech into text at an astounding rate with an accuracy of over 98%….

“… its PDF Converter software allows users to create, convert and edit PDF files. The company’s application converts text into high quality male or female speech….

“Plus, it’s no pipe dream. With a $2+ billion market cap, this is a solid company with a core of believers behind it.”

Ah … now that makes it appear as though this teaser ad might be a few months old. Not sure, of course, but they at least got their market cap data from a little while ago. Or exaggerated (heaven forbid!)

Because, the Thinkolator thinks, this is …

Nuance Communciations (NUAN)

This is the company that makes the market-leading voice/speech recognition software under the Dragon brand name — and they also do indeed have software that they call PDF Converter. But although it remains a $2+ billion company, it hasn’t actually gotten down to $2 billion for a long time — it was right around $3 billion when it hit its recent trough right around the beginning of the year, with the shares down around $15. Today you can pick up shares for about $20 if you like, and the market cap is about $4 billion.

So … this is indeed the big daddy of independent speech recognition companies (independent meaning that they’re not owned by IBM or Microsoft or one of those big bad wolves), and they do have a good market position. They do claim to have 50,000 doctors using their software, and there are continuing promises from virtually all the speech recognition companies that speech transcription software will be the killer app for the medical software business.

Unfortunately, speech recognition has been the “next big thing” that’s going to change the landscape for at least ten years — and for at least ten years I’ve been hearing that the real breakthrough in use will be “just two years away.”

Maybe they’re right this time — maybe all those medical transcribers will be out of a job in a couple years as Dragon and Nuance take their place, but for once I think I agree with Jim Cramer on this … there have been too many investors trapped by the promise of this technology, only to be disappointed again and again. Even if I accept that at some point this technology will be good enough to take over for more real people — and clearly it is good enough in some situations, as you’ve probably used it yourself in any kind of customer service phone system — I have no idea when that will really happen to a degree that enables investors to be enriched by the trend.

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NUAN is projected by analysts to earn about 8o cents a share this year, and to grow earnings about 25% next year — so they are profitable, with a forward PE of around 20 if those analysts are right. Doesn’t seem like it’s outrageously expensive or a screaming bargain with those numbers, hard to get excited about it either way without knowing a lot more about their business prospects … which, so far, I don’t.

The Oxford Club’s call has been right so far this year — the shares are up by 30%+ from their low point early this year, if you care to give Oxford credit for catching that trough. Does that mean this will be the best stock of 2008? Unless they start figuring out how to turn our hot air into fertilizer I’m guessing they won’t be winning the 2008 race, but that’s just my guess. What do you think?


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INVESTORGIRL
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INVESTORGIRL
May 12, 2008 10:46 am

Speak of turning fertilizer into ??? I have a great idea! Let’s buy a volcano that is minor active, and let’s dump our waste into it, and reduce it to ash, and close the landfills.
ANY TAKERS? GEOTHERMAL THAT COULD ACTUALLY REDUCE WASTE, AND MAN POWER. ALSO WE COULD THROW IN THE GOLD, AND MELT IT, AND RETRIEVE IT. ANY MORE HAIR BRAIN IDEAS?

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stepcat
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stepcat
May 12, 2008 10:58 am

I’m going to ask my realtor to start an MLS search for volacanoes for sale. I mean, what else has a realtor got to do these days? It’s a great idea. Maybe we could even lease part part of the volacno to James Bond “Dr. No” types for their evil headquarters.

As far as Dragon goes, I remember purchasing Dragon Natural Speaks 9 way back in 1999. It was a decent program and I can see why medical offices find it useful. However, I doubt the general corporate offices will begin to use it as a keyboard replacement unless it works flawlessly. Plus, there seems to be some odd synergistic relationship between typing what you are thinking, as opposed to speaking what you are thinking. Perhaps it is that our hands follow the instructions given by our brains, as opposed to our mouths, which, in my case more often than not, sputters our garbage filled with “umms” and “likes” faster that we could ever hope to burn in the miraculous volcano machine.

Cheers,

Stepcat

Gravity Switch
Gravity Switch
May 12, 2008 11:02 am

It’s true, many people type much faster than they typically talk. And I can also seem some concerns on the medical side that would make a great software package much stronger than a basic one, thanks to the crazy spelling and strange terms that aren’t in common english usage … so if one company perfects the software I imagine they’d have a real competitive advantage. But maybe that also opens you up to malpractice concerns if the software isn’t perfect … there’s a reason why experienced and accurate medical transcribers are in high demand.

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Dewey Cheatem & Howe
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Dewey Cheatem & Howe
May 12, 2008 12:55 pm

Yo, Gummy! I own some NUAN! It has been spending much time and money successfully buying out its competition to create a wide array of voice-related solutions and achieve market dominance. Don’t know how many soldiers are left in the voice software field, but it can’t be many. NUAN is also a “Motley Fool Hidden Gems” newsletter pick. But your concerns are duly noted. At the rate you report, I’m guessing you’re fast typist.

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john
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May 12, 2008 1:05 pm

I have been a reader of your’s for quite some time and have a lot of trouble understanding your letter or website comments. you put a heading on it and then you go on underneath the heading and list 4 or so other subjects below it such as on this site you list bakken oil but do not mention it in this letter can you where are your comments on it, when you click on it you get the original piece of properganda. would appreicate your help.

john

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Gravity Switch
Gravity Switch
May 12, 2008 1:24 pm

Hi John. Sorry for any confusion — there are ads by Google at the top of most articles, many of which are often on somewhat related topics, so perhaps you were looking at those. If you want to find anything I’ve written about a topic, the search box is the most effective way to do that. I’ve written very little about Bakken, but the one note I did write that included a lot of reader comments (including many stock ideas, good or bad) was here:
http://www.stockgumshoe.com/2008/04/bakken-gusher-montana-millionaires.html

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bruce
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May 12, 2008 1:42 pm

I have tried the Dragon Naturally Speaking and it works OK for general use, but in a highly ligitious and technical area such as medicine, until it can get ALL the bugs worked out, it will not get wide use. A couple more thoughts, I am sure the “industrial strength” version is probably a lot more sophisticated than the one I bought. I also remember “Lernout & Hauspiie” which was supposed to be the world leader in this technology and they crashed & burned a few years back, but in their case, I think there was some misrepresentation involved.

I have a another Nuance product, Paper Port, which is OK, but has some annoying glitches from time to time.

At least Nuance is making profits, so they definitely have more substance than many of the “vaporware” companies.

I do like Microvision (MVIS) because I think they have a viable, timely product – here’s hoping they can get it to market soon.

Other than that, I am in the natural resources camp. Read Bill Fleckenstein’s column on MSN Money today about inflation.

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EYOUNG
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EYOUNG
May 12, 2008 3:35 pm