Fund Watch Features: Notebook: Quantum Pains Value Pack; Giftrust Suffers; Web Sites Weak
By TSC Staff
12/11/97 3:48 PM ET
The Quantum (QNTM:Nasdaq) earnings warning Wednesday night that is sending its stock and other disk-drive makers down sharply Thursday may seem like just the latest in a string of tech fiascos that will bring sector managers further grief. But the damage is more widespread.
Typically tech-shy value managers had cottoned to Quantum and its brethren because of low valuations in an industry that was piggybacking on the rapid growth of PC sales. They've now gotten burned along with the tech crowd as Quantum has fallen by more than half from its 52-week highs.
"Depending on the time, [the sector has] attracted value and growth managers," says Milton Burns, the self-described value manager of Ethical Balanced, whose (U.S.)$310 million Canadian fund has a sizable portion of Quantum stock in its portfolio. The fund is up 21.4% for the year through the end of November, he says.
Some other "value" funds that have owned Quantum include GMO Small-Cap Value, which held 153,000 shares as of Aug. 31, and Kemper Value & Growth, which had 24,000 shares as of May 31, according to the most recent data available on Technimetrics.
Despite some vocal complaints by industry fans earlier this year that valuations were fundamentally flawed -- disk-drive makers have historically traded at price-to-earnings ratios in the low teens or even single digits -- the latest disappointment highlights why the group doesn't get more respect. Indeed, the low barriers to entry that have consistently plagued disk-drive makers brought on the pricing pressure that Quantum cited in lowering expectations for its fiscal second quarter ending this month. The company says that profits for the period will range between 25 and 35 cents, significantly below First Call projections of 60 cents. Last year, Quantum earned 62 cents per share in its second quarter.
Not surprisingly, Quantum's stock is down 5 1/4, or more than 20%, to 19 5/8 on Thursday in late afternoon trading, while competitors like Seagate (SEG:NYSE) and Western Digital (WDC:NYSE) are off 8% and 6% respectively.
Burns of Ethical Balanced, a longtime Quantum shareholder, believes that the company's problems are short-term and is keeping his large position in the stock. Quantum represents 6% of his U.S. assets, which constitute one-fifth of the fund. In fact, he is looking for an opportunity to buy more. As a value investor, "I buy them when they're doing poorly and sell then when Wall Street recommends them."
Earlier this year, he sold a part of his Quantum stake when the stock hit 37, though he then bought it back in the high 20s. "I may have been a little early, but that's usually the best time to buy," he says.
Another manager who incorporates a value-style approach, Kevin Means of Aetna Growth & Income, was more fortunate, bailing out of Quantum just as it started correcting this summer. He dumped his position when analysts started revising their earnings downward. "When those rolled over, that was the trigger for us," he says.
-- Avi Stieglitz |
