Personal Finance : Under the Hood
The Next AOL: Five
Candidates
By Brenda Buttner
Senior Columnist
11/11/99 11:11 AM ET
I know, hindsight is just about the
clearest sight your rearview investment
mirror has to offer.
Yep, if only you had bought it when it wasn't, well, America
Online (AOL:NYSE). Or at least AOL as we know it now.
Back when it was a little risky small-cap, say, seven years
ago, when on a pre-split-adjusted basis, a share cost about 3
cents. Not bad, considering the stock is selling for near $150
now. Yeah, every investor's dream.
For Jim Callinan, it was a reality.
The manager of RS Emerging
Growth, who can boast a
triple-digit return this year,
discovered AOL way back then.
So, what's the question you'd most like to ask someone like
that? That's right: What's the next AOL?
So I asked him -- and some of the other best-performing tech
managers out there. What do they, who have racked up some
impressive records in the business, think now?
The Next AOL
Five managers weigh in
Manager
Fund
YTD
Return
1-Year
Return
Next AOL?
Jim
Callinan
RS Emerging
Growth
115%
169%
EchoStar
(DISH:Nasdaq)
Garrett
Van
Wagoner
Van Wagoner
Emerging
Growth/ Van
Wagoner
Technology
215/169
284/239
Phone.com
(PHCM:Nasdaq)
Mike
McCarthy
Franklin
Small Cap
Growth
47
61
Tanning
Technology
(TANN:Nasdaq)
Chris
Bonavico
TransAmerica
Aggressive
Growth
20
50
RF Micro
Devices
(RFMD:Nasdaq)
Kevin
Landis
Firsthand
Technology
Innovators
134
198
Packeteer
(PKTR:Nasdaq)
Source: Lipper (fund returns)
Granted, all these guys have money in the stocks they're
talking about. (For some publications, that's a problem. But
my take is, if they didn't have a position in one of their picks,
what does that say? After all, money talks loudest on Wall
Street.)
And granted, this is not an easy ask. "Boy, is that a tough
question," says Garrett Van Wagoner, while pausing and
mentally rifling through the portfolio of Van Wagoner
Emerging Growth, which has delivered a sizzling 284% return
in the past year. "You need a business model that can
expand, a market opportunity that's just enormous and
growing, and the ability to transform."
Exactly. So now you know what we're talking about. Here are
their picks:
EchoStar (DISH:Nasdaq). Callinan is more than high on
this Colorado-based provider of direct-broadcast
satellite-programming services and products. "If I had to say
one company that I'm most excited about, it's EchoStar,
given the potential for satellite to supplement rural cable. One
point in the sky to millions of homes. It's an incredibly
efficient technology as opposed to the highly fragmented
telecommunications sector. Earning about $42 a month per
subscriber -- could be earning about $60 a month in two
years. This is the most exciting company I've seen since I
first saw AOL."
Phone.com (PHCM:Nasdaq). In a prescient call, Van
Wagoner lightened up on Internet stocks back before they
spiked this spring. But he rates this dot-com a clear buy,
despite a price tag in the upper 200s. (He got into the
company as a private placement.) "Think of them as the
Netscape and the Microsoft (MSFT:Nasdaq) browser for
handheld devices. So as the world goes wireless and gets
wireless data, you need their software. They're pretty much
the industry standard. These guys are going to be huge,
huge."
Tanning Technology (TANN:Nasdaq). Mike McCarthy,
co-manager of Franklin Small Cap Growth, is making a big
bet on this Denver consulting firm that helps companies set
up and streamline their online transaction processing. "They
specialize on the back end -- you're going to see more
spending on that side. A lot of people this year set up their
Web site but have to make sure they have the capacity to
handle all the transactions that come through."
RF Micro Devices (RFMD:Nasdaq). TransAmerica
Aggressive Growth's Chris Bonavico is taking a huge stake in
wireless. And one of his favorite picks is RFMD, which
designs and develops radio-frequency circuits for wireless
applications. "Here's an opportunity for a company to really
explode its market cap. They have content that no one else
can provide, and a two- to three-year lead over the
competition in a very difficult space, and I think that's worth a
lot."
Packeteer (PKTR:Nasdaq). Kevin Landis of Firsthand
Technology Innovators calls this the next "wow." Packeteer is
well-poised to capitalize on e-tailers and others anxious to
prioritize their Internet traffic. "It says, 'OK, you're a customer
trying to do business on our site; you get the highest priority.
You, you're just an Internet hit on espn.com; you can wait.'
That's pretty cool. I think of those as markets opened by
Cisco (CSCO:Nasdaq). Imagine these little companies
coming along in Cisco's wake and saying, 'Here's the new
reality of things, and how do we anticipate what people need
now that they've got all this networking gear?'"
Of course, all these stocks should come with warning labels
(along with the funds that buy them). Volatility likely goes
hand-in-hand with their returns, as it did with AOL, especially
in the early days. And anyone who dreams of picking a
10-bagger from the scores of small-cap, cheap stocks out
there had better have a very strong stomach and a keen eye
for numbers. But it can be very worthwhile to at least check
the road ahead as often as you watch your investment
rearview mirror.
Brenda Buttner's column, Under the Hood, appears
Thursdays. At time of publication, Buttner held no positions
in any securities mentioned in this column, although holdings
can change at any time. Under no circumstances does the
information in this column represent a recommendation to
buy or sell stocks or funds. While she cannot provide
investment advice or recommendations, Buttner appreciates
your feedback at TSCBrenda@aol.com. |
