Note CS and NN comments
Firsthand Technology's Favorite Stocks
Analyst: Bob Hirschfeld 11/30/99
Kevin Landis, portfolio manager of the Firsthand Technology Value Fund (NASDAQ:TVFQX - news) , is much in demand on the interview circuit.
Why?
The manager has virtually destroyed the S&P 500 Index this year. Through November 26, this $624 million fund is up 139%, beating index returns by about 120 percentage points?no typo--and scoring in the top 99th percentile of all technology funds.
Firsthand Technology, however, is actually an oxymoron.
It has the word ?Value? in its name. But it seeks long-term capital appreciation by investing at least 65% of assets in electronic and medical technology issues. As of midyear, about 33% of the fund was in semiconductors and 10% each in software, computers, and biotechnology.
As a result, at the end of October the fund?s portfolio had an average price-to-earnings ratio of 50.5 while its price-to-book was 12.2. Not exactly a ?value? fund in the Graham & Dodd sense of the word.
Landis might be termed a bottom-up trend watcher. The manager is known for relying on industry insiders for information and for following trends that are still early-stage, not well established. According to Landis, ?the real key comes from understanding the business.?
Landis says his funds reflect a number of key trends in technology, especially in the Internet, where he says the main trend is ?bandwidth, bandwidth, bandwidth.?
This bandwidth trend is exemplified by such fund holdings as Applied Micro Circuits (NASDAQ:AMCC - news) , PMC Sierra (NASDAQ:PMCS - news) and JDS Uniphase (NASDAQ:JDSU - news) . While these companies are well known to many investors, Landis also likes a lesser-known company, Finisar (NASDAQ:FNSR - news) , which provides fiber-optic subsystems for network-based high-speed data communications.
A second key technology trend, also Internet-derived, is what Landis calls the ?e-commerce stampede.? The web, he says, has ?lit a fire under most non-Internet companies,? who want to get e-proficient.
Among Landis's chosen companies in this sector are US Web (NASDAQ:USWB - news) , an online consulting firm, and Exodus (NASDAQ:EXDS - news) , an Internet outsourcing company. In the software tools segment, Landis says Oracle (NASDAQ:ORCL - news) and Broadvision (NASDAQ:BVSN - news) are solid holdings.
A third technology trend is wireless communications services, which would be strong, Landis says, ?just given voice, and not even counting data availability down the road.? Data will give this trend a ?terrific second act,? according to the manager.
Landis says the fund has very large positions in Qualcomm (NASDAQ:QCOM - news) , a leading provider of digital wireless communication products, and Nokia (NYSE:NOK - news) , which provides telecommunications systems and equipment, and is well known from its mobile phones.
Landis describes Nokia as the ?Dell Computer (NASDAQ:DELL - news) of wireless,? noting its high volume, its manufacturing efficiencies and careful attention to production and to the consumer. According to Landis, ?Here?s an example of a company content to do one thing well ? the wireless communication standard (CDMA) -- and not try to become the next Microsoft (NASDAQ:MSFT - news) .?
Landis says he likes companies that remain focused.
Asked what tech sectors he stays away from, Landis says that, over the five years he?s managed the fund, he?s never owned a personal computer company stock, describing the PC business as ?way too competitive and getting steadily worse.? Over that period, the manager says, ?Other than Microsoft, Intel and Dell, most participants didn?t get a seat at the table.? Landis adds that he tends to stay away, not just from PC makers, but from ?PC-centric choices,? adding, ?you won?t find any disk drive makers in the portfolio.?
Though Landis likes buying, and owns, a considerable number of Internet hardware stocks, he does not own, and in fact has never owned what he calls ?the dot-com stocks.? Almost impossible to believe considering his gargantuan returns.
Even so, Landis says he wouldn?t add his name to those who have embarrassed themselves by trying to call a top in the Internet stocks. Clearly, Landis? approach is to enter the market on the right side of a trend, well ahead of time, and not follow the hoopla.
Landis says more recent additions to the fund include Cabletron (NYSE:CS - news) and Newbridge Networks (NYDSE: NN), both of which provide networking solutions. However, Landis concedes that Newbridge is not yet a successful investment.
Landis also takes positions in biotech stocks, and currently owns a large position in Immunex Corp. (NASDAQ:IMNX - news) , the bio-pharmaceutical company whose specialty is developing immune system drugs. But, in general he warns that biotech is truly ?tough science,? in that biotechnology companies face a triple hurdle.
There?s the FDA?s regulatory effort, there?s clinical trials, and, not least, there?s the chance of not receiving HMO payments. In short, Landis says, with biotech, ?there are lots of ways to be wrong.?
Asked whether the classical value investment style of Graham & Dodd could ever be reconciled with tech stock investing, Landis says he doesn?t see a dichotomy between growth and value investing. The manager stipulated that he gained insight into value investing by doing the financial modeling necessary to forecast reasonable earnings expectations two or three years out.
?With better insight,? Landis says, ?you learn to pay the right price.? |
