An impressive statement by Dan Niles. Perhaps someone
will notice.
--
March 2, 2000 1:25pm
2HRS2GO: Ruminations of a market
veteran
By Sergio G. Non 22GO ZDII
SAN FRANCISCO -- A lunch time conversation (slightly
rearranged) yesterday at the Robertson Stephens Tech
2000 conference:
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"Market's going crazy today, I'll tell you," the
gray-haired, tweed-jacketed fund manager said as he
munched on salad.
The journalist chuckled as he wiped away flecks of blue
cheese that splattered onto his hand. "I'm certainly not
one to predict macro trends in the market."
"I had a client call me, he says, 'What do you know
about biotechs?' And I tell him, 'I don't know much
about them.' So he says, 'See what you can find on this
one, I think the ticker symbol was HYSQ or something
like that.'
"So I get a bunch of analyst reports, put it all together
and send it to him, and he says, 'Buy me 1,000
shares.' And I say, 'But Milt, it already went from 2 to
7.' And he says, 'I don't care, buy 1,000 shares
anyway.'
"That was back in November. Now it's up around 100.
"And I'm supposed to be managing his money."
"Well, what can you do? Who can explain what drives
stocks these days?"
"He's not with me anymore. I do value -- you know, the
safe stuff. I follow the Mercks, the Pfizers, not the
biotechs. Last year I went up 41 percent, more than
double the S&P 500. But I guess that's not good
enough for some people anymore."
"He was probably looking at the Nasdaq."
"You look at these stocks and they go up for no
reason. Power Integrations (Nasdaq: POWI) is up 8
points today. I was at their presentation this morning,
it's the only one I went to, I've been a long-time
shareholder. Did you see it?"
"No, I'm afraid I missed it."
"I like the company, but it's up 8 points! What's different
about Power Integrations today from last week?
Nothing. Most of these stocks that go up or down,
what's different about them from one day to the next?"
Maybe people are just trading on technical indicators
these days. No one looks at fundamentals anymore.
"It's the only thing you can do nowadays."
"So who else have you seen so far in the conference?"
"Went to IBM (NYSE: IBM) yesterday, they did a really
good job talking about their services. Everybody's
talking about services and 'e-business' these days.
"We used to follow H-P (NYSE: HWP) by counting how
many oscillators went out the door. You'd go to an H-P
presentation and there wouldn't be a single question
asked about services, a $4 billion business. Not a
single question."
"Now it's all they talk about."
"You've got to do it. But a company has nothing one
year and all e-business the next? They make it seem
like it comes out of nowhere."
"I guess a lot of it is cannibalizing."
"And these IPOs! It's unbelievable."
"Everybody's trying to find the next hot thing."
"You want to talk about selective disclosure -- see if
you can get your hands on the IPO papers they put in
the hands of the institutional sales force. Totally
different from the prospectus. The sales force has
forecasts for the next 10 years. And the VCs, the
venture capitalists -- they have monthly sales reports at
their fingertips and detailed estimates. If you can get
your hands on those..."
"If I could get my hands on those, I wouldn't be a
journalist. I'd be making money on the other end."
Other issues:
Semiconductors -- Robby Stephens chip and
computer systems analyst Dan Niles has been
popping up in the media this week as journalists peg
him at the Tech 2000 conference.
Not wanting to feel left out, I caught up for a few
minutes with Niles, probably one of the more influential
analysts in his space. Excerpts from the six and a half
minute talk:
"The best buys are always the ones that people don't
like, because those are the ones where you make the
most money. We upgraded Advanced Micro Devices
(NYSE: AMD) at 17 when everbody hated it, and last
week you had some people upgrade it at 40. I'd
personally rather have bought it at 17 than 40.
"It's the same thing with Intel (Nasdaq: INTC), Dell
(Nasdaq: DELL) and Micron Technology (Nasdaq: MU).
They're a great buy because, number one, not
everybody loves them, so they gives them some more
psychology to change; but number two, in my mind, the
fundamentals have clearly turned positive, so it gives
you something to build on going forward into the year.
On his favorites:
"The ones I like the best on the semiconductor side are
Intel and Micron, which I would also classify as
computer hardware plays. but I also think Microchip
Technology (Nasdaq: MCHP) is a great buy. Here's a
company that grew earnings at over 40 percent
year-over-year the next couple of quarters. It's valued at
about 30 times, multiple should be more like 40 and
change.
"I also like LSI Logic (NYSE: LSI), who's growing
earnings at 100 percent year-over-year, and there's still
a big multiple expansion that I think is coming, as they
do a much better job in the communications market."
On competition between Intel and AMD:
"Everybody always wants it to be either-or, but you can
own both. Intel's very focused on corporate America and
Windows 200 and AMD's more focused on the
consumer market.
"It's always amusing how people always want to turn it
down to one guy or the other. The answer is, you can
own a bunch of them and make a lot of money. It's not
a zero sum game in almost any space.
"How many Internet companies are there? Your ZDNet
readers love to read about the Internet, but I don't see
any of 'em saying 'AOL's gonna rule the entire world, so
I want to sell 'em all.'
"You've got, I don't know how many Internet
companiees public now, what, 300 or 400? You've got
what, two big microprocessor vendors? Seems like a lot
easier to invest when you have two guys than when you
have 300 and you really have no idea what's going to
happen."
On choosing companies to cover:
"They're all in the technology area and they all cover
different parts of it. You don't buy semiconductors, you
buy systems, so if you can figure out which systems
you think are going to do well in the coming years it
gives you a better idea of what semiconductor
companies to recommend.
"The problem is, you don't want to be defined too
narrowly. If all you cover is semiconductors how do you
know what's going on in the computer hardware
industry? Are you better off listening to Intel or are you
better off listening to the customers? I believe that the
customers are the ones who buy the product. I'd much
rather listen to Dell and Compaq (NYSE: CPQ)
because they're the ones who know what's going on."
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