Two managers of the year view on stocks
Growth-fund gurus see bullish year
By Michael Molinski, CBS.MarketWatch.com
Last Update: 6:00 PM ET Jun 29, 2000 NewsWatch
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CHICAGO (CBS.MW) -- Two of the top-performing fund managers of the “new economy” issued vaulted forecasts Thursday for the growth of technology stocks.
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However, Jim Callinan, manager of RS Emerging Growth Fund and Morningstar’s 1999 “manager of the year,” and Garrett Van Wagoner of the Van Wagoner Emerging Growth Fund, Value Line’s 1999 “manager of the year,” also clashed on which tech sectors will enjoy the most growth.
Both money managers, squaring off on a panel at the annual Morningstar Investment Conference in Chicago, agreed the Internet will power the economy in the 21st century, and both said they expect sharp growth from technology stocks and the Nasdaq -- in spite of the current slump.
“We’re going to see an 8, 9, 10,000 Nasdaq in the next three to five years,” Callinan said.
Van Wagoner added: “The Internet is the biggest technological change since the wheel. It’s going to continue powering growth for years to come. And it’s not going to be what some guy in San Francisco with Birkenstocks and a pierced eyebrow is creating.” Rather, the use and make-up of the Net will be determined, for example, by “what Jack Welch at G.E. is doing.”
RS Emerging Growth (RSEGX: news, msgs) gained 183 percent last year, while Van Wagoner Emerging Growth (VWEGX: news, msgs) shot up 291 percent.
Where the two managers differed was on which sectors and companies within technology are the best suited to capture growth from here on out.
Van Wagoner said he pays particular attention to profitability and said business-to-business and Internet infrastructure companies are among those best suited to capture both profitability and growth.
Callinan said he’s not afraid to invest in companies that continue to “burn cash” and won’t see profitability for a while, and said business-to-consumer Net companies could come back into vogue.
“B2C may be the place to go now,” Callinan said. “I own a lot of companies that are burning cash.” Many such companies dropped in price over the past few months and are good buys “if they have a good idea.” Companies like Autoweb.com (AWEB: news, msgs), Webvan (WBVN: news, msgs) and Excite (ATHM: news, msgs) “are doing the right things,” he said.
He said many Internet companies that went public late last year and early this year are now passing the 180-day period in which venture capitalists that had invested in them are restricted from selling their stock. After the venture capitalists sell their shares, those stocks could become great bargains, Callinan said.
Van Wagoner disagreed on the outlook for B2C stocks. “A lot of B2C companies are in the distribution business. If you don’t make the product yourself, you’ve got to make it up on volume. And volume is costly.
“We still think there are a lot of good business models in B2B and infrastructure,” Van Wagoner said. “A lot of infrastructure companies will be getting profitable by this time next year.”
Both agreed that companies involved in the wireless data area and Internet communications companies stand to see sharp growth. “I have a big bet on Metrocall (MCLL: news, msgs),” Callinan said. “I think it’s going to be successful, but I don’t know when.”
Callinan also said he’s “a big fan of Amazon (AMZN: news, msgs). I do think they are going to survive and do well. But as with a lot of trailblazers, the visionary leader of it (CEO Jeff Bezos) is in over his head. They need some CFO types.”
Both fund managers lost heavily during the sell-off in tech stocks in April and May, but both are starting to climb back. RS Emerging Growth is up 3.3 percent so far this year, while Van Wagoner Emerging Growth is up 5.3 percent, according to Morningstar.
“This caught us all by surprise,” Callinan said. “It was the first time that I haven’t panicked and thrown out a lot of stocks that I should have thrown out. Money was coming in very fast, and to try to trim when that is happening is very difficult.”
Both, however, said they haven’t changed the way they manage risk in their funds. “You’ve got to just hang in there,” Van Wagoner said
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