The Wall Street Journal Interactive Edition -- June 30,
1998
Computer Networking
By LEE GOMES
Staff Reporter of THE WALL STREET JOURNAL
Doing a standout job covering computer-networking stocks
last year involved supplying correct answers to a few big
questions: Will Cisco Systems continue to dominate the
industry? Will 3Com or Cabletron stumble? Will Bay
Networks have a late-year rebound?
The three top All-Star stock pickers in the sector earned
their standings by answering "yes," "yes" and "yes." Even
then, it was hard to make any money.
Of the three, only David Takata, 35 years old, of Gruntal
managed to generate a positive return, and it was only an
estimated 4%. But then the typical computer-networking
stock picker actually lost 31% -- the second-worst
performance (behind precious metals) of the 50 industry
groups covered in the All-Star survey.
Mr. Takata knew enough to keep recommending Cisco in
the spring, even when an industry slowdown caused the stock
to drop to nearly $30 from nearly $50. It rebounded nicely,
of course, ending the year at nearly twice that level. But
there were some nail-biting weeks while it was unclear
whether shares would recover.
In addition, Mr. Takata spotted some opportunities that
others missed. For example, he began the year with the
belief that Internet service provider BBN was likely to be a
good acquisition target for an expansion-minded telecom
company. He was proved right in May when GTE agreed to
buy BBN for $616 million. Mr. Takata then downgraded the
stock to a "hold," locking in a 28% return based on BBN's
price at year-end 1996.
Mr. Takata, a four-year veteran at Gruntal, is modest about
his prescience. "It was an obvious recommendation," he says.
"They were one of the top-tier service providers, and I liked
their emphasis on the corporate marketplace rather than
the more trendy consumer market."
The second-place stock picker in the sector was Luke T.
Szymczak, 35, of Prudential Securities; Tim Luke, 31, of
Lehman Brothers came in third.
For this year, all three share the same familiar pick: Cisco,
the industry titan, which they agree shows no sign of slowing.
"If anything, they are growing their lead," Mr. Takata says.
In fact, Cisco's strength against the competition is one
reason the three analysts are, for the most part, refraining
from recommending most other computer-networking
stocks.
There are some exceptions. Mr. Szymczak thinks Fore
Systems could be poised for a new growth spurt later this
year because of some new products. Fore was also the subject
of takeover rumors earlier this month. In May, Mr. Luke was
recommending Bay Networks again, this time as a possible
acquisition candidate.
For his part, Mr. Takata sees another BBN-style
opportunity in PSINet, an Internet-service provider. Mr.
Takata says the company may also be an acquisition target,
possibly for some newly deregulated foreign telecom
company looking to expand.
When they aren't picking stocks or looking at schematics of
networking routers, the three networking specialists are all
part-time jocks -- Mr. Takata with basketball, Mr.
Szymczak with bicycles and Mr. Luke with soccer. Of course,
all of them complain they don't have enough time to follow
their bliss. "This can be a real burnout job," Mr. Takata says
with a sigh.
Estimate Accuracy -- (of 25 analysts in group)
Name Honors Firm Factor
Farrokh Billimoria Hambrecht & Quist 0.63
David Takata * Gruntal 0.65
Mary Henry 2 Goldman Sachs 0.68
Joseph J. Bellace 2 Merrill Lynch 0.70
Paul Weinstein 4 PaineWebber (DB) 0.74
Stock-Picking Skill -- -- (of 25 analysts in group;
median return -31%)
Name Honors Firm Return
David Takata * Gruntal 4
Luke T. Szymczak Prudential Securities - 1
Tim Luke Lehman Brothers -12
Peter Swartz Salomon Smith Barney -16
William Becklean 3 Tucker Anthony -16
Honors refers to the number of years an analyst appeared in
the All-Star roster.
*Winner in more than one category |
