Top Fund Manager *Janus Twenty's Schoelzel* likes DELL (thanks to PAL)
Message 5896040
Here is an article from 10/2/98 Investors Business Daily.
Janus Twenty's Schoelzel Adds To Leaders On Dip
Date: 10/2/98
Author: Peter McKenna
There is an old saying that quality rises to the top. In the case of Janus
Twenty Fund , quality not only rises to the top, it stays there.
In recent weeks, while the returns of many mutual funds have plunged into
negative territory, Janus Twenty's returns have dipped and then rebounded.
The fund's year-to-date return got as high as 51% in July. The summer
correction slashed the gain to a low of 25%. But the fund, which has
remained fully invested, has rallied and was up 34% going into Thursday.
Janus Twenty carries an A+ grade from IBD for its three-year total return
of 123%. During that time it outperformed 99% of all other mutual funds.
The portfolio of the $9.4 billion fund is concentrated in just 20 to 30 stocks
and has been managed for more than a year by 39-year-old Scott
Schoelzel. IBD interviewed Schoelzel recently to find out why the fund has
held up so well.
IBD:
Let's start with the $64 question: Why did Janus Twenty hold up while the
market was going through a severe corrective phase?
Schoelzel:
It's because our high P- E stocks like Microsoft, Dell and America Online
did not suffer as much as we thought they would. They are a big part of our
portfolio.
IBD:
Were you surprised by the strength of these stocks?
Schoelzel:
Yes . . . it was a big surprise, but an even bigger surprise was how much
the financial stocks got clipped. Some of the big banks were essentially cut
in half; that was a huge surprise for me.
IBD:
When the market started to drop precipitously, did you consider trimming
your high P-E holdings?
Schoelzel:
No. We were on the phone with people at companies like Dell almost
continuously, asking them about every little detail of their business. They
gave us good, objective insights that helped us determine that it would not
be a good idea to reduce our holdings in the stock. Actually, we ended up
adding to most of our holdings.
IBD:
What type of information did you get from Dell?
Schoelzel:
This is a remarkable company. They don't have a big exposure in Asia;
only about 7% of their business originates in that region, but about 80% of
their cost of doing business is based on the cheap labor costs in Asia. They
have benefited from some dramatic cuts in the price of components.
IBD:
But Dell's sales have slowed recently, along with many other companies'.
Schoelzel:
Yes, their sales rate has slowed, but it is still up 36% year over year. And
Dell recently said that sales are beginning to accelerate again. The company
is still growing.
IBD:
But if we are entering an economic slowdown in the U.S. and around the
world, as some economists say, won't all companies suffer a slowdown,
including Dell?
Schoelzel:
I think companies in the U.S. and overseas will realize that technology is so
vital to their ability to compete that they will cut back on other expenses,
but not on technology. This will favor companies like Dell. The
governments of foreign countries realize that they can't afford to fall behind
when it comes to computers and communications systems. Even individual
consumers have been bitten by the technology bug; they won't spend $200
on a new suit, but they will buy a new cellular phone.
IBD:
What companies other than Dell and Microsoft will benefit from the
conditions you just described?
Schoelzel:
I took advantage of the downturn to open a position in Nokia, the cellular
phone maker. I bought more than 4 million shares at prices ranging from 68
to 74; the stock has been as high as 100 and is now back to about 83.
IBD:
Did you retreat to cash during the downturn?
Schoelzel:
No, we bought more Dell, Microsoft, America Online, Pfizer, Worldcom ,
Home Depot, Warner Lambert, Cisco and others.
IBD:
Do you think high P-E stocks' resilience during the downturn destroys the
theory that these stocks should be hit the hardest in a market decline?
Schoelzel:
I'm not willing to make a bold statement that high P-E stocks are now
impervious to downturns. Stocks with high multiples have done well for a
long time for one simple reason: Their fundamentals haven't changed. If a
high P-E company begins to slip as a business, its stock will still suffer.
IBD:
Do you see any signs that some of the market favorites are starting to slip?
Schoelzel:
Not yet. Some of these companies have shown the ability to grow in the
most difficult operating environments.
IBD:
Give us an example of one of these companies.
Schoelzel:
Microsoft is one. Since 1988, it's gone through almost every conceivable
operating environment. In that 10 years, Congress has been dominated by
the Democrats, and then the Republicans. We've had high inflation, and low
inflation. We've had a host of dramatic political events, and Microsoft
continues to operate efficiently.
If you pull out press accounts from 10 years ago, you could find dozens of
articles that said Microsoft was too expensive. Yet it keeps growing.
IBD:
So you do not believe, as some analysts say, that the market leadership will
switch from large-cap, high P-E stocks to small-cap stocks?
Schoelzel:
That type of change will be short-term in nature. The large companies with
the highest growth rates should continue to lead us forward.
(C) Copyright 1998 Investors Business Daily, Inc? |
