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11/9/98 Dow Jones News Serv. 16:56:00
Dow Jones News Service
Copyright (c) 1998, Dow Jones & Company, Inc.
Monday, November 9, 1998
SMARTMONEY.COM-2:
Being less than two years old, Third Avenue Small-Cap Value Fund hasn't yet received a SmartMoney grade. But it does have years of experience behind it, because of the expertise of veteran value investor Marty Whitman, who co-manages the fund with Curt Jensen. Third Avenue Small-Cap is invested about 30% in the technology sector, with a third of that weighting in small-cap semiconductor equipme nt stocks. "We're getting better prices than you could if
you were a venture capitalist," boasts Whitman. "The sector just got too depressed." Holdings include names like FSI International (FSII), Speedfam International(SFAM), Electroglas (EGLS) and Silicon Valley Group (SVGI).
With the recent surge in the sector, is it too late for investors to profit now? Not according to Whitman. While he concedes that these stocks have staged a dramatic comeback in recent weeks, he believes the real recovery is still ahead. "These companies are still fantastically depressed," he explains, "but we have no question that the digital revolution will result in explosive long-term growth.' In the near term, Whitman thinks the outlook for semiconductors will
remain grim mainly because of overcapacity, which is hurting both
pricing and demand. But after the next year? "A lot of money will be made with these companies." The businesses have unquestionable staying power, plus there's going to be a lot of consolidation.
"' Another new fund in our group is Scudder 21st Century Growth - which is
down 2.8% year-to-date, but up an astounding 34.5% for the past four weeks.
With under $30 million in net assets, the fund clearly has no trouble moving in and out of small-cap stocks. Like Marty Whitman, Scudder portfolio manager Peter Chin likes the outlook on semiconductor stocks.
Roughly half the fund's technology allocation is in semiconductor and data communications stocks, like top 10 positions Xylan (XYLN) and Vitesse Semiconductor (VTSS). With these two stocks up more than 50% in the last four weeks, Chin concedes that there's been a comeback. But he expects the appreciation to continue. "All they've done is snapped back to where they were, and we liked them where they were. There's no reason they can't continue to move up," he says.
Chin expects both companies to have sustainable growth rates of at least 30% over the next few years.
Other stocks in 21st Century Growth's top 10 include enterprise software pro vider Mapics (MAPX) and Pinnacle Systems (PCLE), a
producer of video editing equipment. One stock Chin recently sold was former top 10 holding Network Appliance (NTAP), a data storage company. "Our normal modus operandi is buy and hold, but we've done more trading because of the volatility. We're willing to sell if the valuation is high, and then buy back," he says. Chin says the fund's original cost on Network Appliance was in the 20s. "We sold it when it hit 56, bought it back at 46 and sold it again at 64." Now that's profitable trading.
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