Good morning Glenn. I've been up since 4:00am. I've been trying to get my girls to Mardi Gras. This American Airlines fiasco is, something else.
Glenn you've heard me post about Essex mgmt before? Please remember they were @ one time the "Things" largest institutional shareholder.
This is out of Barrons. Just off the press.
>>But it's Essex's good fortune with Internet stocks that demands explanation. A very long year and a half ago, Pam Cutrell and Colin McNay looked at Amazon.com's business plan and decided the online bookseller was a great value. "We bought the stock on the offering at $3 a share," recalls Joe McNay (adjusting for splits), "and literally cleaned the public market over the next month up to $6. We then spent the rest of the year defending ourselves to our clients."
As shares of Amazon were soaring to a January '99 blowoff high of $199, Essex peeled back a position that Vickers Stock Research showed as high as 4.4 last summer. Amazon now is down to around 100, but Essex has been able to artfully and lucratively reduce its holdings in a way that allowed the firm's 13-month performance through January to be almost as good as its numbers for 1998, company officials say. Internet stocks now comprise 10% of the Essex portfolio.
Yet envious investors everywhere want to know: Was Essex right on the 'Net stocks, or just lucky? Maybe both. In any case, Colin McNay says: "We still love their long-term fundamentals."
Companies like Amazon, Yahoo, @Home, CMGI and VeriSign boast highgrowth businesses with strong cash flow, good returns on equity and high barriers to entry. Back out Amazon's loss-inflaming investment in new ventures, argues Colin, and the Seattle firm's got high cash returns on its existing businesses. Despite its steep sales growth, Amazon's cash burn has been slight. That's in sharp contrast to physical retailers with similar rates of growth. And Amazon's investments in sourcing and shipping infrastructure will make it the low-cost provider in several markets besides books.
Yahoo is a consolidation play, argues Colin. The valuable Internet properties will be those that can aggregate the most destinations and steer users most effectively. As Yahoo attracts more users, it gets more destinations, and more power over each of them. "Over a period of time measured in years," says Colin, "Yahoo and Amazon can each appreciate by several times."
Not that Essex likes every high-tech stock. Its short-selling list includes most of the Year 2000 consulting companies. Essex owned such stocks early, but it's getting close to the terminal phase for their projects, notes Joe McNay. Consumer growth stocks like Philip Morris also get a thumbs down.
The veteran money manager says his career isn't near its terminal phase, however, despite last year's sale of 68% of Essex to AMG. Contracts tie Joe and other senior managers on for 10 years, while AMG's status as a public company and the stock and options it can thus hand out as compensation, allow Essex to retain more junior analysts.
The public company wants to get more mutual-fund money into Essex' hands, beyond the half of Managers Capital Appreciation that Essex now runs.
And what would Essex suggest that individual investors interested in the Internet stocks do now? Be patient. At some point, Joe McNay says, decreasing stock prices will intersect with improving fundamentals. Then, he dares to say, "they will again become reasonable values." |
