Glenn McDougall:From Barron's Roundtable today: JDSU.
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Barron's Cover story, JANUARY 24, 2000
interactive.wsj.com
Poles Apart
More tech talk and value picks from our Y2K panel
Trend-hoppers. Bargain shoppers. And everything in
between. That's a neat summation of the four investment
pros whose candid talk of stocks and markets forms the
core of this week's Roundtable installment, the second of
three.
Also woven throughout: the canny observations
good-natured ribbing of the other savvy six. The panelists,
listed above, gathered January 10 with a team of this
magazine's editors to make some sense of this two-faced
marathon bull
Art Samberg,
growth-stock-picker-in-chief of Pequot Capital
Management, and a walking crystal ball of tech trends new
and newer coming soon to a virtual world near you.
Given Art's genuine fascination with all things tech-related,
it's hardly surprising that last year was one of his best.
Paced by Amgen, which shot up 121%, his five '99
Roundtable picks returned a cumulative 52%.
Barron's: Art, what are you buying these days?
Samberg:
My first pick is volatility.
I'm serious. Just
based on the last two months of last year, and the way this
year is starting, I think the market remains volatile for quite
some time. You've got day-traders, ECNs [electronic
communications networks], the repeal of the short-short
regulations for mutual funds. There is more and more
money in the areas I look at in the hands of hedge funds.
And there are all these Internet funds.........
.....Q: Any trends you'd care to mention?
Samberg: Broadband access -- that's something Mario
probably knows more about than I do. I'm sure he'll talk
about AOL and Time Warner at some point, because that's
what broadband is???..
???On the equipment side
I mentioned Broadcom last year as an ASIC semiconductor
provider to cable modems. The stock's been terrific.
JDS Uniphase
interactive.wsj.com
is an optical-component supplier that fits into that
area.
Interactive TV-talk about another trend that's just going to
sweep the country in the next two or three years. It's finally
here, and has something to do with the AOL-Time Warner
deal. Gemstar International Group, which is slated to buy
TV Guide, is another company we own and like. In the
music area, Viacom has this MTVi, which is going to go
public sometime this year. Viacom is a cheap stock. Then
there's wireless application protocol, or WAP, a big
buzzword in the wireless data business.
Gabelli: Why don't you go over that? It's an extraordinarily
exciting area.
Samberg: You're going to be able to do amazing things
with your cell phone. I wish I could mention a few
company names. They will come public this year, but
they're not around yet, the enablers. But it is standardized
protocol to enable your cell phone to do just about
anything-hook up to a wireless data network, pull down
your portfolio. And this stuff is all price-deflationary.
Q: Whom does this hurt? It's competing with some
existing mode of communication and the companies that
facilitate it. What is it going to substitute for?
Samberg: You used to have a meter reader who went out
and read meters. Who wants to be a meter reader? It frees
people from having to do menial tasks like that. It increases
productivity.
Q: In freeing people from menial tasks, though,
somebody's getting laid off.
Samberg: The economic data suggest the available labor
pool is at an all-time low.
Schafer: The fact that you are going to get more
information doesn't mean somebody is going to be laid off.
Gabelli: Oscar, let's not try to resurrect the Luddites here.
Schafer: Before, you saw the performance of your
portfolio when you read it in the New York Times or The
Wall Street Journal the next morning. Then you got
machines that displayed stock data all day long. Now
you're going to be able to check the market on a mobile
basis. So it doesn't hurt anybody. It's just more information.
Samberg: The hardest thing to measure in all these
economic statistics is the quality of the service. If you're
like me and you lose things all the time, you lose the
license plate off your car. In the old days you would have
to stand on line for an hour or an hour and a half at some
DMV [Department of Motor Vehicles] office. Now you go
onto the Website, key in all the necessary information and
go over to the DMV to pick up a new plate. You still have
to show up. But they put you in the right line and you're out
in five minutes.
Neff: Do you lose your license plate a lot?
Samberg: If you drive the way I do, you lose your license
plate a lot. Gabelli: Go back to basics. If a person who has
a budget is spending more for this service in his household
budget, something is scrapped out. Or he has to reduce the
cost of something else. I used to go to a hotel and have to
pay a buck to hook up to the hotel phone. Now I take my
bundled AT&T Digital One-Rate and it costs me only a
dime. I don't pay that service in a hotel room anymore. So
there are offsetting benefits, aside from productivity.
Q: In other words, you're substituting for previously
existing services. Samberg: That's one
reason why inflation is just not running away.
Gabelli: Long-distance minutes that used to cost 25
cents or a dime are now coming down to Internet
protocol-based long-distance.
Samberg: Some of the stuff that is going on is going to
make that even more powerful. Right now there is a
company -- Net2Phone -- which offers very rudimentary,
poor-quality Internet-protocol telephone service. A couple
of companies are doing conference calls over the IP
network. Not just point-to-multipoint, but they're doing
multipoint-to-multipoint. This stuff just drives down
prices. It is Mario's creative destruction.
Gabelli: Absolutely. Schumpeter.
Q: We're not talking about the economic impact of all
these trends. We're talking about the specific impact on a
company that makes something that's being replaced.
Samberg: That's why this is such a vicious market. There
are companies that are getting obsoleted, and lots of new
companies that are doing all the good stuff. The market is
clearly interested in the people and companies that are
creating the new stuff. I will mention some more. E-mail.
That's a commodity that really can be enhanced, and is in
the process of being enhanced. So there are companies like
Critical Path, Kana Communications, MessageMedia,
DoubleClick.
Q: Are you recommending these stocks?
Samberg: I'm recommending all of these stocks. I'll give
you no numbers. I'll give you no prices. I am not going to
tell you which ones are going to succeed or fail. I think
they are all pretty good companies, and if you bought a
package of these stocks over the next three to four years,
you would do very well. Now, I know I can't get away
with that here, so I will also talk about some stocks. I just
want to point out that there is robust change. I hear this stuff
all the time, about how it is a bubble, it's ridiculous. If you
just use numbers to do this stuff, No. 1, you won't buy them,
which is probably a good thing for some people. But you
will never understand the amount of change that's going on,
and how much is still ahead of us.
Q: This particular phase of technological development
has taken place when the economy has been booming, so
ultimate demand at the consumer end has been very
strong for anything. What happens if the economy
falters? If car production goes down, if houses stop
selling as rapidly, if unemployment grows? What then, do
you suppose?
Gabelli: They still go up.
Samberg: Mario says they still go up, so I agree with
Mario. Look, you had a huge interruption in '98 because of
the international crisis.
Q: There wasn't much interruption here, so what kind of
interruption was that?
Samberg: Now you have the rest of the world coming back
and wanting to catch up in a big hurry, so even if there's a
slowdown here, there's a lot of world growth and a lot of
catch-up in the rest of the world. I don't really understand
why there is going to be what you talk about. Andy Grove
[chairman of Intel] said at a conference last summer that
Ross Perot had it right. There was this huge sucking sound,
but it wasn't from Mexico. It was the Internet. And if you
don't have an Internet strategy in the next five years, you're
going to be out of business.
Q: That's a different issue.
Samberg: The markets are smart. The markets had a lot of
stocks up last year, way beyond anything that you thought
made any sense. But I think the market was looking through
the fact that there was a lot of spending diverted to Y2K
issues that's going to come back big-time this year.
Q: So you're saying that A, you can't conceive of a
recession, and B, if there is one, it won't matter.
Samberg: No, I can't conceive of it. I don't see any signs of
a recession out there. In fact, the economy seems a bit too
hot. There is a lot of money out there, and the Fed will start
to tighten. You're basically betting the Fed overcorrects. I
can't predict that. Excluding that, I don't see what gets in
the way of this trend. Now let me talk about stocks. |
