Money Managers Debate `Intrinsic Value' of Technology Stocks
New York, April 4 (Bloomberg) -- If value investors at a
Gabelli Asset Management Co. conference today didn't ignore the
latest stock market decline, they at least tried hard not to let
it distract them from their principles.
While a TV blared market updates to an empty room upstairs,
about 200 money managers, consultants and reporters huddled in a
basement auditorium in New York, peering at an 8-year-old
videotape of a speech by a Columbia University finance professor.
The topic: what Gabelli's chairman, Mario Gabelli, calls ``the
Rosetta stone'' of value investing: the 67-year-old textbook
``Security Analysis'' by Benjamin Graham and David Dodd.
``Value investing is really a mindset, it's an outlook,''
said one of the conference speakers, Graham-Dodd disciple
Christopher Browne, co-owner of investment manager Tweedy, Browne
Co. LLC. He said a visitor to his firm once told him, ``You walk
in here and you can't tell the market's open.''
Value managers try to ignore short-term price fluctuations,
instead aiming to use Graham and Dodd's methods to determine a
company's ``intrinsic value,'' and buying a stock only when it's
selling at a discount to that value.
``We like to watch turtles race, paint dry, and grass grow,''
Mario Gabelli said during the event at the Museum of Radio and
Television.
Still, the yearlong plunge in stock prices that drove the
Nasdaq Composite Index to a 30-month low yesterday has sharply
changed the investing landscape.
Value Outperforms
Value-style managers have now outperformed their growth
counterparts over the past five and 10 years, said Fred Schaefer,
senior vice president of consulting for Evaluation Associates,
which helps institutions pick money managers.
And the technology stocks that have shaped Nasdaq's gains and
declines have fallen to a point where Barbara Marcin, manager of
the Gabelli Blue Chip Value Fund, is now buying them.
Tech stocks account for 20 percent of the fund, up from 6
percent a year ago, she said. Among positions she's bought or
added to since September: Lucent Technologies Inc., Compaq
Computer Corp., Motorola Inc., Cisco Systems Inc., Corning Inc.,
Nortel Corp. and EMC Corp.
``Cisco at $13.50 to me is a value stock,'' she said. ``I
feel very comfortable buying technology now.''
Paul Sonkin, manager of the Hummingbird Value Fund LP, is
betting some technology companies are better off dead. For
example, he said, Hummingbird bought shares of Web retailer
Mothernature.com Inc. for 75 cents because the company planned
separate payments of 85 cents and 15 cents to shareholders in a
liquidation.
``We've been purchasing quite a few of the dot-coms,'' he
said. ``In a liquidation, all you have to do is determine the true
liquidation value of the assets, and the valuations are
compelling. The technology's obsolete and everyone's been fired,
so there's no technology risk.''
Different Style
Legg Mason Inc. has embraced a different approach with dot-
coms. The firm is now Amazon.com Inc.'s second-largest
shareholder, after Chief Executive Jeff Bezos, in a bet that the
Web retailer can reach profitability in businesses other than
books in the next 10 years and ``create value faster'' than
traditional rivals, said Chief Investment Officer William Miller.
Bruce Greenwald, a Columbia professor who teaches a value
investing course, wondered about the strategy, though. He said
Amazon.com has no way to fend off rivals.
``Are there captive customers? Is there a franchise? By the
terms of the history of retailing, there is no franchise,'' he
said, because Web shoppers have little loyalty.
Greenwald said technology stocks are harder to value because
the equipment they make be turned into a commodity product by
industry changes.
``Forget it,'' he said. ''In the long term it's all toasters
-- you can't accurately value a company like Cisco.'' As for stock
price declines, ``I think we've got a long way to go.''
© Copyright 2001, Bloomberg L.P. All Rights Reserved. |
