In the chips
Fund manager Husic bullish on semiconductor stocks
By John Shinal, MarketWatch
Last Update: 12:03 AM ET March 2, 2005
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SAN FRANCISCO (MarketWatch) - Frank Husic, chief investment officer of Husic Capital Management in San Francisco, has made a living investing in technology stocks since 1982, but he doesn't rest easy on experience.
"I worry every day," Husic said.
Lately, the hedge fund manager is worrying about valuations in the Internet sector. Thanks to the growth of online commerce and advertising, Husic viewed those stocks as relatively safe havens in 2004 amid the economic uncertainties caused by rising oil prices
But now, "expectations are too high relative to the financial prospects," Husic said. "That group is not the place to be," at least in the short term, according to Husic.
That group includes Google (GOOG: news, chart, profile) , which his firm bought last year between $85 and $90 a share and sold recently near $200, according to Husic.
Husic said he bought his Google shares after its much-publicized IPO, and after reports that mutual-fund managers at financial behemoth Fidelity Investments - as well as Legg Mason stock fund guru Bill Miller --were big buyers of the stock.
With those large players snapping up shares of a growth company with a small number of outstanding shares - known in fund circles as a "thin float," Husic said he was reminded of an old stock-picker's adage: "Think thin to win."
But with tens of millions of Google shares formerly held by insiders coming on the market, he believes the stock is "trapped" in a trading range between $175 and $200 a share.
So he's taking the money he made from Google and pouring it into makers of semiconductors and chip-making equipment.
Husic said there's never been a period of sustained economic growth in the last 25 years that didn't benefit the sector.
The next tech boom, in fact, is just getting under way, he said. And unlike the unsustainable boom of the late 1990's, which was propelled by corporations rushing to get on the Web and prepare for Y2K, this one, Husic said, will be driven by steady consumer demand for portable music players, email-equipped cell phones and other mobile devices.
All of those "gee-whiz gadgets," as Husic calls them, have one thing in common.
"They all run on chips," he said.
Husic's biggest holding is Ultratech Inc., (UTEK: news, chart, profile) whose equipment uses lasers to help manufacture integrated circuits and nanotechnology components.
Husic calls the company "an intellectual property play," because it also owns a number of patents related to the technology, which he thinks is catching on.
His firm rode the stock "from $9 to $30" in 2003, according to Husic, then sold it before starting to repurchase it again last year.
"We own more than anyone, including the CEO," Husic said.
According to data from Vickers Stock Research, Husic Capital owned 1.64 million shares of Ultratech as of Feb. 25, compared to 1.44 million shares owned by company CEO Arthur Zafiropoulo.
Shares of Ultratech rose 62 cents on Tuesday to $16.49.
Husic also likes Lam Research, (LRCX: news, chart, profile) , which sells equipment to big chipmakers like Intel. He likes the company not just for its technology, but for the quality of its management.
Lam Chief Executive James Bagley, "is a genius," Husic said.
On Tuesday, shares of Lam Research added 44 cents to $31.88.
Husic also likes technology companies such as Verisign (VRSN: news, chart, profile) that stand to benefit from increased spending on computer network security software by the public and private sector.
"The government is a huge buyer of security, and that's not going to change anytime soon," Husic said.
Shares of Verisign closed Tuesday at $28.19, up 77 cents.
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