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Technology Stocks : EMC How high can it go? -- Ignore unavailable to you. Want to Upgrade?

To: Lynn who wrote (4830)	3/11/1999 5:30:00 PM
From: John Carragher	Respond to of 17183

Stein Roe Fund Mgr Sees Some Mkt Tumbles,But Good'99 Finale By Christopher Bowe CHICAGO (Dow Jones)--Stein Roe & Farnham Growth Fund manager Erik Gustafson said the U.S. stock market will end the year higher than recent levels, but in the process it might see a significant cyclical downturn. "It'll go down 25%. I bet it does it this year," Gustafson told Dow Jones. As the stock market digests its current gains, Gustafson has lowered his fund's total technology exposure to 28% of the portfolio from 36%. He moved from more volatile technology stocks into steadier financials and consumer goods issues such as Citigroup Inc. (C), Gillettte Co. (G), and Coca-Cola Co. (KO) But he maintains that full investment in the stock market is definitely the best bang for the buck. "The risk is not being in the stock market," Gustafson said. "More money was lost waiting for the correction than was lost in it." It's the go-go market philosophy of a generation of younger portfolio managers who didn't live through protracted bear markets that has been subject to criticism from veterans of Wall Street. But the 35-year-old Gustafson welcomes the skepticism and doubt that says younger managers are not adequately prepared with the lash of experience for a bear market. "I love that type of skepticism," he said. "The point that we haven't experienced our own bear market simply is not valid." Young managers are more comfortable with the new technology companies that have steadily replaced traditional industrial stocks on the S&P 500, Gustafson said. The information age - still in its early stage - has changed the productivity in the economy and added speed to market trading in general, he said. Even without a protracted bear market, younger managers have had to adapt to whipsaw-like swings in volatility - especially in the technology sector. These swings can leave managers with their "guts ripped out" in a week, which is like a micro bear market, Gustafson said. Plus, losses in bear markets, like in 1973 and 1974 - a period when the Dow Jones Industrial Average fell 45% - might have scared, not helped, the older managers who have held back from jumping on this "great bull market," Gustafson said. "Just because they were there didn't mean that they didn't get absolutely ravaged," Gustafson said. Mistake Was Passing On America Online and Dell A graduate of the University of Virginia with degrees in American history and English, Gustafson said he learned investing from his father, who started him trading at age 13. He obtained a master's in business administration and a law degree simultaneously in four years at Florida State University. After practicing as a commercial litigation attorney in Miami, he joined Stein Roe in 1992. Gustafson manages the $1 billion Stein Roe Growth Fund and co-manages about $2 billion more between the company's Young Investor Fund and an institutional derivative fund. Stein Roe's Growth Fund posted a 1998 return of 26%, which was 2 return points below the year's S&P 500 index gains. The main reason the fund underperformed the S&P 500 was that Gustafson tried to take advantage of the euro and invested in European companies. Although he came out about even from the buy into Europe, the play kept money away from U.S. stocks that could have spurred the fund to better overall performance "I made a strategic move to increase exposure in Europe," Gustafson said. Gustafson said another mistake in 1998 was not buying America Online Inc. (AOL), Yahoo! Inc. (YHOO) and Dell Computer Corp. (DELL). "I didn't own Dell or AOL, which hurt us. Dell is a monster stock," Gustafson said. And almost as if reproaching himself he repeated, "The Internet is here to stay. We should have owned Yahoo, we should have owned AOL." He said he passed on the Internet high-fliers not because of an aversion to expensive positions, but because of very high price-to-earnings ratios. As for stocks he likes right now, Gustafson said he just bought Tyco International Ltd. (TYC), the maker of such varied products as disposable medical supplies and fire detection and suppression systems. He also started buying St. Louis-based agricultural and pharmaceutical company Monsanto Co. (MTC) in the low $40 range. Although he still has concerns about Monsanto's management and its recent failed merger attempt, Gustafson said Monsanto is a good speculative pick. ' 'It's kind of a wild card," he said. His strategy is to own the No. 1 business in its sector. The three key sectors for the near future are technology, health-care and financial services, Gustafson said. Picking from his fund's more mature holdings, his ideal, seven-stock fund is composed of Cisco Systems Inc. (CSCO), MCI WorldCom Inc. (WCOM), EMC Corp. (EMC), Pfizer Inc. (PFE), Eli Lilly & Co. (LLY), Medtronic Inc. (MDT) and American International Group Inc. (A