WSJ-Qualcomm "The Washed Out Tech Stock"> (This is to funny)
Excelsior Value Fund Mgr Copes With
Market's Growth Bias
By MARA DER HOVANESIAN
Dow Jones Newswires
NEW YORK -- Some 'value' managers wring their hands and lament the
market's obsession with growth stocks. Some day soon, they say, investors
will return to their senses and put money in cheap stocks with predictable
earnings.
Then there's U.S. Trust Corp. (USTC) value portfolio manager Dave
Williams.
While many of his colleagues have stuck to their parochial view of the market -
and trailed the Standard & Poor's 500-stock index - Williams'
unconventionality has allowed his fund to sail past the key index for five out of
the past six years.
Excelsior Value & Restructuring Fund's five-year annualized return of 28.58%,
from 1993 to 1997, beat out the 20.25% annualized return for the S&P 500,
according to Chicago fund tracker Morningstar Inc. Through some
inhospitable years, Williams' value fund has also exceeded the average return
for his peer group during the same five years running.
'The guys that really got strung out were the ones who were rigid, who say
they won't touch a stock if it's trading any more than 12 times earnings,'
Williams says. 'If you're not flexible, you're going to get stuck.'
In fact, this 56-year-old manager who ferrets out buyout targets and leans
toward larger-cap stocks, isn't even sure one can define value stocks these
days. 'It's in the eye of the beholder,' he says. 'Value is whatever you want it to
be.'
Last year, the $660 million Excelsior fund hit a snag, gaining just 10.32%
versus 12.52% for large value funds. The S&P 500 gained 28.58% in 1998.
Investors who flooded into the fund at a rate of more than a million dollars a
day last year - pushing the fund from $250 million in January to $600 million in
six months - disappeared after the market slump in August.
'I dare say we've suffered like any other value manager,' William says, who
had been a growth manager with T. Rowe Price in the late 1970s.
Williams has since recovered and appears to be back on top of his game.
Year to date, the fund has gained 12.52% as of April 14 compared to the
average gain of 5.15% for growth and income funds, according to Lipper Inc.
One analyst says the resiliency of the Excelsior fund's performance rests on
Williams' understanding of what stocks and sectors make the most of current
economic conditions.
'The troubled companies that he likes to own rely on a healthy economy,' says
Morningstar analyst Christine Benz. 'He's looking for kind of a catalyst.'
Value Fund Has Evolved Over Time
Formerly the Business & Industrial Restructuring fund, Williams' fund is one of
two remaining 'theme' funds out of seven launched by U.S. Trust in 1993.
Along with the Energy & Natural Resources Fund, Value & Restructuring is all
that remains of some obscure-sounding fund offerings - Aging of Americas,
Communications & Entertainment, Environmentally Related Products &
Services, Global Competitors and Productivity Enhancers.
The five other funds were merged into the $721 million Excelsior Blended
Equity Fund in September 1997.
The Excelsior family of 25 funds, and $8 billion in assets, are managed by U.S.
Trust, a New York investment management company with a total $79.5 billion
under management.
The Value & Restructuring fund looks different than it did when it was
launched in December 1992: there are fewer mid-cap and small-cap stocks,
with about 80% of the 55 or so holdings in the large-cap end of the value
spectrum.
Even though the 'real down and dirty values are in small- and mid-cap areas,'
Williams says he isn't going out on a limb to buy more of them just yet. 'I'm still
not getting any help from the mid-cap names; that's not where the action is.'
On the other hand, he's also willing to get rid of large-cap stocks that don't
quite fit the value bill any more. From a few years ago when he first bought
Nokia Corp. (NOK) stock, the company has grown into the fund's second
largest holding and Williams has been trimming back this year. He had
Warner-Lambert Co. (WLA), but now he says 'let the growth guys have it,'
after the stock ran up more than 30 times earnings.
He is also committed to some names that he has had since the fund's inception:
International Business Machines Corp. (IBM), Ford Motor Co. (F), Texas
Instruments Inc. (TXN), Xerox Corp. (XRX), Chase Manhattan Corp.
(CMB) and United Technologies Corp. (UTX).
As Name Implies, Fund Likes Takeover Targets, Rebuilders
But, as the name of the fund implies, Williams is also looking for takeover
targets, or companies that are going through some kind of internal
restructuring.
A recent payoff is Qualcomm Inc. (QCOM), once a 'cheap, washed-out tech
stock with a lawsuit hanging over it,' trading at a low of 37 3/4 last October.
Now the stock is trading near 160 after the company's beef with L.M.
Ericsson Telephone Co. (ERICY) regarding a standard for future wireless
communications was resolved.
Says Williams, 'We'd never buy it now; it's not a value stock.'
Where he's still waiting for something to heat up is with companies such as
Dynegy Inc. (DYN), a small gas marketer based in Houston. The company is
in the throws of recapitalizing, as well as retooling its core business. 'It's the
kind of stock that's changing its stripes and getting away from the unattractive
part of the business of liquids,' Williams says.
Though Unisys Corp. (UIS) isn't cheap at 29 a share, Williams thinks its worth
about 40. It hasn't performed well this year, but he sees the
information-technology company as a 'great acquisition for another tech
company that wants to get into the service business.'
Williams also has a hunch that two New Jersey-based companies, Cambrex
Corp. (CBM) and AlliedSignal Inc. (ALD), will combine some time in the near
future. Cambrex, which supplies chemicals to the pharmaceutical business, fits
in with Allied's move to expand its ownership in the industry. 'The reason I like
(Cambrex), besides being cheap,' Williams says, 'is I think it's ripe for the
picking.'
In the meantime, he sold off J.P. Morgan & Co. (JPM) at 110 in January, a
stock he's held for several years. 'The scuttlebutt is that Chase is still
interested...I just got tired of waiting,' he says.
Williams also suspects there's going to be a broadening of the market, where
investors will finally begin to expand investments to other asset classes.
He likes to point out that the gargantuan market cap of Microsoft Corp.
(MSFT) is equal to the combined market caps of 11 companies in his
portfolio: Mellon Bank Corp. (MEL), Texas Instruments, General Motors
Corp. (GM), Ford, Bestfoods (BFO), Chase Manhattan, Avon Products Inc.
(AVP), Xerox, AlliedSignal, Morgan Stanley Dean Witter & Co. (MWD) and
Union Pacific Corp. (UNP).
'Is Microsoft worth all these companies?' he asks. 'I doubt it.'
'This is a perfect time for growth stocks, but this too will change,' he says. 'All
investor sentiment shifts.'
-By Mara Der Hovanesian; 201-938-2129;
mara.derhovanesian@dowjones.com |
