| BUSINESSWEEK ONLINE : JUNE 14, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| BUSINESSWEEK INVESTOR -- THE BARKER PORTFOLIO
How a Tech-Fund Star Picks His Plays For chickens like me, the prospect of investing in anything tech is enough to spark a full-scale anxiety attack. Yes, I know I'd be $60,000 ahead had I only put 10 grand into Lucent Technologies(LU) when it went public three years ago. Yet I also can't help thinking I might instead have picked Network Associates(NETA), leaving me now with stock worth $8,500, a tax write-off, and some explaining to do at home. These days, however, tech is looking less scary--and I don't just mean that the Internet has made once-prudent attitudes seem phobic. Tech stocks are simply cheaper. Microsoft(MSFT) is off 17% from its high. Intel(INTC) is off 25%, and Dell is down 38%. Yahoo(YHOO)! and Amazon.com(AMZN)? Each is returning from outer space, down 40% to 50%, depending on when you look. The more they fall, the more curious I am to learn how to buy tech the smart way--that is, by focusing as much on risk as on riches. For despite all the talk out there lately that valuation doesn't matter with tech--and doubly not with Net shares--it matters plenty if you bought America Online(AOL) in April and by May saw 65 cents on your dollar. So I went to school recently with Chip Morris, the guy who runs T. Rowe Price Science & Technology Fund. A trim Marylander who looks as if he could play second base for the Orioles, Morris instead runs $6 billion in the biggest no-load tech fund around. He joined as an analyst in 1987, stepping up to manager in 1991. Still only 36, he already has had a couple monster years, one or two to forget, and an overall record rivals admire. ''He's the best,'' says Paul Wick, manager of Seligman Communications & Information Fund. ''He has the courage of his convictions.'' He also happens to be hot, up 79% since Oct. 1, and happy to share lots of tips, including this: ''When it's cold out, technology stocks perform better than when it's warm.'' If that sounds goofy, hold on. Tech often suffers in summer, he explained, because there are fewer investor meetings to hype technology issues. Tech outfits also are prone to fall short of earnings estimates amid the season's general business slowdown. COMPUTE THE FUTURE. Morris named some of his picks, such as software maker Adobe Systems(ADBE), where better financial controls, new products, and growing demand from Net companies are speeding profit growth. He also likes Parametric Technology(PMTC), which has a promising software program for engineers called Windchill. The Parametric bet has yet to pay off, but Adobe is surging. Those companies make money. How does Morris size up the profitless Internet outfits whose valuations aren't supposed to matter? He calculates what he calls a ''practical price-to-earnings ratio'' (table). The idea is to assume a company nets as much on a dollar of revenue today as it hopes to in its best-case forecast of future profitability. If a company won't say what its optimal profit margin may be, he looks at other companies in the same field to see what kind of margins they enjoy in a good year. ''What you're doing,'' he told me, ''is converting companies that are promising profits and saying 'I'm going to compute your future promises into current profitability.' That takes a lot of the mystery out of it.'' Do that for Amazon.com, and at 230 times earnings it hardly seems a bargain, even if it is about half its price a few weeks ago. Barnesandnoble.com(BNBN)? Even less so at 390. Morris won't buy these at today's prices, but he isn't totally Net-phobic. He owns AOL and PSINet(PSIX), an Internet service provider he was buying in late May around $43 a share. His pencil work is ruling out most other Net stocks for now, but it also tells him what stocks ''if they pull back 30% or 40%, might be worth buying,'' at a practical p-e of, say, 80 to 100. Before flying to England for a Memorial Day vacation, Morris left colleagues just such a list. He isn't sharing it, but with his method you might prepare your own. BY ROBERT BARKER _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
RELATED ITEMS How a Tech-Fund Star Picks His Plays TABLE: One Way to Value Net Stocks INTERACT E-Mail to Business Week Online | |||
