E-commerce and wireless telecom are two places to look for growth in today's stock market, believes Pat O'Neil, president of Loring Investments and manager of the Loring Hedge Fund. O'Neil also expects more trouble to emerge along the lines of the improper-trading charge leveled by New York Attorney General Eliot Spitzer against the Canary Capital Partners hedge fund (see BW Online, 9/4/03, "Scandal Finds the Funds' Sly Secrets").
These were a few of the points O'Neil made in an investing chat presented Sept. 4 by BusinessWeek Online on America Online, in replying to questions from Jack Dierdorff and Karyn McCormack of BW Online. Following are edited excerpts from this chat. A full transcript is available from BusinessWeek Online on AOL at keyword: BW Talk.
Q: Pat, are you as enthusiastic about stocks as the market seems to be these days?
A: Yes, I am. We began buying stocks in March, and we're now "all in." The market has been moving up every two months since March, and we simply follow the leader. People would like to know why, but we just follow what we see in front of us. I think the reasons are too complex to figure out.
Q: Why do you like wireless? Do you mean wireless telecom?
A: Most of the world is going into wireless, and the reason is money. If you can picture the remote countryside in China or Africa, governments don't have the money to lay telephone line underground or in the air. However, the cost to put up a wireless antenna is peanuts. Wireless is going to sweep the Third World countries, and anyone making the product or the components is going to do well.
Q: Can you give us any of the names you have in wireless and e-commerce?
A: I have some stocks in both value and growth categories that I'm happy to recommend. Value stocks are ones that have been beaten up during the bear market and are now on the mend. The attraction about these stocks is that they have already seen their worst days. Three of those are Cisco (CSCO), Intel (INTC), and Corning (GLW). The three growth stocks I like are eBay (EBAY), Digital River (DRIV), and lastly Trimble Navigation (TRMB). Trimble makes GPS [global positioning system] products. I own all six of these stocks in some of my portfolios.
I [also] like AT&T Wireless (AWE) as a conservative, inexpensive investment. They just raised their earnings expectations for next year, and the stock has recovered from the bear market, to $8.85. I expect it to double within 48 months, and at 25% a year, that's a pretty good return.
Q: Since you like wireless stocks, what do you think of Brightpoint (CELL) and American Tower (AMT)?
A: Brightpoint stock has tripled this year and is another growth stock that is at risk to being sold off, having moved so fast. However, as a long-term investment, I like the stock. But in the short term, it may correct 10% or 20%. AMT isn't profitable yet, as they keep reinvesting their capital back into new equipment. That may be a good idea, but it discourages investors when they don't see profits. Amazon.com (AMZN) realized this a year ago and changed their objective to making money. Their stock has tripled since.... They attract mutual-fund money, which can propel your shares up quickly.
Q: I have Lucent (LU) for a two-year hold. When do you think it will regain its former strength?
A: That's a tough question, because Lucent has so far to go. I don't think you'll see Lucent above $10 for five years. Right now, the short-term traders are buying the stock, and it's up 20% in the last few weeks. But the stock has so many shares trading, over 4 billion, that it will take a new record of making money to attract serious buyers.
Q: Is Wi-Fi a profitless fad or a real long-term investment opportunity?
A: The Wi-Fi industry -- and I mean components and manufacturers -- has a bright future, because this is more wireless product for mass merchandising. They are still finding their market, but now retailers and office buildings are buying Wi-Fi packages and offering them as a bonus to tenants or customers. I think it is here to stay and will grow for five years. It is the old story of wireless vs. hard wire, and ease of use will prevail.
Q: What's your take on Nokia (NOK) and Qualcomm (QCOM)?
A: Nokia's sales are recovering quickly, and they continue to be profitable. They are in the right group -- that is, wireless -- and I like the stock to get back above $20 in the next six months. I don't see any explosion to the upside. Qualcomm is much in the same boat, but they are improving profits at 30% a year. I expect them to hit $50 next year, now at $41.
Q: Pat, what do you make of the Eliot Spitzer charge of improper trading against the hedge fund Canary?
A: This is going on all over. It's just another way to gain an edge to make some money, and I'm sure they'll find more trouble as they continue to look both at hedge funds and money managers who have quiet deals with analysts and mutual funds. Remember that when a mutual fund makes a purchase, they're not buying 500 shares, they're buying 5 million, and the commissions to the brokerage firms are very significant. I'm afraid there's more trouble ahead.
Q: What's your prediction for the Dow by yearend?
A: The Dow just broke across 9,500, and it had taken three months to move from 9,000 to this new range. I think 10000 is the best bet for the end of this year. The NASDAQ is outperforming the Dow and probably will tell us more about where the market is going.