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SEPTEMBER 8, 2004
What Tech Investors Need Now: Patience With technology stocks "very, very out of favor," Kevin Landis of the Firsthand funds counsels smart picking -- and lots of waiting How much weight should an investor give technology stocks in a portfolio? "As much as you have the nerve to hold," says Kevin Landis, chief investment officer of Firsthand Capital Management, which runs a variety of tech-stock funds. Landis points out that "if the average stock is very out of favor, tech stocks have been very, very out of favor." For them to turn around, he says, it'll take time, patience, and improving fundamentals. Still, Landis sees a few opportunities in the form of the top stocks in three of his funds: Websense (WBSN ) in the Firsthand e-Commerce Fund, PDF Solutions (PDFS ) in the Technology Innovators Fund, and Sandisk (SNDK ) in the Technology Value Fund. Some tech companies Landis views more as blue chips now, notably Intel (INTC ), Cisco (CSCO ), and Microsoft (MSFT ) -- solid stocks but no longer super growth stories but all holdings in the Firsthand Technology Leaders Fund. Another tech giant, Dell (DELL ), he sees as more of a product company, and one he doesn't own. These were some of the points Landis made in an investing chat presented Sept. 2 by BusinessWeek Online on America Online, in response to questions from the audience and from BW Online's Jack Dierdorff. Edited excerpts follow. A full transcript is available from BusinessWeek Online on AOL at keyword: BW Talk. Q: Kevin, what's your view of the broad market and its welcome surge today? A: Well, despite today's uptick, the market still seems to be in an awfully pessimistic mood -- and still very much a glass half-empty. Q: And how much weight should investors give the tech stocks you specialize in? A: Well, as much as you have the nerve to hold. It's a way of saying that it's a very high-beta [a measure of stock-price volatility] group. Q: Although it's in the dumps right now, do you see anything that will turn around Intel's (INTC ) performance? A: Intel's problem is that they've conquered their world, the PC market. To become a growth story again, they need to hang on to their preeminence at the center of the PC world and find new growth engines outside of it. They do seem to be having a tough time of it right now, but it's still a great franchise. Q: Your opinions and stock evaluations for Cisco (CSCO )? A: Cisco doesn't seem to be having as tough at time at the moment as Intel, but they both fall into the same broad category -- and that's a surviving tech blue chip. They need to be viewed as blue chips first and tech second. They've been successful in the past and have gotten so big that it would be hard for them to become sexy growth stories again. But as blue chips, they're pretty solid stories. Q: Does that same analysis apply to Microsoft (MSFT ) as well? A: Absolutely, and what you'll see with each of these companies is a very solid, defensible core franchise, with strong efforts outside of that to build on that success. Sometimes they're successful. Sometimes they're like Michael Jordan trying to hit a curve ball. All three of these stocks are held in our Technology Leaders Portfolio (TLFQX ), and we're happy to own them at these levels but aren't accumulating any of them presently. Q: Is MSFT still a stock to own? A: If you like stability, and you want exposure to software while retaining the ability to sleep through the night, sure. I'm pretty sure they're still planning on pushing most of that cash they have back out to shareholders, so it's a good stock to own, overall. Q: Opinion on Yahoo! (YHOO )? A: Yahoo is one of the better examples of a surviving Internet powerhouse. They've done a very good job in the last few years in translating traffic into cash flow. We see that as one of the stronger emerging e-commerce franchises. They could conceivably even compete with, say, Google (GOOG ) on the search-engine side of things, but they don't need that to be successful. That's only one of the things that creates value and generates traffic. Q: Aha, Google! What do you think of GOOG and its IPO, and are you buying? A: Google's IPO was a great attempt to improve the process, and I really like the efforts that they made to democratize the process. It was great to see the VCs [venture capitalists] step back and wait to sell their shares, but I'm a little bit concerned about pressure on the stock, with employee lockups coming off so quickly. As for whether we're buyers, we're still waiting for our moment of opportunity. Q: Is Dell (DELL ) still a good buy? A: We don't own Dell because we consider it more of a product company, not so much a technology company, but you have to admire their ability to execute. They're sort of the Wal-Mart (WMT ) of the PC business. Q: Do you look at IBM (IBM ) as a product company, as you said about Dell? Do you see it as a buy? A: I have to say there are many differences between the two companies -- one of which is that IBM has deep roots in technology. Their problem, historically, has been getting that product to market. They've been the company with better technology that keeps getting beaten to the punch by other tech companies. Unfortunately, they're also a big tech company and very much reliant on big-company IT spending. Q: Back about five years ago, you really promoted Triquint Semiconductor (TQNT ). What's your opinion now? A: Triquint has an interesting portfolio of product lines. They've got very good exposure to military electronics, and they have purchased some interesting optical technology from Agere (AGRB ). Their handset exposure makes me a little bit nervous, because price pressure there is crushing, but overall I think the company is still a fascinating little opportunity. Q: What's your opinion of the wireless company Proxim (PROX )? A: Proxim is definitely a turnaround story. The real question is whether their next generation of products is going to get any traction in the market, and I don't have that answer, so we don't own that stock. What's new in the next generation, by the way, is that the market for wireless infrastructure is suddenly sexy again, as Wi-Fi is built out. And you're also getting more than just the cell-phone companies purchasing products. There are lots of new customers that will buy radio products now.
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