Where to Invest -- The Pros
Hunting among Tech's Fallen Stars
The $1 billion Dresdner RCM Global Technology Fund is down 5.4% through Dec. 8. But with the average tech fund down 24.8%, it's a winner. One reason for its success: It dumped most dot-com holdings when the sector started to collapse.
That doesn't mean manager Walter C. Price Jr. has given up on e-tailers. Price and co-manager Huachen Chen are betting on eBay Inc. As the economy slows, Price believes people will move down-market to the second-hand goods that trade there. "There is a countercyclical element to eBay that is not appreciated," he says.
Price generally looks for price-earnings ratios that are not more than two times a company's projected earnings growth, in percentage terms. And though he can invest globally, Price says the best buys are in the U.S. One overseas pick is Infosys Technologies Ltd., an Indian software producer that benefits from low labor costs.
Superstar networker Cisco Systems Inc. is another of Price's choices for 2001. Cisco now trades at 50 times projected earnings for 2001 of $1.05 a share. That nearly matches the company's estimated three-year growth rate of 40%--"a reasonable valuation." Another bargain is Compaq Computer Corp., at 13.4 times 2001 earnings estimates. That's a discount to its growth rate, which Price pegs at at least 18%.
Battered during this year's technology sell-off, Lexmark International Inc., a manufacturer of laser printers, now sells for 15.7 times the $2.80 a share that Price estimates it will earn in 2001. Meanwhile, its profit margins and market share in printing supplies are improving.
Price likes two other busted growth stocks, Micron Technology Inc. and Tyco International Ltd. In Micron's case, Price figures chip prices will rebound, propelling the stock higher. As for Tyco, it trades at about 17 times Price's estimates of 2001 earnings--well below its long-term growth rate of 25%.
Another pick, Intuit Inc., is best known for its financial software, Quicken. But Price likes the company because it is a leading provider of accounting, payroll, and other services to small businesses, which it delivers over the Internet.
Price doesn't only like cheap stocks--and business-to-business software maker Commerce One Inc. is certainly no bargain. But if Commerce One hits Price's earnings target of $1.50 to $2 a share in 2002, the stock could quadruple, Price figures. Also expensive, Check Point Software Technologies Ltd. is nonetheless a favorite because it controls 70% of the market for Internet security systems and is poised to grow at a 65% clip over the next three years.Return to top
Walter Price's Picks
Dresdner RCM Global Technologies Fund
COMPANY/SYMBOL PRICE* P-E**
CHECK POINT SOFTWARE $158.88 89.6
CISCO SYSTEMS (CSCO) 52.38 51.9
COMMERCE ONE (CMRC) 40.75 2144.7
COMPAQ COMPUTER (CPQ) 19.50 13.4
EBAY (EBAY) 38.63 103.0
INFOSYS TECHNOLOGIES (INFY) 125.44 66.1
INTUIT (INTU) 49.13 47.9
LEXMARK INTERNATIONAL (LXK) 43.81 15.7
MICRON TECHNOLOGY (MU) 34.69 7.8
TYCO INTERNATIONAL (TYC) 57.00 17.3
* As of Dec. 8
** Based on estimated 2001 earnings
DATA: BLOOMBERG FINANCIAL MARKETS
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