Technology stocks aren't a high priority for money manager Richard Hoey, who runs the $1.6 billion Dreyfus Growth & Income Fund. But he's always on the lookout for "pre-crashed" stocks--ones that, like pre-washed jeans, have already been through the wringer. And his latest find is Read-Rite, a major supplier of headstack assemblies and thin-film magnetic recording heads for Winchester disk drives.
Its shares plummeted to 10 late last year, down from 32 in early 1993, and have since crept back to 12. The plunge followed several dismal quarters that made 1993 earnings fall to 2 cents a share, down from $1.59 in 1992.
But there's evidence the company has turned the corner toward recovery, despite continued skepticism on the Street, says Hoey. The shorts, he says, insist that any spike in earnings will be a temporary blip.
"I don't think so," contends Hoey, who says the price war that crimped industry profit margins has abated. The worst is over for Read-Rite, which is poised to recapture its dominant position, says Hoey. He figures earnings will rebound to 50 cents a share this year and to $1.20 or more next year. He concedes the industry is known for cycles of feast and famine.
"The industry is now headed for its next feast," says Hoey. He thinks that, more than any other stock in the business, Read-Rite is the best way to play the coming upswing.