Morningstar Conference: Growth Managers Say Wireless Rings Their Bell

CHICAGO -- Apparently the three most important words in growth investing are wireless, wireless and wireless.

At the Morningstar Investment Conference Thursday, five top growth-fund managers were asked where they saw the ripest opportunities and each named at least one flavor of the wireless sector. Beyond wireless, however, the consensus stopped dead.

The speakers included some of last year's hottest managers whose aggressive focus on fast-growing, often pricey stocks hasn't worked out so well this year. On one panel were Warren Lammert ((JAMRX)Janus Mercury), Howard Ward ((GABGX)Gabelli Growth) and Arden Armstrong ((MACGX)MAS Mid Cap Growth / (MCVAX)MAS Small Cap Growth). On the other panel were two aggressive and tech-focused small-cap fund managers: Garrett Van Wagoner ((VWEGX)Van Wagoner Emerging Growth / (VWMCX)Van Wagoner Micro-Cap Growth) and reigning Morningstar Manager of the Year Jim Callinan ((RSEGX)RS Emerging Growth). On average, these managers rode tech stocks to a stunning 172% return last year.

Janus' Lammert and MAS' Armstrong said wireless services and infrastructure plays were the areas they liked best right now.

"Wireless Net access is going to be a monster grower over the next few years," boasts Gabelli's Ward.

"Just sit back and think about the power of getting wireless data and Net access. It's going to explode over the next couple of years," says Van Wagoner.

Van Wagoner and Callinan, who focus primarily on small-caps, named the following favorite stocks: Research in Motion (RIMM), MetroCall (MCLL) and WebLink Wireless (WLNK). The other managers' favorites include Nokia (NOK) -- a titanic Janus bet -- Mannesmann, VoiceStream Wireless (VSTR) and Sprint (FON).

Beyond their shared crush on wireless, the two often diverged. Callinan sees value across the board, including business-to-consumer (B2C) and business-to-business (B2B) Internet stocks that have come under steep pressure this year.

"B2C might be the place to be. Companies like Autoweb.com (AWEB) and Webvan (WBVN) are doing the right things," says Callinan.

Van Wagoner likes the B2B area and software shops that make online communications and transactions quicker. His fund invested in B2B software shop Ariba (ARBA) before it went public. But he's staying away from B2C, where he sees tight margins and less-attractive growth.

MAS's Armstrong, on the other hand, dumped most of her fund's B2B and B2C "silly concept stocks" back in February and hasn't gone back since. Beyond wireless stocks, she sees some significant opportunities in optical-equipment makers and radio stocks.

Janus' Lammert is tuning in to cable stocks, where he sees solid growth the market might have ignored. The favorite area of Gabelli's Ward, after wireless, is semiconductors, and he says Intel (INTC) is a stock he'd be confident holding for 10 years.

Janus Manager Sounds Off

Janus managers are a bit shy, so you know ears pricked up when Janus Mercury manager Warren Lammert addressed three hot-button issues: Janus' disastrous Healtheon/WebMD (HLTH) bet, the top-selling firm's refusal to share its funds' full holdings more than twice a year, and Janus' open displeasure with parent Kansas City Southern (KSU).

Early this year Janus bought $930 million of Healtheon shares directly from the company at 62. It looked like a good deal because the shares were selling for around 70 at the time. Thursday they closed at 14 3/8.

Clearly investors have lost some confidence in the company, which hopes to cut down health care's paper chase by having doctors, patients and insurers meet and transact business online.

"Hopefully we won't have more transactions that work like the Healtheon deal has," says Lammert. "But certainly in the future we'll make more private transactions. It helps us acquire a lot of stock with moving prices."

The girth of Janus, which has $313 billion in assets, drives its close-to-the vest disclosure policy, says Lammert.

"When it comes to disclosure, we think less is more," he says, reasoning that some traders might try to "front-run" or trade ahead of Janus managers, potentially reducing their returns. On the first night of the conference, Morningstar executives scoffed at this excuse.

Predictably, Lammert was also asked how he and his colleagues felt about being packaged with parent Kansas City Southern's less-solid financial holdings in a recent spinoff. His response was equally as predictable.

"We think if shareholder value were a concern of Kansas City Southern's, which it apparently isn't, they would've spun Janus off on its own," he says. Still, "nobody has left and nobody is leaving."

Value Validated

Value managers were a happier lot at this Morningstar conference than at several past ones. Marty Whitman's (TAVFX)Third Avenue Value fund, for example, is up 14.9% this year, well beyond the 3.9% average for the mid-cap growth group. That followed several down years when the market favored large-cap growth, punishing value diehards like Whitman.

Whitman loaded up on semiconductors in the early to mid-1990s, when they were spurned by computer valuation models. "The prices were better than we could do if we were first-stage venture capitalists," he says. The at-times cantankerous Whitman credits his current fortunes to those past decisions. "It's the investments made in 1997 and 1998 that have helped the funds, not now."

John Rogers, manager of the $197 million (ARGFX)Ariel fund, believes the current value resurgence might be for real because of increased leveraged-buyout activities. "In the last quarter, I had three companies in my portfolio that went through takeovers at 100% or more premiums," he says.

Bill Nygren, manager of the (OAKLX)Oakmark Select and recently the (OAKMX)Oakmark fund, which he took over after Robert Sanborne stepped down in April, talked about one of his newer acquisitions, Toys R Us (TOY). Though an old-line retail company, the stock is being helped by Web sales, with the added benefit of bricks-and-mortar stores. And the Japanese Internet investor, Softbank, recently bought a stake.

As of Oakmark's most recent filings, the stock represents about 8% of the Select portfolio and slightly less of Oakmark fund, which is more diversified.

Earlier Morningstar Conference stories:

The Fight For Disclosure Rages On

ETFs Take Center Stage

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