NEW YORK (TheStreet) -- Kevin Rendino, manager of the BlackRock Basic Value Fund (MDBAX) - Get Report, says shares of IBM (IBM) - Get Report, Intel (INTC) - Get Report and Xerox (XRX) - Get Report are trading at bargain prices and could gain as companies upgrade their computer systems.
The $4.7 billion fund, which garners four stars from
, has returned 47% during the past year, better than 84% of its large-cap value peers. The
fund has gained 3.3% annually, on average, during the past five years, beating 81% of rivals.
Welcome to TheStreet.com's Fund Manager Five Spot, where America's top mutual fund managers share their views on the market in a five-question format.
Does it feel strange to be a value manager buying tech stocks?
For me, a value stock is the price that you pay for the business that I'm buying. I'm buying IBM at 11 times earnings, Intel at 12 times earnings with a 3% dividend yield, and Xerox at a 15% free cash flow. I like to buy tech stocks when everybody thinks they are cyclicals and sell them when everybody thinks they are growth stocks. There is a lot of value in tech these days.
Why is IBM one of your favorites?
They have totally remade themselves around software and services. Many years ago, it was a disc drive and a mainframe company. The company has totally transformed itself into a software and services provider. It's a consistent grower at more than 10%. They have earnings growth every year and return money to shareholders and do share repurchases. And again, it's trading at 11 times earnings.
Aside from its price, what do you like about Intel?
We like Intel because we think there is a PC refresh cycle coming this year. For two or three years, most corporations have reduced spending on information technology as they were hoarding cash and firing people. With
Windows 7 coming this year, cloud computing coming down the road and wireless applications converging, we think Intel is going to be a good stock over the next three to five years.
It's a completely misunderstood company. It used to be a consumer, commodity-based chip company. Now they are a leader in networking and storage silicon. It's a company that we think can earn 60 cents over the next 12 to 18 months. It's a $6 stock that's very inexpensive and very misunderstood. We think that stock has the potential to gain 50% during the next couple of years.
The turnaround story of all turnaround stories is Xerox. Why do you want that in your portfolio?
They did a very controversial acquisition by buying ACS. We actually liked the deal. It's accretive to earnings and accretive to cash flow. The stock trades at 10 times earnings. It's an annuity-based model so 80% of their business is recurring. We like that. We think the acquisition of ACS makes sense over the long term. It will increase their growth rate, and at 10 times earnings you are not paying for that.
Reported by Gregg Greenberg in New York
Before joining TheStreet.com, Gregg Greenberg was a writer and segment producer for CNBC's Closing Bell. He previously worked at FleetBoston and Lehman Brothers in their Private Client Services divisions, covering high net-worth individuals and midsize hedge funds. Greenberg attended New York University's School of Business and Economic Reporting. He also has an M.B.A. from Cornell University's Johnson School of Business, and a B.A. in history from Amherst College.