RealMoney.com's MIDDAY UPDATE
July 18, 2000
Market Data as of 7/18/00, 12:01 PM ET:
o Dow Jones Industrial Average: 10,721.18 down 83.09, -0.77%
o Nasdaq Composite Index: 4,178.18 down 96.49, -2.26%
o S&P 500: 1,494.65 down 15.84, -1.05%
o TSC Internet: 867.09 down 29.31, -3.27%
o Russell 2000: 537.60 down 7.58, -1.39%
o 30-Year Treasury: 104 19/32 unchanged , yield 5.906%
In Today's Bulletin:
o The TaskMaster: Searching for Insights in Fort James Jump
Internet: DoubleClick Earnings Getting Top Play From Online Ad Watchers
Any sign of a slowdown could well undo last week's Yahoo!-inspired momentum -- and more.
Silicon Babylon: Got Moguls?
Internet chieftains gather to talk turkey -- and how to buy Net stocks.
SiliconStreet.com: ChipPAC: A Leveraged Buyout That Could Be a Solid IPO
A Hyundai Electronics subsidiary in a corner of the chip business lists customers like Intel. Also, Teradyne watch.
Tech Savvy: '25 for 2000' Part 4: Inside the Net
Jim dishes on his last -- and favorite -- round of stock picks, Internet infrastructure.
Dear Dagen: Jim Cramer Can Buy 50 Funds, but You Shouldn't
Cramer's reformist aims aside, buying too many funds can mean mediocre returns.
Mutual Funds: From Joe to Pro? Marketocracy.com Lets Investors Run Virtual Fund
Web site lets average investors play mutual-fund managers, and the best performers may get hired.
Analyst Actions: Analyst Actions: Caterpillar, Black & Decker, Georgia-Pacific, Aflac
The TaskMaster: Searching for Insights in Fort James Jump
Aaron L. Task
Special to TheStreet.com
7/17/00 9:16 PM ET
SAN FRANCISCO -- The market's renewed obsession with technology stocks continued Monday, as the
Nasdaq Composite Index rallied modestly while
But, lo and behold, the
Big Board's biggest percentage gainer was paper goods manufacturer
, which leapt more than 34% after receiving a
buyout offer from
. Georgia-Pacific slid 7.9%.
For insight, I turned to Dwight Anderson, who manages about $310 million for
, including the $85 million
Anderson recommended Fort James here on
Jan. 12 and conceded the buyout news offered "a welcome respite from the water torture we were going through." Prior to Monday's jump, Fort James was down about 20% since mid-January.
In the months since the recommendation, the fund manager pared down his exposure to Fort James, owing to disapproval with management's plan to repurchase shares vs. spending on improving its core business. Tudor shifted assets into Canadian paper companies such as
Alliance Forest Products
, he said.
But the Fort James-Georgia-Pacific deal -- and other combos in the sector, such as
-- confirmed Anderson's prediction that basic-material companies would realize it's cheaper to buy competitors than build new capacity.
"Despite that, unless you owned the companies being acquired, you lost your shirt in this sector," he said, evincing his self-described "unfortunate honesty."
Still, Ospraie is up 12.5% before fees since its inception on Feb. 1 vs. negative returns for most basic-material indices. Anderson chalked up the performance to a combination of varied short positions, which he declined to discuss, and long positions in energy stocks, which he did.
Because of tight supply and rising demand, Anderson forecast that heating oil inventories could approach 10-year lows this coming winter (admitting that's a "blue-sky" scenario he's not basing investments on).
Two of his favorites that could benefit from an accompanying boost to natural gas prices are
USX Marathon Group
Other energy recommendations include
, which Anderson called a "cool little story." In addition to its exploration and production activities, Murphy also benefits from its operation of retail gas outlets at
, he noted.
Overall, Anderson sees "phenomenal values" in basic materials but concedes there's no telling when (if) the market will reward "aggressively long" investments in value stocks. His funds -- while net long -- are thus "conservatively positioned."
Unlike Anderson -- who is compelled by training and mandate -- you are not, of course, required to invest in basic materials. The Fort James deal presented an opportunity to revisit with the value manager and is intended for those who've learned that diversification is
a dirty word.
For those who've never wavered from tech (and never will), the following is for you.
Long and Loving It
Marc Klee, co-manager of the near $1 billion
John Hancock Technology fund, must be a fan of
Tammy Wynette. The fund manager lives by the motto: "Stand by your stock."
That's corny, but I couldn't get that song out of my head after multiple conversations with the fund manager last week.
Nearly six months later, Klee remains long all the stocks recommended here on
Jan. 31, save
. That means he has stuck by two other clunkers,
Electronics for Imaging
. (Check out how Klee's picks performed in our recent
"They offer tremendous value," he said of both EFII and Unisys. "Not for people looking for performance tomorrow, but if you're a little more patient, it's a situation where you can buy quality on the cheap."
Electronics for Imaging showed some life on Thursday, rising 10.4% after posting second-quarter earnings 2 cents ahead of expectations. (The stock rose another 6.3% Friday, then dipped 4% Monday.)
The company's conference call last week "eased some concerns about this being a total debacle," Klee said. The fund manager plans on staying with EFII but concedes "talk is cheap" and the company's outlook is Missouri-bound. (A "show me" stock, that is.)
Another of Klee's stocks on the move last week was
, which rose 17.6% Thursday after beating expectations and setting a 2-for-1 stock split. (The stock dipped 6.5% Friday and 1% on Monday.)
Prior to Thursday's move, Klee said Rational was "more attractive on a valuation basis" than another of his software favorites,
, which snapped a huge upward move on Friday and fell another 3.9% Monday.
"These are not cheap stocks, but I think the market is telling you business is good," he said of recent spikes by both Rational and Mercury.
Thematically, Klee is most enthusiastic about semiconductors, which represent the fund's largest exposure,
being its single-biggest holding.
The fund recently added to its position in Micron, as well as previous picks
Integrated Device Technology
. Cypress and IDTI each rose over 20% last week and rallied further Monday.
"Supply/demand for DRAMs and SRAMS will remain tight despite scare stories," Klee said in a barely veiled reference to
Salomon Smith Barney
analyst Jonathan Joseph's
controversial call early this month.
"We don't want to be the last one there when the music stops, but we think the
chip cycle is more prolonged than
Salomon does," the fund manager said. He expressed respect for Joseph and a belief the analyst's message got wrongly interpreted, but he acknowledged "we're betting on
him being wrong."
Klee's current favorite in the chip space is
As optimistic as he is about semis, the key to successful tech investing this year is keeping an "eclectic" portfolio, Klee said, recommending contract manufacturers
. Each is up sharply since late May, although Sanmina fell 7.2% Monday ahead of its third-quarter earnings, which -- at 40 cents a share -- bested expectations by 2 cents.
The fund manager ended with a prediction that the second half of 2000 is going to look much like the first -- with the market experiencing big moves in both directions but ending fairly close to break-even. A slowing economy bodes well for tech stocks because of their higher-than-average growth rates, but makes it tougher to invest because some firms will be affected, Klee said.
A note of caution from a notable tech bull: Something to keep in mind if the Comp continues its recent spurt higher.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at
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