Aug. 21, 22: Guest Craig Ellis

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Participants on Aug. 21 included host Brenda Buttner, Jim Cramer, Herb Greenberg, Dave Kansas and guest Craig Ellis . The transcript is unedited and phonetic spellings are indicated with a (ph).

BRENDA BUTTNER, HOST, THESTREET.COM

: Hi everyone. I'm Brenda Buttner and you are connected to THESTREET.COM. We're here to help you make your own investing decisions.

It's time now for Stock Drill.

Our guest stock picker today is Craig Ellis. He manages the Orbitex Into-Tech & Communications Fund which has returned -- get this -- nearly 60 percent so far this year.

The stocks Craig will be talking about today will be Oracle (ORCL), 3Com (COMS) and Cisco (CISCO). His fund has positions in all of them.

And also with us from THESTREET.COM, senior columnist Herb Greenberg, and Jim Cramer's trading partner at the Cramer Berkowitz Hedge Fund, Jeff Berkowitz. Herb does not hold any of these stocks while the Cramer Berkowitz fund is long Cisco.

Gentlemen, thanks so much for joining us. Craig, number two software maker Oracle. What do you like?

CRAIG ELLIS, ORBITEX INFO-TECH & COMMUNICATIONS

: I'm on this theme about playing arms suppliers in this Internet world and people are going to be -- chasing Oracle around on a near-term basis, worrying about this and that, and are they going to make the numbers.

But the reality is, it's just a world about managing data. And you know that data is going to flow in large scale. This I-commerce they have got as far as database goes, is going to be very, very successful. They're kind of the best game in town in playing some software and I think you should be long.

HERB GREENBERG, SENIOR COLUMNIST, THESTREET.COM

: But, you know, you mentioned the word "managing," and when it comes to Oracle, we're taking about Larry Ellison who is the CEO of this company...

ELLIS:

One of the great promoters of all time.

GREENBERG:

One of the great promoters of all time. Two years ago the question was this guy wasn't even running the company. He was doing so many things. What makes you think that Larry Ellison can be committed to this company right now?

ELLIS:

Oh, I don't -- you know it's not about whether Larry Ellison is committed to this stock, or this company. I mean you know he's committed to this stock. I mean how much of this stock does he hold for crying out loud? Billions of dollars worth. I think Mr. Ellison has a very, very serious commitment.

But, you know, it's more important than that. You need to look inside the company. The lights are going 24-hours a day. The parking lots are full. They're hiring new software engineers. Something's happening there. I think it's worth thinking about.

BUTTNER:

Jeff.

JEFF BERKOWITZ, THESTREET.COM

: Craig, I have a problem with Oracle. There is no doubt it's a great company but they have no visibility quarter to quarter and hence there's too much volatility.

Twice this year the stock has had a 30 percent move within a matter of a week or two. Third quarter we all expected them to have a great quarter and it was a terrible quarter. The fourth quarter, THESTREET hated it. Expectations were for a poor quarter. Surprise. Great quarter.

Wall Street -- typical move. Everyone upgrades, the company is banging its chest, and what do we hear this week? Maybe the sales organization is not going as well as possible -- as expected.

BUTTNER:

But, Craig, this all gets down to timeframe, doesn't it?

ELLIS:

Yes.

BUTTNER:

You have a longer timeframe than somebody like Jeff.

ELLIS:

Well, there are day traders and then there are those of who want to hold it...

(LAUGHTER)

No, I'm just -- you know, there is a lot to be said for that. And you try not to walk into these down earning cycles. Of course you don't because I'd much prefer to buy it the day after. OK, and I don't disagree with that. And if I had any criticisms about Oracle, I think their ability to predict sales.

But you know what? You got to get out of that mind set because we're finally moving to that period where corporations are starting to get on spending cycles and I'm going to bet you you're going to start to see backlogs start to grow on some of these segments and you hit third and fourth quarter for the year 2000.

And I think you're going to get better clarity on some of these things.

BUTTNER:

OK, next stock 3Com, the world's second biggest maker of computer networking programs.

ELLIS:

Well, I know what some are going to say, you know, hasn't this blown up -- some people call it 3Bomb, 5Bomb, 7Bomb, 9Bomb -- you know. But I think there's another interesting thesis here that isn't being paid all that much attention to and that is the notion that local area network spending, that notion of corporations building out their networks.

They used to be a 25, 30 percent growth industry and now it's down to 10, 15 percent growth business. It's been tough. I'm not saying 3Com is a great company. They are not.

But you are going to see a return for LAN growth in the year 2000, and again, I think you're going to start to see these backlogs start to move in the third and fourth quarter.

It's a low operating margin company. There is a lot of operating leverage there. And the prospects of them being owned in the aftermath of that, is pretty compelling.

BERKOWITZ:

Craig, I have to jump in here and you mentioned the day traders. For this stock every day has been misery. This stock has a fundamental problem, which their largest businesses are a dying business.

Networking and interface cards that connect computers to computers is dominated by Intel. Intel can support its profit model by lowering the boom and taking care of 3Com. We've seen that in the past.

Modems -- it's a commodity market. That business is going to zero. On the other hand their fastest growing market has the lowest profitability so as move towards the systems business, the profitability of the company goes down.

Unless there's a major reorganization, or a management change, most people on Wall Street don't want to take a look at this company.

ELLIS:

And look where it is. And it's sitting here at $23.00, $24.00. I don't think you're down sizing great. I don't think you're necessarily right about the network interface card business in terms of the growth there, because that's just about connecting your PC to your network and that's not going to go away.

GREENBERG:

Well what you have Jeff...

ELLIS:

And lastly, they're in a price war with Intel and a price war that Intel isn't too wild about either. Again, I think you've got off some of these trends, but more importantly I think you're going to see some real growth.

GREENBERG:

So what -- But the only hope for this company right now is the palm pilot -- 10 percent of revenues basically. That seems to be what everyone wants.

ELLIS:

It's a great product.

GREENBERG:

A great product. But that -- you know -- man does not live by palm pilot alone.

ELLIS:

Again, this is not about making a case for 3COM being a well positioned, or a good company, but it is an argument to say you're going to see a return to LAN spending, and I think it's going to carry some good memory (ph). It's a nine percent operating margin company.

I just need a couple of percentage points. Earnings can really surprise here, brisk reward is compelling to me.

BUTTNER:

Almost out of time. Last stock. One quick comment from each of you. Cisco.

ELLIS:

The big knock on Cisco is everybody says its trading at 80 times of this year's earnings, 60 times next year's earnings. It's really expensive and that's incorrect. Because I just don't think those numbers are right. And those numbers are way low and if you look at some different kinds of numbers here, I think the prospects and the same thing we're talking about the cycle for LAN spending is going to hit Cisco...

GREENBERG:

Anything that would cause you to dislike Cisco?

ELLIS:

Not at the moment. I can't think of anybody who has got a broader product line, servicing one of the fastest growing segments of technology today. It's not cheap but if you want to own quality...

BUTTNER:

Jeff, you're long Cisco. You like it.

BERKOWITZ:

I can't argue with Craig here. It's sacrilegious to criticize Cisco.

(LAUGHTER)

This is the best company in America.

BUTTNER:

But we've known you do to that before, yes.

BERKOWITZ:

Forty-eight percent grow -- grower on that revenue base.

BUTTNER:

OK. All right, gentlemen, thanks so much.

Craig Ellis from the Orbitex Info-tech & Communications Fund. Thanks for doing the Stock Drill.

And we will keep track or Oracle, 3Com and Cisco and check on them when you return with us. Herb and Jeff, see you later in the show. Stick around.

But up next, is PeopleSoft a rock solid stock pick? We will find out when Chartman makes his always anticipated appearance.

And later we go inside Jim Cramer's office and ask him about the dangers of becoming a day trader.

JIM CRAMER, THESTREET.COM

: If you're going to day trade against me, then yes. You're over your head. You can -- you can try it. I wish you luck. But you know I will eat you for lunch.

BUTTNER:

Jim has got a lot more to say not surprisingly. Coming up next on THE STREET.COM.

(COMMERCIAL BREAK)

BUTTNER:

Welcome back. Well, same goal, different approach -- finding out which stocks to buy and which to avoid. Many of us look at bottom lines and business plans, but some prefer to study charts and graphs of a stock's price movement. Meet THESTREET's Chartman.

Also known as Gary B. Smith, who trades for a living from his home using the charting method -- Gary joins us from Washington, D.C. And also with us, in San Francisco, our Silicon Valley columnist Adam Lashinsky who reports on companies on a more fundamental level.

Just a quick note of disclosure, Adam and Gary do not own any of the stocks in this segment.

Hi, guys.

GARY B. SMITH, CONTRIBUTING EDITOR, THESTREET.COM

: Hello, Brenda.

BUTTNER:

Well, Gary, our first stock PeopleSoft (PSFT) maker of back office software. It's been pretty beaten up this year. What does the chart tell you?

SMITH:

Well, I will tell you what the chart tells me. You know the biggest story this year Brenda is the weather. And here is my weather report -- the drought is over with PeopleSoft. Buy PeopleSoft.

What does the chart tell you? It's formed a beautiful double bottom. The chart -- the stock is down what -- 75 percent from its all time high. You know what all these tells me, it says buy PeopleSoft right now and that concludes my weather report.

BUTTNER:

Well, you have a second career there, Gary...

SMITH:

Thank you very much.

BUTTNER:

.... if you care to go on here. Adam, I know that double bottom doesn't mean much to you but the company has lots of customers and that really counts in this business, doesn't it.

ADAM LASHINSKY, SILICON VALLEY COLUMNIST, THE STREET.COM

: Brenda, I still don't understand what a double bottom is.

(LAUGHTER)

Gary, the issue here is timing and I know you've got a trading mentality. You're looking for some quick money on PeopleSoft. It isn't going to happen.

This is a company that makes Enterprise software products, you know, helps big corporations run things like their human resources function. Companies stopped buying those things last year. The company hit a wall.

It had to hit the restart button. So that means it's coming out with new products. That's going to happen next year. Countless analysts I talked to say you can't look for PoepleSoft to recover quickly.

I'm not saying the stock goes down Gary, but I'm saying that it's just not going up. They had their CFO leave just last week, the second one in recent memory. You know that that doesn't do much that's good for morale.

And lastly, there's an assumption that Silicon Valley software companies eventually rebound.

Two companies come to mind that say that that isn't necessarily true --in Informix (IFMX) and Sybase (SYBS) started floundering three and four years ago. They still haven't recovered. There's no guarantee that PeopleSoft will, Gary.

SMITH:

Adam, put this one in your education kit bag. That double bottom means it -- you're right -- it's not going lower. It's only going to go higher and I will take your mentality and say invest in PeopleSoft because it's going to go up.

BUTTNER:

OK, very quickly, biotech company Amgen (AMGN). Gary, let's go to the chart.

SMITH:

Two words in Amgen -- biotech lives. Remember the good old days, Brenda, for the Internet sector, like a couple of weeks ago?

(LAUGHTER)

That's what biotech used to be like. It used to go up every day. You know what? It is back now. There is no better company than Amgen when it took out that long-term resistance, you know what it said, it said buy. And when it pulled back late last week, you know what it said? It said buy more. I like Amgen right now.

BUTTNER:

I don't know, Adam, it's pretty expensive isn't it?

LASHINSKY:

Yes, Brenda, it's expensive but as I've done before I'm going to explain to Gary why the chart is saying...

(LAUGHTER)

.... what's it's saying.

SMITH:

Thank you, Adam. I appreciate that.

LASHINSKY:

It's trading at 41 times earnings this year. It is expensive. But take a quick look at some other biotechs. Biogen (BGEN) at 55 times earnings. Genentech (DNA) at 88 times earnings. MedImmune (MEDI) at 102 times earnings. It starts to make Amgen make -- look a little bit cheap.

They've got strong drugs in the pipeline and the management which had stumbled appears to have its act together. That's good for the company which, Gary, by the way, is good for the stock.

BUTTNER:

OK, Gary and Adam thanks so much. And we will see you again next week.

SMITH:

Thank you Brenda.

LASHINSKY:

Thank you.

BUTTNER:

But up next we go behind the scenes at Jim Cramer's hedge fund. Do you know what, Jim thinks that you can invest better than he can, if you go about it the right way. Find out how right after this.

(COMMERCIAL BREAK)

BUTTNER:

Welcome back. Well, you know there is no question that investing is a very personal experience. Some people like to make those decisions on their own. Others want someone to do it for them.

A recent FOX NEWS opinion dynamics poll shows that over 40 percent of us use a professional financial adviser, like a stock broker, to help pick investments. But can you do a better job with your money than a broker?

Well, Jim Cramer says you sure can, but he also wants you to know that there is a big difference between making your own investment decisions and being a day trader.

Take a look.

CRAMER:

I think that when you use a broker, you use him because you don't have time, or you don't have the inclination. But if you have time and you have the inclination, you can do it better than a broker. It's a time issue and an expertise issue.

If you have no expertise, if you are totally befuddled by the business section, you can't look at it, and you're not interested in it, oh, man get yourself the broker.

But if you have an aptitude for it, and I think that the pastime has changed in this country from baseball to stocks. People have an aptitude for it.

Those people can do it great themselves and they find it fascinating, interesting and they do it better.

I equate the same thing to -- I will not do electrical work in my house because that's -- I will get an electrician. But everything short of that? Man, I'm better than the guy. Ah, go to my Home Depot (HD), get my stuff. I do a better job. And come when I want to as opposed to when he wants to.

And get this, the best part is that I'm cheap. I come for free. And that's the advantage of, if you can do it by yourself you can save a lot of money. And I think that in general, saving a lot of money goes hand in hand with making a lot of money.

You want to day trade, you go against me. Look what I've got. I have everything. I've got one, two, three, four, five, six, seven, eight terminals. I've got four hundred different trading lines. I've got a staff. Come get me.

Come against me. I will clobber you. You can't beat me.

But if you are going to do it sporadically, when you care about, and not have to worry about you do in a quarter, and you know something, you work at a company. And you see another company is doing really well in your business or you're fascinated by a certain part of technology and you've checked it out. And you're going to the website and you've looked at the financials. You're going to beat me because I have to deliver constantly. And that gets to be difficult.

BUTTNER:

And Jim will be back with us in the studio next week, but you don't have to wait until then to get the Word on THESTREET. Should you dread the Fed when it meets to decide about interest rates.

Our panel's answer just might surprise you. That's next when THESTREET.COM returns.

(COMMERCIAL BREAK)

BUTTNER:

Welcome back. Before that opening bell rings Monday morning, you better have the Word on THESTREET.

So let's get it shall we. Back with us from THE STREET.COM is senior columnist Herb Greenberg and Jeff Berkowitz. Also joining the mix is THE STREET.COM Editor-in-Chief, Dave Kansas.

OK, here's something we've been hearing about for way too long. I can't even believe I've saying this actually -- the dreaded Fed watch.

I know all business channels couldn't fill time without it, but over done, over estimated, over blown? Yes. And in the end just how much of a difference will next Tuesday's Fed meeting really make in the average investor's life? Dave.

DAVE KANSAS, EDITOR-IN-CHIEF, THE STREET.COM

: Well, next Tuesday is not so important because there is a lot of anticipation about what the Fed might do. Most people think one move coming from the Fed. But average investors have grown used to ignoring the Fed and its machinations.

I think the issue to bear in mind is that back in 1994 for instance -- a long, long time ago -- when the Fed got serious, it meant trouble for the stock market. And if the Fed really starts to get serious, and that's what people will be looking for, people need to be concerned about the stock market.

BUTTNER:

You can't afford to ignore it, Jeff. This is very important in your business.

BERKOWITZ:

Yes, outlook for the stock market is essentially a balance between interest rates, whether interest rates get too high and present a risk free -- a less risky opportunity, rather than playing the market. And the fact that stocks trade off of future earnings.

So, the interest rate environment is perhaps the most important variable in the marketplace.

GREENBERG:

Look, isn't the bottom line here that everybody expects the Fed between now and some point in the future, to raise rates by another half a point, quarter point here, quarter point there. There is tremendous uncertainty until they do it.

I'm sick and tired of hearing about this media circus every single six weeks...

(LAUGHTER)

.... before the Fed meets.

BUTTNER:

Well, it's already looking on to October. But I've got to tell you as a small investor, I don't need to see another picture of Alan Greenspan walking up the steps of the Fed or you know dissect his three paragraph sentences.

It doesn't make any difference to me if I'm holding on for longer than a year.

KANSAS:

Well, if you're holding on for the really long term, yes, the Fed you want them to be vigilant and...

BUTTNER:

Yes, exactly...

KANSAS:

.... and be good at what they do. But in the shorter term I mean, I think, Jeff, you've got to agree that if the Fed decides to take charge of something that see out there, people have to be concerned.

BERKOWITZ:

Of course, of course. The economic numbers have been far too strong. Inflation is the enemy of the marketplace. They have to practice tough love like we all do as parents. They have to make their move -- if they deem necessary. And we have to respect that.

The Fed hates surprises because they know the market hates surprises. They fully -- they've appropriately warned us.

KANSAS:

I mean the whole thing is -- you know how important it is. Herb might be sick of it. Brenda may not think it matters over a few years, but the fact of the matter is if there is one person who means more than anything else, it's Alan Greenspan. It would be hard to over report what the Fed is going to do.

So, I mean even thought we get sick of it, we still have to pay attention.

BERKOWTIZ:

Look we all wish it was football season already.

(LAUGHTER)

The talks heads would stop going on and on about this, but this is all that matters.

GREENBERG:

But they're going to continue to go on and on about it until this happens.

BUTTNER:

What happens if the Fed does nothing? What happens to the market? What are you expecting?

BERKOWITZ:

I think we have a bad rally, meaning that we will rally some sort of relief, yet every economic report that comes out that day, it's bad -- boom. We get hit really hard and we're just going to be in this perpetual looking over our shoulder mode. I would love to see the Fed make its move. Maybe things...

BUTTNER:

Right.

BERKOWITZ:

.... we're starting to see the housing market plateau a bit. Maybe things slow down, going forward, and they're done.

BUTTNER:

Yes.

BERKOWITZ:

Business -- on to business as usual. Focus on earnings. Focus on other events. No longer focus on Mr. Greenspan. But they need to make their move.

BUTTNER:

OK, well, we may not dread the Fed, but sometimes our panel does dread this part of the show. You don't. You guys really like this don't you?

It's time for predictions. Let's find out what our group here thinks is on the horizon and what it means to you the investor.

You're up first, Herb.

GREENBERG:

Rates are going to be -- they're going up and as a result of that, stocks immediately are going down, but then they're coming right back up and a relief rally.

BUTTNER:

OK. Jeff.

BERKOWITZ:

The third quarter, October, is going to be highly volatile as people start focusing on the fears of Y2K. But when we get through it all, aside from a few companies that missed their numbers because their own fundamentals and unfortunately blamed it on Y2K problems, it will not be a big deal.

BUTTNER:

Dave.

KANSAS:

Volatility. Summer season, beach, I think we're going to have more volatility.

BUTTNER:

OK, and we'd like to let -- have you let us know what you think about those predictions. You can rate them by visiting us at thestreet.com/tv. We will keep track of how accurate they are as well as what you thought of them.

There is also a place on that page to send us your comments about the show. So, don't hold back. Let us know what you think and what you'd like to see on future STREET.COM shows.

And if you didn't get enough of THESTREET in this half hour, check out our website at thestreet.com. Everyday all of us here and many others give you information you need to make your own investing decisions.

And that does it for this edition of THESTREET.COM. We will see you here again next week.

Until then, we hope you invest wisely.

END

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