Herb Part 1: Tossing Those Old Blue-Chips in the Trash - TheStreet

Herb Part 1: Tossing Those Old Blue-Chips in the Trash

Also, more from the (<I>say it ain't so!</I>) Lernahooligan file.
Author:
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Mundayne:

Blue-Chipped:

One question I was asked on last week's

Fox

show was whether investors should forget about those old, standard blue-chips. I don't trade these things (or

anything

, for that matter -- I'm a reporter), so before the show I called the best blue-chip investor I know: Fritz Reynolds, who runs the

(RBCGX) - Get Report

Reynolds Blue Chip Growth fund, as well as several other funds that invest in nothing but blue-chips. These are low-turnover (how does 5% sound?) and low-cost (when you call you get an answering service), yet Fritz's cornerstone Blue Chip fund was up 51% last year after being up 54% the year before.

How'd he manage that with dowdy old blue-chips? Not all blue-chips are created equal, which is why in this growth-stock environment Reynolds doesn't own the likes of

International Paper

(IP) - Get Report

or

Chevron

(CHV)

, whose revenues and profits are not showing much in the way of growth. But he does own

Nokia

(NOK) - Get Report

,

Motorola

(MOT)

and

Ericsson

(ERICY)

(he loves cellular!). He also owns

Qualcomm

(QCOM) - Get Report

, and has owned it

before

where it is today. Like most mutual funds, he doesn't have to have the entire fund in stocks that reflect the name. So, Reynolds tries to find companies that will turn into blue-chips. "I spend a lot of time trying to find medium-sized companies that I can own for 10 to 20 years," Reynolds says.

That's why his Blue Chip fund also includes companies like

VeriSign

(VRSN) - Get Report

,

Siebel Systems

(SEBL)

,

Ariba

(ARBA)

,

Commerce One

(CMRC)

,

Juniper Networks

(JNPR) - Get Report

and

Sycamore Networks

(SCMR)

.

What about the Internet? Sure, which is why he owns

Cisco

(CSCO) - Get Report

,

IBM

(IBM) - Get Report

,

Hewlett-Packard

(HWP)

,

Microsoft

(MSFT) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

.

So, what should your takeaway from this discussion be? Don't let anybody fool you into thinking that blue-chips are yesterday's news. Forget about the spread between the

Nasdaq

and the

Dow

. This is a broad market of stocks, not a market defined by indices. And as for blue-chips, it really depends on your definition.

Lernahooligan alert:

Lernout & Hauspie's

(LHSP)

stock gained almost $1 billion in market value last week, propelling it to a new high of 82, after the company announced it was rolling out a prototype of a Palm Pilot-like device that can recognize your voice. Lernout says the device and related software will be on the market by year-end.

So, I rang up Donna Dubinsky, co-founder of

Palm Inc.

(PALM)

and now CEO of

Handspring

, which has its own Palm-like device called the Visor. What does she think of the likelihood of voice recognition on Palm-like devices? Let's just say her company hasn't spent much time thinking about voice recognition. It was, after all, hard enough to create a technology that could recognize "constrained" handwriting, as in Palm's difficult-to-master Grafitti. One reason for her lack of interest, she says, is the limited memory and power of a Palm device. The only way voice recognition would work on a handheld device, she adds, would be to use an equally new type of language.

Dubinsky hasn't seen the Lernout device, but she says that based on current technology, you can't talk into a Palm device and say, "Call her back and tell her I'd like to meet with her Tuesday at 10 o'clock.' That's not in the near future."

You'd think she'd know!

Lernout officials, who so far have displayed only a prototype -- which, as this column

pointed out, malfunctioned during a demonstration on

CNNfn

-- couldn't be reached for comment. I'd like to offer them an opportunity to demonstrate the new device for me, either at

TheStreet.com

or some neutral location -- as long as it isn't hooked up to a PC, which has been the case during some demonstrations. If they can show that it works, then I'd say the short-sellers will be in for a world of hurt. If they can't, and if such a non-PC-linked demonstration can't be done, then why introduce the device in the first place?

Be sure to check out Part 2 of Herb on TheStreet.

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.