SAN FRANCISCO -- I didn't expect to find

Howard Love

laughing. Maybe babbling incoherently, tucked in a fetal position in the corner talking to imaginary market makers in the sky, but not laughing.

Love Capital Management

, his Burlingame, Calif., hedge fund, is always long, mostly tech, and always seems to be in the right place at the right time. At least that was the case until mid-March, when tech stocks started downward. But despite the fact that most of his positions are getting crushed, when I called him Monday, he was jovial, humming, and, most interestingly, buying. And he's not buying what you think.

"I've experienced bull markets and I've experienced bear markets and I can tell you that bull markets are more fun," says Love, with a chuckle. "'But seriously, this is as bad as I've seen it in, well, at least the last few years. This is worse than '98."

So what is Love doing? He's eschewing the so-called blue-chip techs that investors seemed to dive into Monday.

"I know all the talking heads have been saying you go into the quality names --

Cisco

(CSCO) - Get Report

,

Intel

(INTC) - Get Report

,

Microsoft

(MSFT) - Get Report

-- but I think there is a real danger there that they haven't been knocked down very hard. You're taking the money out of the things that have been knocked out of it, and putting it in the things that haven't yet."

Tough on the Stomach

So Love, who over the years has favored software and value plays, is hittin' 'em where they ain't. "It may be even tougher on the stomach, but I think the market has oversold stuff that is of the more speculative nature," says Love. "They've thrown out everything with big growth and no profits -- they're not all bad."

Love has spent most of the last week pouring over balance sheets and looking at the stocks that the rest of Wall Street has cast aside. To come up with cash for these, he's selling some losers to create tax losses, and piling into some of the dot-coms -- yes, even the dreaded B2C dot-coms -- languishing in the single digits.

"Nobody wants to hear that these things are undervalued," says Love, who looks like a cross between an economist and a preppy, young

Robert Redford

. "But a few months ago, everyone in Silicon Valley was dying to get in on these deals. Now you can get in far below the

venture capital prices. You know what, you can get into a Kleiner deal at cheaper than Kleiner got in." (He's referring to

Kleiner Perkins Caufield & Byers

, the

Tiffany's

of Silicon Valley venture capital firms).

Many companies do three to five rounds of financing before an IPO, known sequentially as A, B, C, D, etc. And Love sees stock prices falling all the way back to the first few rounds of financing.

"Look at

Ashford.com

(ASFD)

," he says. Noted VCs "

Benchmark

and

Sequoia

got series B shares at $4.28 a share -- and this thing is trading at $2 29/32.

Goldman Sachs

did their IPO, they have a book value of $4.65. ... When they're selling at two rounds prior to the IPO. To me that's encouraging."

VC Pedigree

Crunching those kinds of numbers, and looking for VC pedigree, Love has come up with a handful of stocks that are, he believes, under-appreciated -- or, more accurately, over-depreciated. Love also likes, and owns,

Pets.com,

(IPET)

,

Drugstore.com

(DSCM)

and

HearMe.com

(HEAR) - Get Report

.

And he says he's been buying them all on the way down.

"Those companies have grown substantially. They're not off plan. It's not like something has gone wrong except for sentiment," he says.

In essence, Love sees this as a gut check. Did you ever

really

believe in the Net? If so, he says, you've gotta believe now. "You can buy some very attractive, promising companies about as cheap as they get," says Love. "But you have to ask yourself: Do you believe in e-tailing? Do you believe in these companies? Because if you think they're going to zero, then they're too expensive now. But otherwise, you have to step up here."

Cory Johnson files weekly from TheStreet.com's San Francisco Bureau. In keeping with TSC's editorial policy, he neither owns nor shorts individual stocks, although he owns shares of TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. Johnson welcomes your feedback at

cjohnson@thestreet.com.

For more columns by Cory Johnson, visit his column

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