Talking to Bob Turner and other growth investors is like talking to farmers during a long drought. They know their prayers will be answered -- they just can't say when.

Of course, Turner and his growth colleagues aren't waiting for rain. They're waiting for the economy to get well and for companies to resume buying PCs and servers.

Talking With:
Bob Turner

Fund:
Vanguard Growth Equity

Assets: $855.7million

1-Year Return:
-46.6%/Trails 87% of Peers

5-Year Return:
13.6%/Beats 56% of Peers

Expenses:
No-load/0.92% annual expenses

Top-Three Holdings:
Pfizer ,
Microsoft ,
AOL Time Warner

Sources: Morningstar and Vanguard.com. Top holdings through May 31.

The founder of Turner Investment Partners and manager of the

(VGEQX)

Vanguard Growth Equity fund, among others, saw his growth funds follow the

Nasdaq into the red over the past 18 months. In the wake of the tech bubble's bursting, his Growth Equity and

(TTECX)

Technology funds are down 47% and 71%, respectively, over 12 months. His firm has also filed paperwork with regulators to merge the young and sputtering

(TIWCX)

Turner Wireless & Communications and

(TBTBX)

Turner B2B E-Commerce funds.

Before the Nasdaq's collapse last year, Turner's Growth Equity fund topped its peers for four straight years, so there's reason to check out what Turner is doing now. Today he's overweighting PC and chip stocks. He's also betting battered bellwethers like

Cisco Systems

(CSCO) - Get Cisco Systems, Inc. Report

and

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

will emerge from the downturn with solid market positions. Of course, when this downturn will end is another question.

1. What's the argument for investing in the tech sector today?

Turner:

Technology continues to be an area where corporations can enhance their productivity and profitability. There are a lot of applications that allow them to do so. As the economy stabilizes and people feel better about their outlook, they're definitely going to spend on some of these applications, and with the valuations where they are now, any pickup in demand certainly can drive these stocks higher.

2. How are you separating the wheat from the chaff in tech, and what's an example of each?

Turner:

The thing to remember is that the companies that are able to survive this downturn are going to be much better positioned. I think a great example is

business-to-business software maker

Siebel Systems

(SEBL)

. Customer resource management is an area that will continue to grow. Maybe not at 50% and above as it did historically, but 30% is still pretty nice growth.

Many of Siebel's competitors have gone away or merged with other companies. Certainly, any little private company that felt that they could compete probably ended up losing their funding during this downturn, so Siebel has emerged as the clear leader in an area that's growing fairly rapidly. I would say

data storage software maker

Veritas Software

(VRTS) - Get Virtus Investment Partners, Inc. Report

kind of fits that bill, too.

What's an example of a well-known company that might stagger out of this downturn?

Turner:

Oh, look in telecom. I don't really like to take shots at companies we don't own because I don't have a strong opinion on them and don't watch them as closely. But because of the severe downturn in telecom

equipment spending and the move toward next generation equipment, some of the big telecom equipment companies may not be as well-positioned as they were previously.

Cooling Off
Turner's big-cap growth fund rode tech up
and followed it down

Source: Morningstar. Returns through June 29.

3. Today some value managers are shopping for bargains in the Nasdaq. To a growth investor, what companies have been oversold?

Turner:

Well, almost every tech company has missed their

earnings numbers or at least had numbers not go up. A company like Siebel

down 53% over the past year, which hasn't missed numbers but has been brought down. Siebel and Veritas are trading at around 40 times next year's earnings, which is still high relative to the market. But, with growth rates that could be 30% or 40%, assuming a normal economic recovery, they trade at valuations that over time may be perceived to be fairly reasonable.

4. When you and I last spoke, you said that when a company's earnings miss expectations, you're not inclined to hang around because worse news is often around the bend. Now that just about every tech company has warned at one time or another, have you changed your view?

Turner:

Oh, I mean, the answer is yes. Going back to Siebel and Veritas, they've not missed and they probably make expectations. But do they have to bring expectations down? They may. At this point I think people are focusing on a turn in the economy, so lowering expectations might not matter that much.

On the other hand, we're very overweighted in some semiconductors and PC-related stocks because that's the first group to turn as the economy turns.

10 Questions Archive

Amerindo Technology's Matthew Fitzmaurice RT

Olstein Financial Alert's Bob Olstein

Dresdner RCM Global Health Care's Faraz Naqvi

Berger Information Technology's Bill Schaaf

Hancock Focused Relative Value's Tim Quinlisk

Gabelli Growth's Howard Ward

Flag Investors Communications' Bruce Behrens and Liam Burke

Dreyfus Technology Growth's Mark Herskovitz

5. When do you see a pickup in demand for chips and PCs?

Turner:

I think one thing that is pretty recognizable in the PC area now is that inventory levels are very, very low. So even if there isn't any pickup in demand these stocks should do reasonably well.

Now, in terms of when will we see a pickup in demand, there are several positive factors. I mean we're all holding to the theory that

Federal Reserve Chairman

Alan

Greenspan's

aggressive

interest rate cuts and the tax cut should have an impact. And then you have the back-to-school demand and the need to upgrade corporate PCs installed in 1999 pre-Y2K.

And we are getting some pieces of information that say maybe production is improving. Motherboards are the base-building blocks for PCs and their production is up 20% per week over the last two weeks at a couple of Taiwan companies. Some of the companies that package semiconductors have begun to see a pickup in demand, too.

But it's still a waiting game, right? We know the economy should be picking up, but we don't know when it will be back on its feet.

Turner:

That's it at this stage. You are beginning to see hopeful signs of the economic pickup with

data from the

National Association of Purchasing Managers

and housing starts and auto sales figures. But at the same time, unemployment continues to go up too.

6. Who do you see as the strongest players in the PC and chip areas?

TheStreet Recommends

Turner:

In the PC area

Dell

(DELL) - Get Dell Technologies Inc Class C Report

is one of our favorites. Right now they still buy low-cost parts, and when demand improves they sell them at higher prices, so margins could improve.

We like

Apple

(AAPL) - Get Apple Inc. (AAPL) Report

too. Apple's kind of different because they're just product-cycle driven.

In the semiconductor area,

Micron Technology

(MU) - Get Micron Technology, Inc. (MU) Report

is our largest semiconductor position. We like and own

Texas Instruments

(TXN) - Get Texas Instruments Incorporated Report

and

Analog Devices

(ADI) - Get Analog Devices, Inc. Report

, and you know they all benefit from a pickup in PC demand and general economic demand, too.

7. Where are you seeing opportunities beyond tech?

Turner:

As the economy picks up, there are always a group of stocks that are perceived to be early cycle stocks that tend to perform best.

Within the consumer area that is the broadcasting companies. So we own

Clear Channel Communications

(CCU) - Get Compania Cervecerias Unidas S.A. Sponsored ADR Report

and

Viacom

(VIA.B)

. Clear Channel is in the radio business, and the first advertising that picks up after a downturn is typically radio.

Another big position is

AOL

(AOL)

. People are still using the Internet, and AOL certainly has established itself as the market leader. It's just a great business model, and it's really functioning at a pretty high level. We also own

Home Depot

(HD) - Get Home Depot, Inc. (HD) Report

because it's a good business and it's also an early cycle stock.

Let's play word association with a few tech bellwethers. I'll name a company, and you can let us know what you think and if you own shares. I'll start with Microsoft (MSFT) - Get Microsoft Corporation (MSFT) Report.

Turner:

We're neutral on Microsoft right now. The only issue is that the stock has gone up 65%, year to date. Compare that to similar tech companies whose valuations are down because their stocks are down 50% and it's not too favorable. We prefer other tech companies just based on the fact that they've been such laggards relative to Microsoft.

But you have a position?

Turner:

Yes.

Sun Microsystems.

Turner:

I'm favorable on Sun. In fact, I was just using Sun counter to Microsoft because it's down about 44% year to date. Again, you know, we've got to have an economic pickup to make things look better here, but they are introducing their new UltraSparc3 workstation and their inventories are fairly cleaned out, so any modest pickup in demand will translate to a nice earnings turnaround here.

Cisco.

Turner:

I'm positive here for pretty much the same reasons. We just bought Sun and Cisco at prices not too far from where we are today. When -- I shouldn't say if -- we see an economic pickup, companies leading that pickup will need to spend on some of their infrastructure. So companies like Cisco and Sun will both benefit.

And in each situation, the expectations are realistic. I don't think Cisco's going to go back to $75 a share any time soon, but from $18 to go back to $23 or $24 is a very positive percentage change.

8. Professional and amateur investors kick themselves for overestimating some trends or companies that falter, while underestimating some that take off. What are we missing now?

Turner:

I'd say generally people are underinvested in growth stocks, underinvested in technology. Most mutual fund money has gone into money markets, and from talking with people in the marketplace, I would say that institutional investors are underweighted in technology.

Our viewpoint is that when the economy does improve, technology spending will resume and a lot of these companies that are down 70% will go up. The companies and money managers that were able to weather this will come out much, much better. So we want to be positioned in those companies, as the economy improves.

9. You're going to merge your young Wireless and B2B Net funds together, and other industry-focused funds are going away. Did fund companies get too aggressive, making funds that are too focused on a corner of the market that's hot?

Turner:

Well, we continue to roll out sector funds; we launched our energy fund, brought a financial services fund into the fold, and we started a health care fund, too. So we're very comfortable with offering them.

I think, certainly, to divide tech down further than we did, in hindsight, narrowed things a little bit too much. The reason we are merging the two together is just there aren't that many stocks out there to buy. If you're looking to somewhat diversify your portfolio, you've got to have a certain number of stocks. We're not backing away from sector funds at all, because we started several new ones, but we're keeping them broader.

10. What three companies would you feel most confident holding for the next five years, given their products, management and valuation today?

Turner:

I would say Cisco first. Cisco will continue to be a leader in the data networking area, and that's still probably growing above 20% per year. With the fallout from the telecommunications area, I think Cisco actually has a chance to gain a greater foothold than they once had in that area. So I think that's the one, within technology, that really stands out.

If there is one business model that has worked in the Internet it's the auctions, and

eBay

(EBAY) - Get eBay Inc. Report

has established themselves as just a huge force in that area. You know, they're moving into other areas too, where you just list items and people buy and sell them, and then they've moved into other product categories, too. So the Internet is very useful in a lot of fashions, and that's an area that seems to be doing well.

Finally, I would also say AOL. They are just the dominant media player on the Net. Their key advantage is that they have 30 million subscribers who pay $20 a month to use their service. It's just phenomenal to have that.

Fund Junkie runs every Monday and Wednesday, as well as occasional dispatches. Ian McDonald writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to

imcdonald@thestreet.com, but he cannot give specific financial advice.