Confab Attendees Keep One Eye on Promising Firms, the Other on the Fed - TheStreet

Confab Attendees Keep One Eye on Promising Firms, the Other on the Fed

The atmosphere at tech conference differs from last year, as tech stocks finish up a turbulent January.
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SAN FRANCISCO -- Nerves will run high at the

Banc of America Securities Technology Week 2000

financial conference that begins Tuesday.

After all, just as some 1,200 money managers pile into the

Ritz Carlton

for croissants and coffee and wait for the company presentations to begin, the

Federal Reserve's Open Market Committee

will open

deliberations on whether to push interest rates up yet again -- and perhaps deliver another blow to stocks.

"It's scary," says Frank Husic, portfolio manager of

Husic Capital Management

in San Francisco. "It's difficult to predict which way the market will go."

About 195 companies will be presenting at the conference, 37 of which have yet to go public. John Skeen, director of portfolio strategy for Banc of America, says money managers are looking for reassurance. After all, valuations remain high for most tech stocks. "Investors are starting to lose confidence in ... highfliers," he says.

Yet Skeen and many money managers assembling here aren't surrendering. While Skeen thinks there's room for stocks to drop some more, he sees plenty of opportunity for growth in tech sectors like wireless communications, optical networking, network software and semiconductors, regardless of short-term stock wiggles. Among his top stock picks, out of companies presenting at the conference, are chip-equipment maker

Novellus

(NVLS)

and contract manufacturer

Flextronics

(FLEX) - Get Report

. (Banc of America has done recent underwriting for Flextronics, but not Novellus.)

Many of the attendees aren't feeling quite as confident as they were a year ago. At last year's conference, it was smiles all around. The

Nasdaq Composite

had soared to 2500 from 1400 in less than four months, with hardly a blip. And such upstart e-commerce stocks as

eBay

(EBAY) - Get Report

and

Amazon.com

(AMZN) - Get Report

were leading the way, outpacing tech stalwarts that included

Microsoft

(MSFT) - Get Report

and

Cisco

(CSCO) - Get Report

.

But this time, the prospect of rising interest rates hovers over the conference like San Francisco's famous fog. As the Fed prepares to meet, markets have been rocked by volatility. After opening at 3873 Monday, the Nasdaq Composite plunged 125 but closed with a gain of 53.

When that happens, there's a tendency to panic, says Husic, but you can't afford to. "It is easy to make mistakes," he says. Take

TMP Worldwide

(TMPW)

, an Internet advertising company, he says. It opened at 135 today and plunged to 119, but then rebounded back to 140 1/2. "If you got scared and sold TMP this morning, you'd be a sad puppy," he says.

Some managers fear a market correction that could continue for another month or so and are pulling out of unprofitable Internet stocks and putting their money into makers of telecommunications equipment and semiconductors, where earnings growth has been strong and is expected to continue.

Rod Berry, portfolio manager at

Elijah Asset Management

in San Francisco, expects volatility to continue until after the Fed decides once and for all whether to raise interest rates. "Almost no matter what they say, it will be a relief to the market," he says. After that, he expects to see stocks climb back up. "We have trimmed a lot of our Internet positions toward the end of 1999, but we are still bullish on the outlook for technology. We are heavily weighted in semiconductors, and we like the semiconductor cycle that is emerging here."

Even in these sectors, though, fund managers need to be comforted. For example, fund managers know that semiconductor stocks tend to rise and fall in three- to five-year cycles, and they want to make sure that the stocks' current boom cycle hasn't already peaked. So they'll be listening for news that new equipment orders are still rising. And Husic says he wants to hear that corporate managers are staying ahead of any competitive changes in their markets.

Fund managers will also keep a sharp eye out for new investments. Walter Baumgartner, a portfolio manager at

Cypress Growth Fund

in Menlo Park, Calif., says that business-to-business Internet companies and communications-equipment makers have gotten very expensive, but that there are other companies that operate in the periphery that should grow. "We might look at enterprise-software companies that haven't done well last year and other software companies that might have a role to play there," he says.

David Arscott, a fund manager at

Compass Technology Partners

in Menlo Park, says he's on the lookout for small, undiscovered companies, particulary in the field of optical networking, ones that will perform as well as

Optical Coating Laboratory

(OCLI)

did last year. "We are constantly looking for these opportunities where we will sell a fully valued business," he says.

Investors like Arscott -- hunting for the next wave of telecommunications stars -- are likely to crowd into the presentations of private optical-network startups such as

Optical Networks

,

Corvis

and

Chorum Technologies

. In these areas, Arscott isn't worried about short-term market corrections. "I don't look at it month to month. A lot of these things are very long term in nature," he says. "The number of technology opportunities today are much larger than they were in the past. The opportunities are being developed more rapidly than they can be fully exploited by investors."

Michael Ellis, an analyst at

Montgomery Asset Management

, says that a sharp market correction would be a opportunity to buy. "We're looking to upgrade our portfolio. If there is a significant correction, we are looking to step up." He's looking at Japanese companies such as

Sony

(SNE) - Get Report

and

Nintendo

, foreseeing continued economic recovery in that nation.