Bargains Amid The Tech Wreck - high technology stocks that are value investments - Brief Article

Kiplinger's Personal Finance Magazine, Jan, 2001 by Manuel Schiffres

STOCKS | The technology sell-off creates intriguing BUYING OPPORTUNITIES.

HOLDERS of technology stocks have to be wondering what will hit them next. Networking titan Cisco Systems reports a blow-out quarter and discloses that business in the current fiscal year is better than anticipated. Then what happens? Investors focus on comments that Cisco wants to reduce its inventory of parts so they immediately obliterate stocks of communications-chip and fiber-optics-component suppliers. To add insult to injury, Cisco takes a hit, too.

These sorts of meltdowns have been occurring with alarming frequency of late. But the good news is that many tech stocks are a lot cheaper now. Says market strategist Alan Skrainka of Edward Jones brokerage: "The pendulum of market psychology has swung from extreme greed to fear. No one can pick the exact bottom, but it's certainly a much better time to buy than it was a few months ago."

Five gems. We asked some savvy money managers to identify beaten-up tech stocks that they still consider attractive buys. All of the picks are down at least 50% from their 52-week highs. A good strategy for buying these volatile stocks is to invest a fixed dollar amount on a regular basis, If you want to be extra cautious, wait until after the bulk of fourth-quarter earnings are released in January (see "The Season of Fear," Dec.).

Kevin Landis, manager of Firsthand Technology Value fund, likes TriQuint Semiconductor (symbol TQNT, recent price $31; 52-week high, $68), a small maker of gallium-arsenide chips used in communications devices. (Landis also likes Nortel Networks; see "Ten Stocks to Own in 2001," on page 38.) TriQuint has been punished because a significant chunk of its chips--perhaps half--are sold to makers of mobile phones, a sector that has seen a slowdown in growth. But, Landis notes, TriQuint also sells to the fiber-optic-equipment, satellite and fixed-wireless markets, giving it a fairly diverse customer base. According to First Call/Thomson Financial, TriQuint is expected to earn $1 per share in 2001, up 27% from 2000.

Chip maker IDT (IDTI, $35; 52-week high, $104) is "truly inexpensive," says Douglas MacKay, manager of Red Oak Technology fund. The stock sells at a modest ten times the consensus earnings estimate of $3.68 per share for calendar 2001, up 40% from expected 2000 results. IDT, notes MacKay, is shifting from producing low-margin SRAM chips into making high-margin chips used in communications gear.

There's a two-thirds-off sale on GlobeSpan (GSPN, $51; 52-week high, $167), the pick of Mark Herskovitz, manager of Dreyfus Premier Technology fund. Cisco is a major customer for GlobeSpan's chips, which are used in digital subscriber line (DSL) technology to boost transmission speeds over copper wires. The stock has also been hurt by the woes of alternative local phone companies known as competitive local exchange carriers. But, says Herskovitz, the Baby Bells are making a major push into DSL, and "the picture will look considerably different in six to 12 months." Analysts see earnings rising 69% in 2001, to 86 cents per share.

Internet star. Bob Turner, co-manager of Turner Technology, favors VeriSign (VRSN, $109; 52-week high, $259) because of its leading position in Internet and business-to-business security (see "Future Stocks," Sept.). "As the Internet grows, you've got to have more security," says Turner, who favors companies whose profits he believes can top analysts' estimates. VeriSign, which acquired the leading Internet domain-registration company, Network Solutions, early in 2000, has the greatest growth potential of the companies featured here--and is the most expensive stock. Analysts see earnings of 32 cents per share in 2000, jumping to 54 cents in 2001.

For those who like to live dangerously, we present a genuine dot-com, a company called ValueClick (VCLK, $4; 52-week high, $24). To Michael Balkin, who co-manages William Blair Small Cap Growth fund, ValueClick is a value stock. ValueClick, which went public last March, is an Internet advertising agency that is paid only when a surfer clicks on an advertiser's banner. What makes it interesting, says Balkin, is the value of its assets: Cash and holdings in DoubleClick and ValueClick Japan are worth about $9 per share, he says, and the company is debt-free. Unlike many dot-coms, which are burning cash because of big losses, ValueClick is profitable: It is expected to earn 9 cents per share in 2000 and 11 cents in 2001. Says Balkin: "The stock is significantly undervalued and presents some intriguing opportunities for an acquisition."

--Reporter: ERIN BURT