The "Price" is Right

10/28/2005 12:00 am EST


Walter Price

Managing Director and Portfolio Manager, AllianzGI Technology Fund

"While I expect the coming year to be a more difficult, I'm optimistic about tech, as I think investors will start to anticipate some upcoming new product cycles," says Walter Price. Here, the co-manager for Allianz RCM Global Technology Fund offers a trio of techs.

"Hewlett Packard (HPQ NYSE) has a new CEO, Mark Herd, who arrived in April. He previously ran NCR, which was a stock we had owned for several years. We watched Mark do his magic at that company, and we think he is in the process of doing the same thing at Hewlett Packard. Basically, he makes any company that he gets involved with much more efficient. And H-P, after its merger with Compaq, was a very inefficient company. This will be a very efficient company by the time that Mark is done. We expect to see much higher earnings power. I estimate that earnings power is somewhere between $2 and $3 in the next couple of years, so I see a high earnings growth rate almost regardless of the economy as he goes through and cuts costs and rationalizes the company’s operations.

"Red Hat (RHAT NASDAQ) is the leader in Linux software distribution. Linux is free software, so Red Hat makes its money by certifying and maintaining the distribution for enterprise customers. This is a company with very good momentum. Orders continue to grow 60% to 70% a year and I think that is going to continue as people swap out of proprietary systems such as Unix and move to Linux. Overseas, we expect companies to adopt Linux as the major operating system for their enterprises. They have about 70% to 80% market share in the US and growing market share in emerging countries that are big Linux fans, such as Brazil, Russia, China, and India.

"Pixar (PIXR NASDAQ) is well known for its animated movies. I think they are very close to a new distribution arrangement with Disney. Right now, they get about 40% of the profits from each movie. Their last agreed-upon movie with Disney, Cars , will come out in the middle of next year. After that, Pixar has said that they are only willing to pay their ‘new partner’ a 5% to 10% distribution fee. A new deal could make still sense for Disney, as they can give Pixar the rights to sequels of their existing films. The net effect will be that Pixar’s earnings, which are now around $1 a share, could quickly move to $2 or $3 a share over the next few years as they increase the number of movies they do from one every two years, to one every 12 to 18 months."

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