Given risk-on and risk-off mood swings, the best forex barometer may be the euro as the stops at 1.1...
Eclectic Value in Tech
02/11/2005 12:00 am EST
It may surprise some that John Buckingham , manager of the value-oriented Al Frank Funds and the top-performing The Prudent Speculator, is also a fan of tech stocks. Here, he explains his rationale and some favorite plays in the semiconductor arena.
"As value investors, we seek cash on the balance sheet, low price to book, and low p/e ratios. But we are also eclectic value investors, and we find that many of our holdings are in the tech sector – as long as they meet our other value criteria. And while it may sound counter-intuitive to our long-term patient approach to investing, what I like about investing in technology is its volatility. You can buy a tech stock at $3, and two years later it can be $30. Other value stocks, such as my homebuilding plays, may only rise 20% or 30%. But if you have a hot tech stock, you can get rich. That’s the beauty about technology investing. The greater fools are out there, and they will find your stocks, if and when the earnings start to pick up. But you have to buy them when the balance sheets are strong and the valuations are inexpensive.
"Within the tech sector, we love semiconductors, precisely because everyone hates them. We like to do the opposite of the consensus. Semiconductors should be a part of your portfolio. If you look at valuations on the chip stocks, you really want to focus on balance sheet strength. Look at a company like Varian Semiconductor (VSEA NASDAQ). The company has $12 a share in cash. The company has been profitable just about every quarter of its existence. I think it has excellent long-term growth potential. Semiconductors are always going to be cyclical; there’s no getting around that. But the idea is to not only invest in the businesses that are best-positioned for growth but to buy them when they are inexpensive and when their balance sheets are in good enough shape so that they can spend on R&D, and remain in business in an extended downturn.
"Believe it or not, from a value perspective, I also have a semiconductor recommendation that is in the nanotechnology sector. It’s called Veeco Instruments (VECO NASDAQ). It’s a maker of atomic force microscopes that are helping in the design of semiconductors and are used in scientific nanotech research. At present, the stock is trading at about 15 times estimated 2006 earnings and less than two times book value. It is also trading at a price to sales ratio below 2, which is reasonable for the semiconductor sector. And since I’m optimistic about chip stocks in general, and this also has the 'sexiness' of the nanotechnology space, I think Veeco would be a good stock to own."
Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
I’m seeing smart money in the bond market selling on rallies and not doing a whole lot of buyi...