Van Wagoner: Bullish on Tech

08/29/2002 12:00 am EST


Garrett Van Wagoner

President, Van Wagoner Capital Management

Garrett R. Van Wagoner is president and portfolio manager of the Van Wagoner Funds and is part of a four-person team that conducts research and analysis. He’s bullish on the long-term outlook for technology and highlights some of his top portfolio holdings…

"I think it’s obvious that we are in a bottoming process in the technology business. I also don’t think we are going to get a double dip in the economy. It is clear that Alan Greenspan and the gang understand that the last asset left to consumers is their homes and that refinancing activity is what’s driving the consumer. He will move rates as low as necessary to keep consumers strong. Valuations on tech stocks are about as cheap as I have ever seen them, and I've been in this business for many years. Tech stocks are flat on their fannies, short positions in tech issues are at all time highs, and the professional investor has record cash and low technology exposure.”

"Meanwhile, there are some other silver linings that aren’t being talked about. We are seeing an incredible amount of organizational restructuring going on. One of the hallmarks of the next up cycle is that operating profitability levels are going to be staggeringly high in the tech business. Competition has also lessened quite a bit, particularly among small companies. Typically, small technology companies have to worry about some start-up developing a faster, better product. That’s where competition comes from. But lately, new companies have been starved for capital and in the next up cycle there will be much less competition from start-ups. Established companies will be able to go farther and longer with higher profits. When the recovery comes, I think it will be V-shaped, in the sense that when business turns, it will feed on itself. When that happens it will be an interesting time.”

Van Wagoner also discusses his top portfolio holdings: Brocade (BRCD OTC) is in the storage switch business. They are in a new product cycle, which is unfolding right now. They are adding a lot of software to their product mix, which is helping profit margins. They have seen an uptick in their business, which started in late spring and early summer. Our other largest holdings are enterprise software companies. Their valuations are very reasonable and their businesses have held up reasonably well this year. We like Embarcadero (EMBT OTC), JD Edwards (JDEC OTC), and MatrixOne (MONE OTC). During the down cycle, these companies have seen their competition melt away. We think that from a competitive standpoint, they are in a good shape going forward. They are dominant in their niches and are well positioned for the upturn.”

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