obligation, so you are almost certain to be returned your principal within a typical maturity of five to seven years. In return for that, you’re going to give up some of the upside of the underlying equity, but you will be paid a coupon at the same time. It can give you best of both worlds and [convertibles] typically provide similar equity returns but with less volatility. Because of the nature of the product, we have the ability to go out either spectrum, toward equity or fixed income. That’s the beauty of the asset class. In this environment, we tend more toward the fixed-income side of the convertibles.
B.E.: In the current environment, where do you see the best sector opportunities for investors?
RAY: I think both the PC and PC-related stocks [offer] some fantastic values there. I think what a lot of investors have missed is that we’re three years after the Y2K cycle, and almost all of those purchases would be fully depreciated up to this point. We also have new chip introductions by the majors, Intel and AMD, and we’re looking at new and faster chips that a lot of times kind of cause businesses to spend on new technology. We also like telecom. We think telecom has reached its point of maximum pessimism.
In PC and PC-related stocks, I probably look at Gateway (NYSE: GTW), Compaq (NYSE: CPQ), and Hewlett-Packard (NYSE: HWP). They’re all trading at a discount price of the sales on a 10-year basis. We also would probably take a look at,
on the telecom side, Tellabs (Nasdaq: TLAB), Corning (NYSE: GLW) and Sprint (NYSE: FON). I think the Baby Bells look attractive, especially the old Southwestern Bell, SBC Communications (NYSE: SBC), and Verizon (NYSE: VZ), and the financials. You probably can’t go wrong with Citigroup (NYSE: C). You’re probably in pretty good shape with FleetBoston (NYSE: FBF) and J.P. Morgan Chase (NYSE: JPM). Those are all fantastic institutions, with great long-term track records and great managements.
FRANCIS: I believe that consumer cyclicals, selected capital goods companies, and communications services should do well. I like Harley-Davidson (NYSE: HDI). Their ability to extend their brand away from the touring type of bike into high performance I think is going to be very effective. It takes advantage of the baby boomer spending syndrome.
[I also like] Home Depot (NYSE: HD). I think the management there has gotten their act back together. I think that they will be one of the leaders in the retailing rebound that I think should happen as we normalize. I believe a company called TMP Worldwide (Nasdaq: TMPW) is another company in that area that should do very, very well. They have a very interesting undervalued asset in Monster.com. They are truly building the biggest database of resumes and it’s really “people information.” The way that they will be able to leverage that going forward, I think, is going to be incredible.
In the capital goods area, I still like Tyco (NYSE: TYC) because it’s just a conglomerate.