Fundamental Letdown

Eddie Ramos' concentration in tech-related firms betrayed his analytical approach

Last year, Eddie Ramos, portfolio manager of Brown Capital Management’s International Equities Division in Baltimore, counseled that it was important to concentrate on company fundamentals when assessing international stocks. With the string of accounting scandals that have broken since his recommendations, his strategy of basing key buy-and-sell decisions on “analysis of the specific security and company within the context of our overall outlook for the economy and the market,” seemed sound.

Unfortunately, the continued slump in the technology industry, along with uncertainty about war in the Middle East, worked against Ramos’ stock selections. His tech-heavy Private Screening picks lost 39.46% over the 52-week period from Sept. 21, 2001, to Sept. 20, 2002. By contrast, the Standard & Poor’s 500 index lost 14.13% and the Dow Jones industrial average lost 4.65% over the same period.

The bright spot among Ramos’ pack was Israel-based Teva Pharmaceuticals (Nasdaq: TEVA), a fast-growing generic drugmaker. The firm’s position as the No. 1 issuer of generic prescriptions in the United States helped its shares grow by 18.98%, going from $56.44 to $67.15.

The accounting scandals most affected America Online Latin America (Nasdaq: AOLA), which plummeted 91.69% from $3.25 to 27 cents per share. The U.S. Justice Department’s probe of AOL Time Warner’s accounting practices and the subsequent resignation of its No. 2 executive, Robert Pittman, in August turned investors skeptical about the company’s management. This in turn affected AOL’s Latin subsidiary. “We sold it in April,” says Ramos.

The slowdown in the technology sector dragged Chinese telecom and Internet software provider AsiaInfo Holdings (Nasdaq: ASIA) and network security product maker Check Point Software (Nasdaq: CHKP) lower over the last year. With many of the world’s economies suffering, demand for these firms’ software products fell below expectations. AsiaInfo’s stock fell 63.04% from $10.85 to $4.01, while Check Point’s shares dropped 38.02% from $25.41 to $15.75. Ramos says he sold AsiaInfo in July, but still holds Check Point because “We expect it to grow at least 18% per year.”

Finally, Aventis (NYSE: AVE), a French pharmaceutical company that Ramos expects to release six blockbuster drugs over the next five years, held up very well until the bottom dropped out of the market in July and August. Shares of the world’s largest life sciences company lost 21.52%, going from $66.27 to $52.01.

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