Riding The Market’s Twists And Turns

Parnassus' William Thomason sorts out his picks--to sell, buy and hold

The portfolio. Fasten your seat belts. William Thomason of San Francisco’s Parnassus Investments will tell you that while the fund he works on can go through twists and turns, it usually ends with a tidy gain at the end of the day. Case in point: Thomason’s Private Screening portfolio rose 1.1% in the last year, turning a $5,000 investment into $5,056. Two clear winners were Hewlett Packard (NYSE: HWP), with a 12.7% gain, and Mylan Laboratories (NYSE: MYL), which led the group with a 48.1% return. Toys ‘R’ Us (NYSE: TOY) rose 8.5%. The other two trailed: Morgan Products (NYSE: MGN) lost 27.1% and Advanced Micro Devices (NYSE: AMD) fell 36.6%. The portfolio, however, is a far cry from how Thomason’s Parnassus Fund has fared overall, logging a 29.7% return for the last year.

The outlook. Thomason’s current assessment might surprise you. For starters, he has lost faith in Advanced Micro Devices, a semiconductor company that competes with Intel. Thomason says the company’s chips are excellent but that AMD has had trouble meeting product delivery schedules. He says a better stock in the industry is Electro-Scientific Industries (Nasdaq: ESIO), which makes semiconductor equipment. Hewlett Packard remains a “core holding,” he says. “The stock’s not cheap at current levels, but HP has excellent products and is a household name; I’d definitely buy if the stock fell to $55.” As far as Mylan Labs, the maker of generic pharmaceuticals, Thomason recommends holding on to the stock, but not adding any more. He says many brokerages rate the stock a “buy,” but in his opinion the company’s product pipeline isn’t as strong as it has been. Morgan Products, a company that sells home improvement supplies, has been a real disappointment, but Thomason says that at $5 it’s hard not to pass up. The reason: he says Morgan’s industry group is undergoing a wave of mergers and that the company could well be a target. Finally, Thomason says he’d sell Toys ‘R’ Us, but not until July or August. “Invariably every summer the stock rises, analysts talk it up further, and then after Christmas sales figures come out, it comes back down.”

Thomason’s Ups and Downs

Stock (Exchange: Symbol)

Current Price*

Price at
Recommendation

Total Return

Current Value
of $1,000
Investment

Est. 5-Year
Annual EPS Growth*

Advanced Micro Devices (NYSE: AMD) $26.56 $41.88 -36.6% 634 15.2%
Hewlett Packard (NYSE: HWP) 63.13 56.00 12.7 1127 15.6
Morgan Products (NYSE: MGN) 5.56 7.63 -27.1 729 20.0
Mylan Labs (NYSE: MYL) 23.69 16.00 48.1 1481 21.0
Toys ‘R’ Us (NYSE:TOY) 30.38 28.00 8.5 1085 12.4
* As of 3/30/98
Source: 5-year EPS growth rates compiled by Zacks Investment Research
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