Riding The Tech Roller Coaster Upward

Parnassus manager says Electro Scientific is good for solid returns

When it comes to tech, sometimes the best investment ideas take a little bit of patience. Take Electro Scientific Industries (NASDAQ: ESIO), for example. A Portland, Oregon, manufacturer of the hardware semiconductor makers need to fabricate computer chips, Electro took the same path many tech stocks did last year: rising to a crest only to slip off near the end of 1997. That took Electro past expectations to $60 a share, only to slide back to the mid $30s.

That’s not to say the stock didn’t deliver, though. When Electro appeared as a pick in BE last year, William Thomason, director of portfolio management at Parnassus Investments in San Francisco, said he thought the stock had what it took to get to $34 (from the $26 a share it fetched at the time of the recommendation).

For all the rise and fall, Electro nearly met Thomason’s price target and treated shareholders to a 27% gain, a climb that would have turned a $1,000 investment into $1,270.

Thomason thinks Electro’s run is far from over. For one, any retreat the market has made from Electro is overblown, he says. “The company has made some great acquisitions in the last year,. and frankly, at these levels, the stock is a screaming buy,” adds Thomason. That’s no mean statement considering that Parnassus runs one of the hottest mutual funds around, one which posted a 71% gain in the 12 months between September 1996 and 1997, leading all competition.

He believes Electro has what it takes to not only increase earnings at a 25%-30% rate over the next few years, but to lift the stock to $100 a share in the next 12-18 months. And while the going might be a bit bumpy, Thomason says it’s worth it. “I’m impressed with management and the business this company is in–two factors that could make this a Hall of Fame stock.”

Electro Scientific Industries (NASDAQ: ESIO)
Current price: $33.13*
Price at recommendation: $26.00
Share price appreciation: 27%
52-week high/low: $63.75/$23.75
EPS growth rate: 25%-30%
P/E: 22.89
* As of 1/23/98

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