January 1, 2004
Back To Technology
Patrick Lyons, an associate portfolio manager at Durham, North Carolina-based NCM Capital Management Group, says the battered and bruised technology sector, once the darling of Wall Street investors, is primed for a comeback. Lyons is charged with overseeing three sectors for NCM Capital: technology, telecommunications, and utilities. He also co-manages a large-cap growth fund that holds $460 million of public and private pension funds, as well as Taft-Hartley plans and endowments.
Lyons chooses stocks that have a market capitalization of at least $2 billion. He also looks for companies that are dominant producers of a particular product, have a management team that has experienced tough market cycles, and have healthy earnings growth. “We typically like to see companies growing at least 10% over a 12-month period,” he says.
Lyons believes the economy will grow by 4% or 5% over the next four quarters. “We are starting to see a pick-up in business orders from a lot of technology and industrial companies,” he observes, mostly due to “the three year cycle” that normally passes before public and private sector customers upgrade their technological infrastructure.
That’s why Lyons likes Intel Corporation (Nasdaq: INTC), a manufacturer of computer, network, and communications products: “Intel has 80% of the microprocessor market and will get the lion’s share of business from new PC sales.” He also notes that the popularity of Centrino notebooks, which contain mobile technology and have extended battery life and integrated wireless LAN capability, is on the rise.
Dell Inc. (Nasdaq: Dell), a company that designs, develops, manufactures, services, and supports a wide range of computer systems, is also on Lyons’ list. Formerly known as Dell Computer Corporation, the No. 1 PC maker also markets storage equipment, workstations, and has recently begun pushing into the consumer electronics business.
“The company’s growth engine, going forward, will be their consumer electronics products, like the 17-inch, LCD TV. They are also coming out with a digital music player and an online music service where you can download music for a fee,” Lyons says.
Lyons also selected Nextel Communications Inc. (Nasdaq: NXTL), a provider of digital wireless communications services primarily for business users. He says Nextel has strong subscriber growth and has made itself more attractive by refinancing and retiring about $4 billion in debt.
Lyons picked Staples Inc. (Nasdaq: SPLS), which sells office products, supplies, and services, including business machines, computers, and related products. He says there is a strong correlation between small business confidence and Staples’ sales momentum, therefore the company should benefit from rising sales in the tech industry.
And lastly, Lyons picked Cendant Corporation (NYSE: CD), which has five business segments: real estate services, hospitality, travel, vehicle services, and financial services. Its businesses include CENTURY 21 and Avis Group Holdings. “We like this company because their real estate division will continue to take advantage of a strong housing market that has been fueled by low interest rates,” says Lyons. “We also believe that as the economy continues to improve, business travel will pick up and business travelers will want to