November 1, 2004
Tech Stock Knockout
In spite of what continues to be a slowdown in the technology sector, Anthony K. Johnson, CIO for the $4 billion Philadelphia Public Employee Retirement System, says he still has faith in the tech stocks that his investment management team believes have strong fundamentals and are undervalued. Johnson continues to invest in the tech sector even though the exclusive portfolio of stocks he selected for BLACK ENTERPRISE was down 37.21% over the 52-week period from Aug. 27, 2003 to Aug. 25, 2004. By contrast, the Standard & Poor’s 500 Index was up 11% and the Dow Jones Industrial Average was up 9.1% over the same 52-week period.
Defending his position, Johnson explains, “This was a portfolio created with a plan of long-term growth.” He believes strongly that two of his four selections from last year will perform well over the next year, and he continues to commit Philadelphia PERS to a portfolio of 70% equities and 30% bonds, because “in the long run, stocks are going to add value.”
Johnson’s first selection, Enterasys Networks Inc. (NYSE: ETS), a designer and manufacturer of routers and switches for corporate networks, performed dismally. Formerly known as Cabletron Systems, the $415 million firm’s stock fell 63.91% from $5.25 to $1.90. Johnson’s team sold shares of the firm over the summer and he admits, “Clearly, it was not performing.”
LSI Logic Corp (NYSE: LSI) tumbled 54.58%, going from $11.36 to $5.16. This leading supplier of complex semiconductors and storage systems planned to spin off its storage operations through an IPO in 2004, but postponed it because of unfavorable market conditions. Standard & Poor’s has set a modest rebound target of $7.
Although AVX Corp. (NYSE: AVX) slipped 1.82% from $12.10 to $11.88, Johnson maintains, “All expectations have been met. Now the semiconductor market is in a downturn — just a temporary depression — but it should turn around very soon.” Since the company manufactures electronic components and interconnect products for cell phones, copiers, and hearing aids, as well as electrical devices for companies such as Nokia and Motorola, Johnson believes the firm still has solid prospects. “Their customers must make the products, so AVX is selling its merchandise despite the decrease in sales of many of their customers,” says Johnson. He also points out that AVX is still the No. 2 firm in its market, which is why he says it’s a “hold”.
And talk about a closeout. Johnson’s final stock selection, Big Lots Inc. (NYSE: BLI), took a big loss of 28.64%, going from $17.60 to $12.56. Nonetheless, Johnson stands by the company, expecting it to rebound to about $25 in the next 12 to 18 months. He reasons that the decision of the firm’s handpicked management team to move away from the toy business and concentrate on closeout merchandise will add profitability. “Big Lots has a strong balance sheet. The fact that it is not performing well is actually due to the high price of gas,” says Johnson. “If you look at same store sales, volume is down because