On Wednesday, December 18, 1996, James Greene and Lawrence York joined Worth OnLine for "Conference Call." During the live event, these co-managers of the WWW Internet Fund talked about their fund's strategy, their favorite stocks, and the outlook for the technology sector. The following transcript has been edited for clarity. The opinions expressed are those of James Greene and Lawrence York, and do not necessarily reflect the opinions of Worth OnLine, Worth magazine, or Capital Publishing.
WorthEdit1: Welcome to "Conference Call," Worth OnLine's live weekly chat show series. Every week we give readers the opportunity to chat with the leaders in money and markets. Check our site (Keyword: Worth) for a calendar of upcoming events. The new $2 million WWW Fund was the first mutual fund comprised of companies that design, develop, or manufacture hardware and software products for the and the WWW. It's managers, James Greene and Lawrence York (under the single screen name JGreeneLex) are our guests tonight.
Welcome. Would you like to make a few comments before we begin?
JGreeneLex: Yes. We welcome our fellow investors. A lot of investors are worried about the market. We hope to answer some of these questions and discuss the prospects for 1997 and Internet growth in tonight's session. 1997 promises to be a tremendous growth year for the Internet industry. We focus on themes. In particular, some themes we like for 97 are electronic commerce, security, outsourcing, agent software, software tools and telecom services.
RCW 4235: Any thoughts on "MU" and "IDX"
JGreeneLex: Micron is heavily focused on DRAM and their success depends on revenue growth as prices continue to drop. Who is IDX?
RCW 4235: Fingerprint ID company.
JGreeneLex: Not sure on IDX security. Fingerprint security is questionable versus electronic signatures.
JStemSr: Q - Want a great return on our stocks as we all do! Invest in large or the small companies?
JGreeneLex: Our portfolio has a three tier approach combining mature, midlife and adolescent companies. We think the most growth will be in the midlife to adolescent. Large companies like Intel and Microsoft offer significant growth, but pale in comparison to the growth rates of Netscape and other small companies. We look for large customer base growth and quality management and alliances.
SP DVM: What do you know about OLS?
JGreeneLex: Regarding OLS -- bad earnings outlook, prefer Accustaff.
TCACEPAUL: What do you think of Worldcom?
JGreeneLex: Worldcom, with merger with MFS and UUNET, is a company to watch. It closed at 23 1/8 today and is a buy.
Sangelil: What do you think of SPYG's latest strategy?
JGreeneLex: Regarding Spyglass, they are betting their company on Internet device software like Novell's Nest and Microsoft's Windows at Work. I like Netscape's and Novell's chances here more than Sypglass's.
MicknArn: What did AOL close at today?
JGreeneLex: AOL closed up 4.25 at 36 3/8 and is an attractive company for long term growth.
BABY SOROS: How about Macromedia, great product, but what about the stock?
JGreeneLex: Macromedia, we like their Shockwave technology and the installed base numbers. But a lot of small and well-financed competitors can be the difference. Namely Microsoft.
BABY SOROS: But, what above MACR stock a buyer, hold or sell?
JGreeneLex: MACR is a hold.
NAMREBUH: Any opinion on BBN or Lufkin Industries?
JGreeneLex: BBN, is priced at low point in the trading range at 21. The question is can they shift the revenues to make money in services. They also could grow as a result of the government initiatives to rebuild the Internet infrastructure. They recently missed earnings by 6 cent
VJ4U: Any opinion on Excite?
JGreeneLex: Excite, a good marketing company and aggressive but lots of competition here. I think their brand awareness is good after Yahoo! and Alta Vista. Up today by 1/8.
BRUCEGIN: Do you like the fax via Internet Business Model?
JGreeneLex: The fax Internet business model is exciting. However, the phone companies are viable competitors as well as Intel, Microsoft and others. It's hard to compete with deep pockets.
Burbfam: Novell: Buy, Sell or Hold?
JGreeneLex: Novell, it's a hold. I am still concerned about the future of the company due to mass defections. We don't own it and won't until their future is more certain. Maybe an acquisition is what's needed.
BDratch: Janus Worldwide Fund. What do you think for long term?
JGreeneLex: We admire Janus as a strong competitor. However, they don't see stocks with an Internet perspective. Most portfolios including ours hold foreign stocks.
BABY SOROS: How bout Lucent, think they will benefit from the growth in the?
JGreeneLex: Lucent is an excellent buy. They will do well as their customer base of baby bells will improve their chances. They could go more into internetworking services with some acquisitions. Much potential here. LU up 1 1/2 today.
Sangelil: How can the small investor take advantage of the boom?
JGreeneLex: The small investor can really only participate through Internet focused mutual fund. The chances of getting in early on IPO's is remote and risky. We are identifying the quality small companies as the Internet industry matures and balancing the risk with aggressive mature companies like Intel and Microsoft.
RJFerreri: Cypress Semiconductor has been moving... will it continue in your opinion?
JGreeneLex: Cypress Semiconductor. A quality company. I like it as a semiconductor buy and is now moving up. Buy for next few months as semi business returns to proper valuations. We owned since we started in August and have made huge profits. We think it's still timely but looking for some decline.
BABY SOROS: Any opinions on MTSI, Microtouch, had nice run, will it benefit from?
JGreeneLex: MTSI, one of our holdings as well. We have a 100% gain in MTSI and think highly of the companies future in kiosks and restaurant terminals. Good financials too.
JMccrac668: Any opinions on Oracle?
JGreeneLex: Oracle. A great database company in position to capitalize on the shift to using platform to access legacy databases in place.
MF Value: JGreeneLex, I would disagree that small investors can only participate through mutual funds. Is it not true that over 75 percent of mutual funds don't beat the market average. And is it not true that individual investors have bought stocks such as Iomega, and Intel of late for great participation... ? I do think the proof is in the returns. Most mutual funds perform poorly.
JGreeneLex: As for Iomega, we think Seagate is a much stronger play. They are larger and may not be at 39 much longer. As for mutual funds performing poorly...that's true. As a result we have an incentive based management fee that requires that we outperform the SP 500 by 3% or we reduce fees.
BRUCEGIN: You mentioned an incentive based fee structure. What do you mean?
JGreeneLex: Our incentive is we lower fees if we underperform the S&P 500. If we overperform by 3 percent we can increase fees by 1/2 percent.
Sangelil: If a person wants to buy individual stocks, and already owns INTC and MSFT, which kind of stocks would you buy?
JGreeneLex: If you already own Intel and Microsoft their prices from here mean slower growth percentage. A broadly diverse mutual fund targeting companies that are growing at 30-50 percent may be a better buy.
RJFerreri: Will Netscape exist longterm or do you think it's a target for a takeover?
JGreeneLex: Netscape is a buy. They have so much more software technology to offer to the market. It is extremely hard to displace a company with 70 percent installed base and brand awareness.
BABY SOROS: How bout ORCL, new product, will it catch-on, will it open up the to new customers?
JGreeneLex: ORCL, leader in database technology and in great position to capitalize on boom.
Sangelil: Will you tell us your company's homepage address? Thanks.
JGreeneLex: Our home page address is WWW.INTERNETFUND.COM
BRUCEGIN: What is your opinion of Fore Systems -- FORE?
JGreeneLex: Fore is in our portfolio...great ATM player. Good buy.
RJFerreri: What are your two or three favorite equipment companies?
JGreeneLex: Bay has major infrastructure problems and is losing key people. However, House from Intel is a great leader and can make the transformation given resource and time.
CHavens007: What about Phillips or Banco Santander?
JGreeneLex: Phillips.. the Consumer Electronics giant?
CHavens007: Yes!
JGreeneLex: Phillips can make a bundle in the next two years if DVD is driven successfully.
JGreeneLex: Good long term play is Phillips for DVD.
JosephLM25: Any thoughts on IOMEGA's future?
JGreeneLex: Iomega can make it if they get enough resource.
BRUCEGIN: Intuit. What are they doing? Recent price?
JGreeneLex: Intuit is a great company. They are being admired by many strong banks. We own and it is a buy.
Marcus9014: Any thoughts about the ADSL companies?
JGreeneLex: We hold Pairgain for an ADSL play. We also like some of the others.
KevinL7068: Other ADSL companies you like in addition to Pairgain?
JGreeneLex: Amati is another good play on ADSL. You have to watch the HDSL market too.
KevinL7068: What about Westell for ADSL?
JGreeneLex: Westell is third after Amati and Pairgain. Amati and Pairgain have better financials.
MKEEV: Anything on Lam Research?
JGreeneLex: LAM is an excellent growth company and has a good reputation. We don't own LAM but we know semi equipment is going to return eventually. LAM may be having internal problems dealing with the down cycle in semi equipment manufacturers.
MKEEV: Is LAM then a buy, sell, or hold?
JGreeneLex: LAM is a hold.
Sangelil: Does your portfolio have a high turnover, or do you buy and hold for a year or so?
JGreeneLex: We have a fairly moderate turnover in our portfolio, under 40 percent.
BABY SOROS: Opinion on ADBE?
JGreeneLex: ADBE a great buy. Look for a very strong return as their software tools make it to market.
Imelendez: Any input on AOL?
JGreeneLex: AOL has a franchise that is hard to beat. All those busy signals mean people like the new plan.
Sangelil: Do you follow CYBG? If so do you like it for security?
JGreeneLex: Cyberguard, is on our watch list. Some OEM deals on the horizon.
BABY SOROS: How about DELL, overvalued at these levels, or still demand there?
JGreeneLex: Dell is moving fast and a great marketing company. Best positioned and pricy. We don't own but are looking for opportunity to buy at better price.
Whala2: As far as security, how about Sunriver?
JGreeneLex: Sunriver is on our watch list.
Whala2: Sunriver spinoff of tradewave. Will it be a negative?
JGreeneLex: Sunriver spinoff ...too early to know.
Logjam77: Sybase just signed a deal with Cisco, do you see that getting any better?
JGreeneLex: Sybase is a player after Oracle and Informix. Could be a big turnaround.
HF53: How about Ericsson?
JGreeneLex: Ericsson is a major factor in Europe. The thing to watch is for the Europe and Latin America markets to adopt. Ericsson is in great position to capitalize.
Sangelil: Do you like ZOOM? I am in at 9 and we are at 12 now. Should I hold it or sell?
JGreeneLex: Zoom, we met with Frank Manning the president. Expanding channels and launching 56K modem but earnings and margins under pressure. We will wait.
Intel55: What about Amati, make ADSL modems?
JGreeneLex: AMATI is a clear number 2 in ADSL market. must watch for HDSL market.
Zopup3: What is the risk of buying a low priced stock of a company that will file chapter 11?
JGreeneLex: Risk of low-priced stock in technology with chapter 11 is high risk.
KevinL7068: JGreene: Do you follow Redbrick-- REDB?
JGreeneLex: We have Redbrick on our radar screen.
BABY SOROS: JGreene, top buys -- besides INTC, MSFT, ... any smaller companies?
JGreeneLex: GEMS, Glenayre, and CGNX, Cognex Software and MTSI.
Intel55: Amati has a lot of "bigs" teaming up with them. MOT and TXN, NEC I believe.
JGreeneLex: We like TXN for recovery to 100.
CHavens007: How long for TXN to recover 100?
JGreeneLex: TXN to 100 by 2Q '97. TXN is a guess.
BRUCEGIN: What do you think "PUSH" technology. Who are the players? Besides PointCast?
JGreeneLex: Push technology. We like Yahoo, Forefront and Individual may be a player. We can't wait for PointCast to go public.
Intel55: In your opinion who is the top ADSL player?
JGreeneLex: Pairgain is the top ADSL.
Sangelil: If you could only hold ONE of the browser stocks, it would be YHOO?
JGreeneLex: NSCP is our top browser hold.
Sangelil: I'm sorry, I meant between ECIT, YHOO, LCOS, SEEK? Which one of those(if any)?
JGreeneLex: XCIT of the list you published after YHOO.
Intel55: Would you pay up for PAIR or buy AMTX with the DMT patent?
JGreeneLex: You should buy both to make the best bet or our fund to diversify in sectors.
Intel55: Is TXN still affected by the free for in DRAM price and overcapacity coming from Pac Rim?
JGreeneLex: TXN is not affected by DRAM price because of other specialty semi's like DSP's.
BABY SOROS: Browsers... aren't their margins too small, when will they make REAL profits?
JGreeneLex: We believe browsers need to be developed for specific applications to make money.
GroovyLick: Novell... any opinion?
JGreeneLex: Novell. Risky -- lots of managers leaving, unclear strategy.
Sangelil: Is there anyway to profit from the coming boom in advertising, BESIDES the browsers?
JGreeneLex: Besides the browsers, there are many plays like CMGI, CNWK.
RJFerreri: 3-d graphics accelerators....S3 or Cirrus or other?
JGreeneLex: We own s3 and CRUS is on the radar.
Intel55: MSFT still a long term buy for to play?
JGreeneLex: MSFT is an excellent safe bet for the long term.
KevinL7068: Any thoughts, positions, on good DVD stocks? Will 1997 be the DVD Year?
JGreeneLex: 1998 is probably the year for DVD. Must have consumer acceptance first and PC mfrs.
Intel55: What are some quick reasons for PAIR over AMTX, what is the edge?
JGreeneLex: Pairgain has excellent financials versus AMTX.
BABY SOROS: Any opinions on Silicon Graphics and Lsi Logic?
JGreeneLex: SGI is in our portfolio and doing well. Great hardware play as they offer power performance. LSI is an excellent buy.
Sangelil: Could you elaborate a little on CMGI or CNWK please?
JGreeneLex: CMGI is an services and marketing company but owns a venture capital arm. The ownership of LCOS, Lycos, is not shown in their stock price. There are others that CMGI owns major shares of that are worth more. CNWK is C/net, a great advertising play. Much publicity and brand awareness.
Tectejas: Do you feel unlimited access pricing to the will overload the system?
JGreeneLex: I don't think unlimited access is going to overload the system. Where there is demand there will be supply.
BRUCEGIN: Do you like Raptor Systems? Why / Why Not?
JGreeneLex: We own Raptor and Checkpoint for security. Mainly because corporations must have security firewalls and products.
Sangelil: How much of your own money do you put in your fund?
JGreeneLex: We have our own money invested in the fund and are counting on it for retirement.
Jack577116: Is AOL going to be more profitable with more subscribers at the lower rates?
JGreeneLex: AOL will be profitable and gain more users.
Intel55: WCOM any opinions there? Has UUNET and MFS. Huge call options trading past several days.
JGreeneLex: WCOM is very strong with UUNET and MFS. Very aggressive.
GroovyLick: YTD percentage on your fund?
JGreeneLex: Our YTD percentage is 14.1 percent and has been as high as 19.3 percent. That performance is since August 1.
KevinL7068: What are good plays for equipment needed to handle the demand surge?
JGreeneLex: Cisco, Cabletron, 3Com, Sprint, MCI and WCOM.
DETRRENCE9: What is the likelihood of an economic slowdown, and do you see stock prices going down soon?
JGreeneLex: Don't see a major slowdown in the next few years. Imagine a world without semiconductors or access
WorthEdit1: That concludes this edition of "Conference Call," Worth OnLine's live weekly chat series. Thank you James Greene and Lawrence York for this evening's chat.
JGreeneLex: Regards to all and good night
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Copyright 1996 Capital Publishing Limited Partnership. All rights reserved.
