Clicking on banner ads enables JWR to constantly improve
Jewish World Review May 2, 2001 / 9 Iyar, 5761

James K. Glassman

Jim Glassman
JWR's Pundits
World Editorial
Cartoon Showcase

Mallard Fillmore

Michael Barone
Mona Charen
Linda Chavez
Greg Crosby
Larry Elder
Don Feder
Suzanne Fields
James Glassman
Paul Greenberg
Bob Greene
Betsy Hart
Nat Hentoff
David Horowitz
Marianne Jennings
Michael Kelly
Mort Kondracke
Ch. Krauthammer
Lawrence Kudlow
Dr. Laura
John Leo
David Limbaugh
Michelle Malkin
Jackie Mason
Chris Matthews
Michael Medved
MUGGER
Kathleen Parker
Wes Pruden
Sam Schulman
Amity Shlaes
Roger Simon
Tony Snow
Thomas Sowell
Cal Thomas
Jonathan S. Tobin
Ben Wattenberg
George Will
Bruce Williams
Walter Williams
Mort Zuckerman

Consumer Reports


Diversify with tech’s leaders

http://www.jewishworldreview.com --
JACK WELCH, the retiring CEO of General Electric, may be the greatest corporate manager of all time. I’m not comparing him to inventors or entrepreneurs who created great things out of nothing, but as a manager who can run a business, develop talent and consistently squeeze better results out of a seemingly mature industry.

As an investment strategist, the late Benjamin Graham, the late Columbia University professor and money manager, is probably the greatest in his field. He’s inspired generations of investors, including the brilliant Warren Buffett, who has used a modified version of the Graham approach to amass his roughly $30 billion fortune.

Welch and Graham each have an important lesson for today’s investors, especially for those wise shoppers looking to buy a stock for the long term. Welch had a consistent (and successful) way of looking at the numerous markets in which his conglomerate operated. Said Welch to his lieutenants: Be number one or number two in an industry, or get out! He believed that if a GE division could not be one of the leaders in its market segment, it should be sold.

Graham, for his part, had a consistent (and successful) approach to evaluating potential investments. He used to say: Don’t think of yourself as a shareholder, but as a partner in a business. In other words, don’t just buy a stock; buy a part of a great business.

I think that both Welch and Graham were saying that there are so-so businesses, and then there are great businesses, and it’s better to own the latter. Leadership matters. The dominant players in a market earn the fattest margins. They’re usually the best equipped to weather an industry or economic downturn. As Damon Runyon once said, “The battle is not always to the strong, nor the race to the swift – but that’s the way to bet.” I’m all for diversification and it’s great to include a few scrappy underdogs in a balanced portfolio, but it’s also important to recognize the power of a large, well-managed, financially healthy firm.

Right now, there are four great tech companies still trading well below their highs. These four companies have terrific balance sheets, little or no debt, a history of fast earnings growth and they are the clear leaders in their respective markets. If you can look beyond the recent carnage in tech markets, it’s not difficult to see that these markets will continue to grow, and that these four companies stand to receive a large share of industry profits:

Cisco Systems (CSCO) Orders have been drying up lately, the economy has slowed and Cisco needs to get ahead of the curve technologically, but let’s keep things in perspective. In the most recent twelve-month period, the year of the tech wreck, Cisco increased its earnings by more than 20%. This company has no long-term debt and a leading position in a huge market. It stands to gain from a downturn as its competitors fall by the wayside.

EMC (EMC) The king of data storage. According to the company’s website, “More new information will be created over the next two years than over the entire history of humanity — more than 90 percent of it digital.” I can’t vouch for the accuracy of this statement, but in an age of information, with increasing numbers of broadband video applications moving to digital networks, it’s not out of the question. And EMC is the company most likely to benefit from this trend.

Microsoft (MSFT) The world’s greatest software company has no debt, piles of cash, and an amazing track record: average annual earnings growth of 35 percent in the last five years. Looking to the future, Windows is starting to take a big bite out of the high-end corporate network market. Bad news for Sun Microsystems, good news for MSFT shareholders. Best of all, Microsoft managers know they can’t rest on their laurels. They understand that their business is constantly changing. Microsoft took a big political hit last year. Now, it is likely to win its appeal of an unwarranted federal antitrust case.

Nokia (NOK) Things are tough all over the tech landscape, but the Finnish portable phone giant just beat expectations for its most recent quarter, posting double-digit gains in sales and earnings. And Nokia is putting an even bigger beating on the competition – increasing its market share lead over stumbling rivals like Ericsson. Sure, 50 percent growth in cell phone markets is probably a thing of the past, but does anyone think that more people and applications won’t be going wireless?

These four companies could serve very well as the technology share of a balanced portfolio.


JWR contributor James K. Glassman is the host of Tech Central Station. Comment by clicking here.

Up

04/26/01: To Revive The New Economy, Release A Chokehold   —   Break Up The Bells
04/24/01: Who’s To Blame For Broadband Crisis? Wired Article Points To Bells
04/19/01: The Bush Budget
04/12/01: To revive The New Economy, release a chokehold --- break up the Bells
04/04/01: Even as stocks have fallen, the Net keeps booming
03/28/01: Where’s The Profit In Biotech Future?
03/22/01: The Joy of Debt: The last thing we should want is a U.S. Treasury flush with cash
03/19/01: 'Defensive' Stocks in the NASDAQ
03/15/01: Bush administration must say no to Jane and Kyoto
03/08/01: Time to buy small caps? Consider these five great techs
03/01/01: Bill’s and Larry’s continued political adventures
02/26/01: Chips on the Dips?
02/23/01: How Tauzin Can Keep His Word And Stop Telecom "Remonopolization"
02/13/01: Consumers, WAKE UP! Middlemen are ripping you off
02/02/01: Publicity-Seeking Politicians and Contingency-Fee Lawyers Corrupt the Law
01/26/01: DoubleClick, eBay And Their Promising Ilk
01/24/01: Will Cyberspace Look Like France or America?
12/27/00: Cut interest, taxes and regulation to save high-tech economy
12/20/00: Close, But No Big Czar
12/15/00: A Down Year? Maybe. But Let’s Put It in Perspective
12/13/00: Clinton’s sorry midnight race into history
12/07/00: Is Telecom’s Future The Bells, The Bells, and Only The Bells?
12/01/00: Money talks and walks in election aftermath
11/29/00: Climate Treaty Deadlock Shows Lack of Consensus and Common Sense
11/23/00: Climate change participants don’t listen to reasons for uncertainty
11/21/00: Will Regulators Create a Recession?
11/14/00: The Election and the Market
10/26/00: Hang on for the long term
10/25/00: On privacy, one size doesn’t fit all
10/24/00: Perish the bearish thought
10/19/00: Beating hunger --- the biggest prize
10/13/00: Way to play biotech
10/12/00: Bush vs. Gore on Technology
10/11/00: Global Climate Scare: Fools Rush In
10/05/00: Avoid the Apple Trap
10/03/00: Goodbye, anti-Microsoft crusader --- and good riddance
09/29/00: Should You Invest in Tech IPOs?
09/27/00: Could technology end airline delays?
09/22/00: Don’t Forget Small Caps
09/20/00: Is the New York Times Rooting for Disaster?
09/13/00: The Best Argument Against Net Regulation
08/30/00: Political Risk in Big Drug Stocks
07/27/00: Tech Dividends
07/25/00: Government Privacy Violators
07/20/00: If I Had to Pick One Tech Stock
07/18/00: Our Favorite Lawsuit
07/13/00: Silicon Valley East
07/11/00: Election 2000: Year of the Investor Class?
07/07/00: Adventures on the Amazon.com
07/06/00:The Difference Between Bill Gates and Larry Ellison
06/29/00: In the Chips
06/27/00: Free market wins in Federal Court!
06/22/00: Wireless Bargains?
06/20/00: Is Your SUV Warming the Planet?
06/15/00: Shopping for Government
06/13/00: Top 10 Tech Stocks
06/08/00: Riding the eBook Wave
06/06/00: "The Last Mile"
06/02/00: Keep Buying!
05/31/00: Who Asked the FTC to Regulate Online Privacy?
05/25/00: "When It’s Time to Sell"
05/23/00: End the "Telephone Tax"
05/16/00: Time Warner Gets a Bad Rap

© 2000, Tech Central Station