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Unexpected find when mining for value
Commentary: A tech sector buy recommendation from an unlikely source
By Mark Hulbert, MarketWatch
Last Update: 12:01 AM ET Apr 3, 2009
ANNANDALE, Va. (MarketWatch) -- Research in Motion Ltd. certainly surprised investors with their latest earnings report, in which the widely followed BlackBerry manufacturer reported earnings that handily beat analyst estimates for the latest quarter and forecast better-than-expected performance in future quarters.
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George Putnam was not surprised. He is editor of The Turnaround Letter, and in his April issue -- published before the earnings surprise from Research in Motion Ltd. RIMM -- Putnam wrote that there was "good value" in the technology sector.
It is hardly earth-shattering news, of course, that an adviser announces that he likes tech stocks. For years, such issues have been among the most popular stocks in the newsletter world -- and not just in the years leading up to the top of the Internet bubble in early 2000, either.
But Putnam is not an adviser from whom we normally would expect to receive buy recommendations for technology companies, however. He is as value-oriented an adviser as any tracked by the Hulbert Financial Digest, and technology stocks in recent history have been far more likely to be at the growth end of the growth-versus-value spectrum.
The Hulbert Financial Digest (HFD) has been tracking Putnam's performance since the beginning of 1988, more than 20 years ago. From then until the end of March, according to the HFD's calculations, its portfolios produced an average annualized return of 8.6%, in contrast to 8.1% for the overall stock market, as measured by the Dow Jones Wilshire 5000 index 97199001. This market-beating performance places Putnam's letter among the select few services that have beaten a buy-and-hold over this period.
Putnam's value orientation notwithstanding, he was nevertheless drawn to take a close look at the tech sector by IBM's interest in acquiring Sun Microsystems Inc. JAVA. Putnam believes International Business Machines IBM to be "one of the largest and best managed technology companies." Therefore, if it is "beginning to see good value in its sector, [then] maybe we should look there too."
Putnam did take a look, and he liked what he saw. He came up with a list of 10 technology companies that "have strong positions in their respective business niches." There are several ways in which their stocks might provide a handsome return over the intermediate term: "They could be attractive to a strategic purchaser (such as a competitor) or a financial purchaser (such as a private equity shop) or could rebound on their own when global technology spending begins to pick up again."
Note carefully, however, that Putnam is holding some of these stocks in his newsletter's model portfolios.
Brocade Communications Sys I BRCD
CA Inc. CA
Compuware Corp. CPWR
EMC Corporation EMC
Flextronics International Ltd. FLEX
JDS Uniphase Corp. JDSU
Logitech Intl S A LOGI
NetApp Inc. NTAP
SanDisk Corp. SNDK
Teradyne, Inc. TER
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