Tuesday, September 7, 2010

What's Kevin Landis Been Up Too Lately?

Kevin Landis is one of the well known Portfolio Managers still around from the dot com error. He was well respected in the investment world up until the crash. His funds also highlight the issues with being a sector driven PM. Nice when your sector is soaring but horrible when the boom turns too bust.

Barons did a nice write up on him and his funds. Lately Landis has put up some impressive results and based on history it's worth reviewing his picks. He is well known for investing in leading edge technologies. Unfortunately if you aren't careful such investments can quickly turn into bleeding edge. Those investment tend to bleed you dry before paying out.The combination of the valuations in some tech stocks and the fact that he is starting to get press makes me wonder about a topping action in tech. Unlikely yet, but worth watching.

Landis has easily outperformed the sector and SP500 over the last 1, 3, and 5 years, but once you go back 10 years his record runs into the 2000 Nasdaq blowup. So while Barrons does a nice write up they fail to mention the all important fact regarding the 10 year record. While investing with Firsthand Technology funds and Landis is prudent when technology booms, its not so great during the lean years. Afterall, sector funds have great weaknesses in that fund managers usually have requirements to stay invested even when they don't see value.

Landis has some interesting picks. Baidu (BIDU) is one of his largest holdings that Stone Fox unfortunately cut 100% ago. Not to complain too much since we made a nice 200%+ profit on that pick but we had the misfortune to sell based on the COO and CTO leaving right before Google (GOOG) fleed China and left the market to BIDU. Apple (AAPL) is his 5th largest holding and one of our largest holdings as well. Akamai  Technologies (AKAM) is his 3rd largest holding and we went with Riverbed Systems (RVBD) as our network pick. Both have turned out well. He also has Equinox (EQIX) in his top 10 and we chose Terremark Worldwide (TMRK) as our data center option. The one glaring difference is that he has been bullish on NetFlix (NFLX) and that has been on our short list for a long time. Luckily we've never pulled the trigger because he was very correct on this pick so far.

Essentially similar thought process with the technology sector such as smart phones, data centers, and networking equipment. Just the difference in philosophy of being tethered to one sector. His comments on the valuations of some of his stocks shows another pitfall. Evidently he has the ability to use options to protect some of his gains, but he clearly has the requirement to remain invested. Just about all of top picks have soared to rather lofty valuations of 30-40x PE estimates.

Though Landis mentions a move in the stock market to branch out, it still seems a handful of tech stocks soar while the rest remain stuck. Some of the majors like AAPL control the sector so much that suppliers to them have a difficult time making reasonable margins. The key to tech investing has clearly become not only looking for stocks with growth potential, but also ones that won't become a commodity in the process.

While we won't likely follow him into any of the high priced picks, Jobs51 (JOBS) and Cavium Networks (CAVM) are a couple of mentions that I haven't really followed in the past. Any company that supports online jobs in China has a chance to be a huge winner and anybody that improves data networking is also interesting. Especially considering that Landis like them. Very little doubt that they are quality companies with bright futures. The issue is whether they provide cheap enough entry points. 


 Some of his top thoughts:
"Investors are starting to adopt a different—more positive—mind-set," says Landis, who together with Lee co-manages the $43 million Firsthand Technology Opportunities Fund (ticker: TEFQX), which runs a concentrated portfolio of 43 technology names.


"There are literally hundreds of companies engaged in the development of transformative technologies in the fields of telecommunications, energy, security, Web software, hardware, biotech and other industries with the vision, drive and innovation needed to build a successful business," says Landis. "We want to identify them and, if they are public companies, buy their stock."
"Investors are starting to adopt a different—more positive—mind-set," says Landis, who together with Lee co-manages the $43 million Firsthand Technology Opportunities Fund (ticker: TEFQX), which runs a concentrated portfolio of 43 technology names.

Akamai, for its part, is a proxy for Internet traffic, in the view of Landis and Lee. "Internet content delivery is an area that continues to grow by leaps and bounds, and Akamai is perfectly positioned there," says Lee.
Like Baidu, however, Akamai looks expensive at today's price, which amounts to 30 times next year's earnings. So Landis and Lee have hedged that one, too.

Among the examples: semiconductor chip designer ARM Holdings (ARMH), electronic-payment processors Cybersource and VeriFone Systems (PAY), online software services providers Akamai (AKAM) and Digital River (DRIV), communications-networking service provider Ciena (CIEN) and remote-computer-access supplier LogMeIn (LOGM). All of these, say Landis and Lee, have developed new technologies and services that are creating long-term value for investors.

"Another couple of companies we really like," says Lee, "are semiconductor materials producer Cree (CREE) and computer software provider VMware (VMW), but their forward P/Es of 23 and 50, respectively, keep us from being buyers right now."

No comments: