Voices Events With...|
Louis Navellier, founder and president of Navellier Funds took part in
a Voices Event on Feb. 2, 2000. The following is a transcript of that
event which has been edited for clarity.
WSJ_Host: Welcome to Voices Events with Louis Navellier, founder and
president of Navellier Funds. I'm your host Ravina Khosla.
lnavellier: Hi, everybody.
WSJ_Host: How is your fund preparing to react to the Fed's decision?
lnavellier: We are fully invested now because we believe the market will
rally in the wake of a 25-basis point increase.
hcc2000: Does your fund have access to hot Net IPOs such as those in
B2B & broadband.
lnavellier: Not really, we are not an IPO expert. We do put some of the
hot IPOs in our aggressive growth fund, but not too many.
belinda: How much value does Qcom have left? also, Do you like the
lnavellier: Qualcomm is a great long-term hold. They're CDMA
technology is a new standard that almost all digital cell phones will use in
the future. The long-term prospects for Qualcomm are very, very good.
lnavellier: Yes, I do. Qcomm is a holding in a large growth portfolios.
RMendel: Why does Calpine Corp deserve such a lofty P/E?
lnavellier: It's an independent power producer that makes old power
plants much more efficient and it is a darling on Wall Street right now. It's
future PE is much lower than its current PE because the analyst community
has aggressively revised their earnings estimates higher for the stock, which
is why it's been so strong.
pnesmith: What do you think of the recent move in biotech stocks?
lnavellier: Very impressive. One of my favorites is MEDI, but I also like
BGEN and AMGN.
RMendel: Medimmune has shown weakness lately. Several analysts have
downgraded the stock in the last couple of weeks. Do you still like
Medimmune and why?
lnavellier: Absolutely. The downgrades are associated with price
appreciation. The analyst community is still very positive on the company's
future earnings prospects and the stocks have been very strong in the past
hcc2000: What is your view on AOL/TWX merger? How would this
merger impacts the valuation of Net stocks ?
lnavellier: Long-term, it's great for AOL and the emergence of the
Internet. Short-term, it causes AOL's price earnings ratio to soar, because
AOL earns a lot more money than Time Warner. AOL's soaring PE ratio,
due to the merger, is causing its recent price weakness.
belinda: I see gold going up & interest rates also. Bill Murphy is bringing
law suits against the manipulation of gold prices. He has raised
$500,000.00 to sue the culprits for forcing gold companies to hedge or be
blackmailed by banks. What do you think?
lnavellier: I have no opinion on gold prices. I don't think gold prices will
go up in the long haul because they keep mining more gold than ever
before. It is hard for the commodity to rise when the supply keeps
RMendel: Do you see market strength being affected by possible moves
from existing stocks into IPO's? How much of an effect if any?
lnavellier: As the IPO market cools off, the stock market can cool off as
well. However, I see the market being reshuffled recently because much of
the money going into the IPO's is leaving and chasing stocks now that have
strong earnings. I am skeptical of any IPO that doesn't earn much money.
WSJ_Host: Aren't most Internet companies lacking in profits anyway?
lnavellier: Absolutely, that's why Wall Street is now busting the Internet
bubble, because they're demanding earnings and the flagships -- such as
Yahoo and Amazon-- have minimal or no earnings.
WSJ_Host: Alert: The Fed raised interest rates by 1/4 point.
lnavellier: Stocks should rally on that news.
WSJ_Host: Are you surprised, Louis?
lnavellier: Wall Street was expecting this.
WSJ_Host: Do you expect them to do the same in March again?
lnavellier: In March it's much more questionable. Whether the Fed will
raise rates is questionable as the yield curve flattens, interest rates should
soon peak out. In fact, long-term Treasury bond yields appear to have
RMendel: How do you determine whether or not to take some money off
the table in a stock such as Enron that has had such a spectacular run
lnavellier: I have chosen not to cut back on ENE because it is a very
conservative stock and it is a core holding in our large-growth portfolios.
However, if it gets risky and too hot to handle, I will certainly cut back on
it. Right now, it appears to be very safe.
RMendel: Is it too late to buy Qualcomm? Do you see a price pullback
in the near future like the one we saw last week?
lnavellier: I think Qcomm is a great buy near-term. I think it will settle
down and not rally as much in the future as it has in the past. But it is a
great short-term buy.
flores: Will the raising of interest rates chase some investors into value
lnavellier: No, as interest rates rise, it literally sucks money away from all
interest-rate sensitive value stocks. I do not expect value stocks to do well
until interest rates start to fall or until earnings decelerate and investors get
scared. Until then, it's still go-go growth market. And growth stocks will
continue to be value stocks.
WSJ_Host: What are some value stocks you would recommend?
lnavellier: The cyclical companies like aluminum and timber are firm
enough, but please stay away from any interest-rate sensitive stocks such
as banks and savings and loans.
H Mann: What's your call for the top of the market for this year?
lnavellier: I think the Dow will hit 16,432 sometime later in the year, with
a high of about 16,800. If we have a correction, it will occur in the summer
months, when trading volume is light. But I expect a strong year-end rally.
WSJ_Host: What about the Nasdaq?
lnavellier: The Nasdaq could easily hit 7000 this year. But it has to settle
down and digest its recent gains.
WSJ_Host: Do you expect any type of a correction after this earnings
season is over?
lnavellier: Right now we're in the midst of a rotational correction, where
some stocks are being hit and others are being rewarded. I expect that this
choppy market action will persist for the next several weeks. However, I
expect that by late March or early April the market will be resurging and
will make new highs.
RMendel: At what point does ENE become too risky as a conservative
lnavellier: When its trading volume becomes more inconsistent and its
day-to-day volatility rises dramatically. However, I think ENE is very safe
right now and a great buy.
hogandraw: On what basis do you forecast a Nasdaq of 7000?
lnavellier: The Nasdaq market has very strong earnings growth. A lot of
the money that is pouring into the U.S. markets is now flowing towards
WSJ_Host: Do you see a surge in the foreign markets as they catch up in
the Internet sector?
lnavellier: I have no opinion. I'm not an expert on international stocks.
Sultan: Do you think CDNow will benefit from the Time Warner-AOL
merger? Would you include it in your portfolio?
lnavellier: It's not one of the stocks in our portfolios but it should benefit
Sultan: Do you think Sycamore networks has the potential to become the
next telecom giant? Would you include it in your portfolio?
lnavellier: No, that is grossly optimistic. But I'm very positive on telecom
WSJ_Host: What are some buys in the telecom sector?
lnavellier: AMMC, HLIT.
belinda: How about Qwest?
lnavellier: Strong stock, too hot for me to handle.
RMendel: Xilinx recently reported very good earnings. Management
seemed to be emphasizing the sales of their Spartan product line which is
their lower-priced product. How will this affect future earnings and the
price of the stock. Is it still a buy?
lnavellier: It's a strong hold. It is a mildly risky stock, but it is no longer in
my top 30. I have trimmed the number of shares I own.
hogandraw: Despite significant earnings growth in the Nasdaq, with
historically very high PE ratios, at what point does the market return to
more traditional metrics and valuations, or is this truly a lasting New
Economy with different metrics?
lnavellier: Whenever investors get scared, the market is starting to revert
back to fundamentals now. But it will take some time.
WSJ_Host: How much time?
lnavellier: Earnings will be decelerating after the first quarter, results April
or May. I suspect value will go in the favor of whenever earnings level off. I
have no idea when that will be, but I suspect the value stocks will be doing
better later in the year.
WSJ_Host: How has the surge in Nasdaq, specifically, Net stocks
changed your investment strategy?
lnavellier: As risk emerges, in both the market and selective stocks, I
aggressively trim what I liked to call a sense of risk and froth out of the
RMendel: How do you feel about Vodafone's hostile takeover bid for
Mannesmann? Is the takeover a good thing for Vodafone and why?
lnavellier: Vodafone wants market share at almost any price. I'm in favor
of this merger, because otherwise they should just back off.
hogandraw: How has stock market wealth affected property values in
lnavellier: The prices for property in Incline Village is very expensive. so
expensive, I don't even live there.
spont: With the markets hovering where they're at right now, why
shouldn't I just park my money in a no-load index fund and enjoy the ride?
lnavellier: It is un-American for anyone to end up. I'd much rather try one
of our actively-managed funds, such as our five-star mid-cap growth fund.
lnavellier: Because we got 127%, the money is flowing to the mid-cap
arena now. And again, it's un-American to end up.
WSJ_Host: What are the top holdings in this fund?
lnavellier: BVSN, MEDI, QLGC, AMCC, TQNT.
hogandraw: What do you think about Charter Communications and their
"Wired World" strategy? Are they a buy?
lnavellier: I have no opinion on that stock.
Knesbach: Any new stock picks?
lnavellier: I'm picking up a lot of retail stocks, due to strong consumer
spending. Like HOTT (Hot Topics), BFCI (Brauns Fashion).
MartinLyon: Do you think bonds will be a safe haven while the market
tried to get over the Fed's latest actions?
lnavellier: No. I think the bond market has peaked near-term, but will
remain very volatile.
hcc2000: How is your view on B2B e-commerce ?
lnavellier: Very exciting, but no earnings. Until there are earnings, I'm not
spont: How has your investment philosophy changed during your years of
lnavellier: It changes quite a bit. Here, we do whatever works on Wall
Street. Last year, momentum strategies worked well, however, in 1998
consistent growth worked better. In 1996-1997, growth at a reasonable
price performed well. Our systems are dynamic.
WSJ_Host: What do you think of GM in light of its changing of the guard
news this morning?
lnavellier: That was very positive. Wall Street is much more excited about
Hughes than General Motors.
WSJ_Host: What about Microsoft after it's similar news?
lnavellier: Microsoft's operating earnings have peaked near-term, which
is why the stock has slowed down. However, their operating earnings
should resurge with the introduction of Windows 2000. I think Bill Gates
wants to write software and kick AOL's butt.
WSJ_Host: Is it possible?
lnavellier: AOL already has a big start on him. I think within a decade,
AOL will be on every T.V. screen in America.
hogandraw: What is your opinion about Home Depot?
lnavellier: Great stock long-term. Home Depot is one of our core
holdings in a large-growth portfolio.
shins: How will we know that the public's love affair with Net stocks is
lnavellier: It already is. They're having massive profit-taking. Many of the
insiders of these Net stocks are selling their own stock at an incredible
pace. If the insiders are jumping ship I think you should too.
WSJ_Host: What will be the next hot sector?
lnavellier: The hottest sector today is communications, fiber-optic
companies, such as HLIT. And other companies that increase the speed
and bandwidth of the Internet, such as BRCM (Broadcom) and BVSM
RMendel: At this point, are you basing your stock picking strategies more
on technicals or fundamentals?
lnavellier: Both. First, I do my reward risk analysis, and then my strict
fundamental criteria. Only 2% of the stock I'm on pass both criteria.
shins: It seems like inexperienced and non-experienced investors are
having an inordinate amount of impact on the market, what will this mean
for the future?
lnavellier: It means the markets are going to be more volatile than ever
before. The only way to deal with it is to remain very diversified.
WSJ_Host: How much impact do day traders really have on the market?
lnavellier: I don't think they have a lot of impact. They jerk stocks around
more after-hours than during hours.
WSJ_Host: Speaking of after hours, how will that change market culture?
lnavellier: After-hours trading makes the stock market more volatile,
because a lot of the investors aren't around and stocks are hyper-sensitive
to order flow in after hours.
WSJ_Host: What are the top holdings in your aggressive growth fund?
lnavellier: PQNT, AMCC, MEDI, ADBE.
rck89: What place does valuation have in determining or influencing your
risk reward criteria? Comment on JDSU please.
lnavellier: None. My reward risk criteria has nothing to do with
fundamental evaluations. It has solely to do with the stock's return and its
volatility. JDSU looks very strong near-term. It should continue to beat the
market. It's a little too hot for me to handle, but it's a good company.
hogandraw: What strategic errors have Berkshire Hathaway made such
that there stock value has suffered recently.
lnavellier: Unfortunately, Berkshire Hathaway is a victim of the poor
performance of value stocks. I'm sure it will rebound impressively
whenever value comes back into favor.
WSJ_Host: What's the worst stock pick you've ever made?
lnavellier: I embarrass myself usually once a year. But I don't remember
the stocks. I try to forget them.
RMendel: What makes JDSU too hot to handle yet QCOM a good near
lnavellier: QComm risks dissipated when the stock fell recently. So, it's
nowhere near as risky today as it was a month ago.
rck89: Isn't volatility somewhat a function of perceived risk?
lnavellier: No. Volatility I calculate is based on how much a stock
deviates in price. It is totally analytical. There's nothing perceived about it.
shins: Some people speculate that we'll not only have a market correction,
but another crash. What do you think?
lnavellier: I think we could have a severe correction this summer, when
trading volume drops off. Currently I think we're in a rotational correction.
The money is not leaving Wall Street, it's just being reshuffled.
hogandraw: Which stocks would you avoid in this current market
lnavellier: Financials, and other interest-rate sensitive stocks such as
utilities, real-estate investment trusts are also performing poorly. Gross
stocks are dominating, but 90% of the money is chasing less than 10% of
the stocks. Whether we like it or not, Wall Street is really a beauty contest
trying to find the strongest stocks.
lnavellier: Bye everybody.
WSJ_Host: Thank you for joining us this afternoon.