The Selectors: John Wallace and John Seabern, co-managers of Robertson Stephens Diversified Growth Fund in San Francisco.
Their Record: Through Monday, the small-company growth fund (assets: $93 million) was up 50.8% year to date. A $10,000 investment at its inception in August 1996 would be worth $24,800 as of June 1, according to fund tracker Morningstar Inc., versus $14,200 for the same amount invested in the average small-company growth fund.
Their Philosophy: "Some call it eclectic, but we like to think of it as flexible," Wallace said. "We're looking for any company whose stock has the ability to go up 50% to 100% in a year or two. We're trying to identify a catalyst for growth--a new product cycle, a new management team, expansion into new markets."
Their Picks: Both managers are keen on stocks poised to benefit from Internet expansion.
Startec Global Communications
Ticker symbol: STGC
Market capitalization: $129 million
Latest-quarter sales: $58 million
Est. 1999 earnings per share: -$5.02
Weekly closes and latest
Shop at Home
Ticker symbol: SATH
Market capitalization: $302 million
Latest-quarter sales: $37 million
Est. 1999 earnings per share: +$0.05
Weekly closes and latest
Wallace likes Startec Global Communications Corp., a Bethesda, Md.-based international long-distance carrier. Startec, which markets its services to ethnic communities in the U.S., has more than 130,000 customers.
"They offer lots of value-added services to Indian, Russian, Spanish-speaking, Middle Eastern and other groups," Wallace said. "And the company is launching Internet service, with ethnic portals featuring in-language content. This presents cross-selling opportunities as it leverages its brand.
"Startec still has big losses as it builds out its network, but we should see a pickup in the customer growth rate in the second half as the online initiative is rolled out. And the company will be well-positioned to market its Internet multimedia services worldwide. The stock is inexpensive, selling for less than one times annual revenue--about half the valuation of many competitors."
Seabern likes Shop at Home Inc. of Nashville, the third-biggest TV shopping network.
"Its management team is concocting a unique growth strategy," he said. "They're acquiring low-priced UHF stations in markets with good demographics. And they're developing all their programming in digital format, which allows them to air it in any form, including the Internet. They're already in 9 million to 10 million homes, and that could double in the next two to three years."
The company has a strong lineup of exclusive relationships with vendors, especially those catering to the 58 million avid collectors in the U.S., Seabern said. "This gives them a lucrative product mix. For example, they recently sold baseball bats signed by Joe DiMaggio. Believe it or not, these things go for $5,000 apiece."
Shop at Home plans to launch a collectibles Web site in August, Seabern said, which could lead to a major strategic alliance with a top portal. He expects revenue to grow 35% to 40% annually over the next few years.