The selector: Brian B. Hayward, manager of the Invesco Worldwide Communications Fund (soon to be renamed Invesco Telecommunications).
His record: Since Hayward took the helm in mid-1997, the fund's performance has surged. It returned 41% in 1998 and is up 50% year to date. Assets have mushroomed from about $79 million at the end of 1997 to about $1 billion today.
His philosophy: "We're looking at three key trends: deregulation, the explosion in data traffic and the growth of wireless communication," he said. "We look for industry leaders best positioned to benefit from these trends."
His picks: Though still bullish on stalwarts such as Cisco Systems and MCI WorldCom, Hayward highlighted two lesser-known names: JDS Uniphase and Equant.
Ticker symbol: JDSU
Market capitalization: $13.2 billion
Latest-quarter sales: $75 million
Estimated 1999 earnings per share: $1.06
Ticker symbol: ENT
Market capitalization: $19.6 billion
Latest-quarter sales: $23 million
Estimated 1999 earnings per share: $0.36
San Jose-based JDS Uniphase, the leading provider of fiber-optic components sold to telecom and cable TV companies, was formed by this summer's merger of Uniphase and JDS Fitel.
"You name anybody doing a fiber-optic system--we don't care who wins the contracts, whether it's Lucent, Alcatel, Nortel--and JDS is supplying the laser components," Hayward said.
Also, huge demand for undersea cable products is driving JDS Uniphase's revenue, he said. "It's not a cheap stock, but the trends are very strong for telecom equipment. They are booked solid with contracts--sold out."
That same basic theme, the explosion of data traffic, has attracted Hayward to Netherlands-based Equant. The networking company, which evolved from a system designed by airlines in the 1940s as a means of international communication, went public about a year ago.
Multinational companies are Equant's main customers, contracting with the firm to keep employees plugged in wherever they are in the world. "Travelers get local [phone] numbers for good, reliable high-speed access" to data, Hayward said. Equant offers "the seamless connectivity everyone wants, and they have operations in [most] countries--nobody else has that kind of coverage."
Though both of these volatile stocks sport "nosebleed" valuations--JDS trades at about 78 times estimated 1999 earnings per share, Equant at 271 times '99 estimates--investors with strong stomachs could try to snag them at better prices if tech stocks take another swoon in coming months, Hayward said.
Sources: Bloomberg News, IBES International (earnings estimates), Morningstar
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