Making the Most of the Internet
* The selector: Doug Foreman, manager of the $132-million TCW Galileo Aggressive Growth Equity I fund (ticker symbol: TGMCX).
*His record: After a sluggish start--the fund gained just 13% in 1997, its first full year, trailing the Standard & Poor’s 500 index by 21 percentage points--TCW Galileo Aggressive Growth zoomed 63% in 1998 and 128% in 1999 as it focused on tech stocks. It’s down 0.2% so far this year, holding up better than the broad market. Over the last 12 months, it has beaten 96% of its mid-cap growth peers, according to Bloomberg’s fund statistics.
*His philosophy: TCW emphasizes “the potential for positive earnings surprises--companies we think can grow faster than analysts expect.” To find prospects, Foreman screens for companies whose earnings have been growing at an annualized 15% or more for the last three years; he avoids those susceptible to swings in commodity prices and those in capital-intensive industries; meets with management and looks at valuation.
*His picks: Two Internet companies, one that’s out front--leading portal Yahoo Inc. of Santa Clara, Calif.--and one that’s behind the scenes--enterprise software specialist Siebel Systems Inc. of San Mateo, Calif.
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Yahoo
* Ticker symbol: YHOO
* Market capitalization: $86.3 billion
* Latest quarter sales: $201.1 million
* Estimated 2000 earnings per share: 72 cents
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“After a run-up last year on its inclusion in the S&P; 500 index, Yahoo has come off its highs,” Foreman noted. The stock is down 24% so far this year. “People are worried that [Yahoo] has to do something dramatic in the wake of the AOL-Time Warner deal, but we don’t think Yahoo needs to do anything. It has a tremendous business model with high operating margins; it’s establishing itself internationally in Asia, Europe and Latin America; and the site is much stickier than people realized. It’s aggregating content very well and quickly becoming the place everybody starts online. Expectations are too low, so there’s significant potential for positive earnings surprises.” *
Siebel Systems
* Ticker symbol: SEBL
* Market capitalization: $18.2 billion
* Latest quarter sales: $268 million
* Estimated 2000 earnings per share: 66 cents
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Siebel meanwhile, helps companies answer that crucial question: How do we make money on the Internet? “Its customer-relationship management software helps businesses interact efficiently with the public as well as within their own sales force. Basically, it maximizes the Internet,” Foreman said. Siebel’s tools help companies increase sales, for example, by tracking the products and services in which a particular Web customer has expressed interest. Chairman “Tom Siebel realized this need years ago, and now the company has a great customer list that includes a huge percentage of the Fortune 500.” One of Siebel’s first customers was Charles Schwab Corp., now the leading online brokerage.
