Defensive move
Interview: State Street Global Mkts---Koesterich, Russ---Equity Strategist
>> sales little changed from the period earlier. the maker of communication chips seeing this turning around however. agere’s chief executive predicts strong growth and says demand for products that use the microchips are continuing to expand.
>> our revenues have increased four quarters sequentially. we’re seeing strength across the board on the client’s side of the business. cell phones, p.c.’s. on the infrastructure side of the business, which is the backbone of the communications network.
>> he says that the company’s productivity growth will be about 10% to 15% without giving a time frame. agere plans to add employees in the coming months.
>> we’re probably flat this year. we’re adding people into the asia pacific region, our largest region. we’ll probably be adding by the end of the year. but not large numbers.
>> the stock has more than doubled over the past year. our next guest has become more defensive in his technology investing. he’s moved from semiconductors to software. he says valuations are stretched for those semiconductor stocks . russ costrich from state street corporation joins us from boston. talk to me, russ―first thank you. but talk to me about this switch this defensive move. semis to software. when and why did you do it?
>> one of the things we look at is we track institutional measures of flow, which is another way of putting what are large institutions doing at this point in time? we’re seeing right now that beginning towards the end of 2003 and early in january, investors were shifting within technology. the semiconductor play had been a fantastic run since last march’s lows. it appears that’s coming to an end. investors are looking for lower less risky ways to invest than technology. and also looking for company that all for better valuation. right now the largest names in semiconductors are trading at the upper end of their valuation range. we think that’s going cause morrowtation into better valued, lower names than 2004. >> does the fact that the semiconductor index is up 95% in 12 months have some baring on your decision?
>> absolutely. the semis have had a great run. it was the place to be in 2003. obviously you had a good day today. but we do think we’re at the tail end of this move. generally, we’ve seen the type of patterns we’re looking at now. meant not only does software outperform semis, but it’s been indicative of lower terms in the overall sector.
>> this overall move to defensiveness seems to be a theme that i’m hearing a lot of earlier. we heard from a guest who was moving into health care. we had mixed job data out today. how is that affecting your overall portfolio strategy?
>> i think what we’re seeing is really a tilt towards value. it doesn’t necessarily mean that you can’t be leveraged to the economy. one of the play that we think does have further to go is the so-called reflation trade which means those company that are leveraged to the economic rebound which include industrials, select material stocks as well as energy, we do think people are looking tore leveraged to the economy but with cheaper stocks so that means moving away from those types of stocks particularly technology that have had these huge runups. communication equipment. we’ve seen many names double and triple over the past year. those are the type of area that i think are going to be dangerous into the second half of 2004.
>> no matter how dangerous when you say moving away, you’re not going get rid of your technology shares. you’re just going to bring down or get in line with what more model or average portfolio would have.
>> that’s correct. there’s a still a place for technology in the portfolio. in long term, the growth railingts for that sector are above average for the economy. if you’re look at it from a tactical perspective it means it may be time take the chips off the table. as you said, bring your allocations back in line with the major indices.
>> here in boston a lot of biotechnology companies in that area. that’s one of the groups you like also as well as you mentioned machinery and some of the industrial names, oil and gas, paper and forest, materials. what is it about biotech? that jumps out. that seems like an aggressive play and not one seen as defensive.
>> biotech actually there are a couple of factors behind that. first of all, we do like health care. we think that biotech enjoys the better growth rates within health care. certainly better than big farmer right now. second of all, biotech just broke out of a long consolidation period. that’s normally a positive when a group does that. and third, we also view biotech as sort of the anti-tech play. when you go back in history and you look at the performance of biotech versus certain parts of the technology sector, you find out that when tech snoling pulling back, sboich often doing very well. so this is the flip side of our caution on some of the more speculative technology areas.
>> ok. russ, appreciate your time and expertise. wish you all the success in the world this year. we’ll have you on again. folks, he is the chief equity strategist at state street corps. coming up, alesha keys will be among the performers at sunday’s 46th annual grammy awards. we’re going to preview what the televised ceremony could mean for the struggling music industry.
