The GM-ing of IBM

Herb Greenberg

June 28, 1991|By Herb Greenberg | Herb Greenberg,Chronicle Features

Back in the late 1960s and 1970s, there were a lot of people who felt that you had to own General Motors because it was, after all, General Motors. So what if its stock peaked at about $105 in 1965! It was still giant GM, and the thought in some investment circles was that it would be back.

Sound familiar? Some people think you're seeing a repeat with IBM, and that its stock will never again see its high of $170, which it reached a few months before the market crashed in 1987.

It currently trades at $97 5/8 , down 1. Despite its weakness, some investors keep buying it because, after all, it's IBM. If it was $170 once, they figure it'll be $170 again, or at least $117.

John Skeen, research chief at Montgomery Securities in San Francisco, isn't so sure. He notes that IBM these days "is coming to accept its role" as a cyclical company by acknowledging the impact of the world economies on its business. He adds that with $62 billion in sales and nearly $4 billion in earnings, the company will be hard-pressed to grow at double-digit rates -- especially if competitors continue to encroach on its turf.

In the crucial mainframe business, for example, Skeen says that IBM's newest entry -- expected in September -- will be followed two months later by a more powerful offering from mainframe-rival Amdahl Inc. His firm's guess is that the new mainframe business will have little effect on IBM's stock, while it could propel Amdahl another 50 percent within the next year or so. Amdahl currently trades at about $15 on Amex.

P.S.: Morgan Stanley strategist Byron Wein, a longtime Big Blue believer, sold his stake the other day, citing the multitude of problems. "I know I'm late," he says, "but that's not a reason for not doing it."

FUN(d) FACTS: Here's something from the mutual funds file: Keep an eye on Harbor International, which is run by Toledo-based Harbor Capital Advisers.

With the continued interest in international investing, especially emerging-country stocks, which are super-hot these days, I asked two experts to cast their eyes abroad. One is Kurt Brouwer, the author of "Mutual Funds: How to Invest with the Pros." He is with Brouwer and Janachowski in San Francisco. The other is Craig Litman of San Francisco-based Litman/Gregory. Both of their firms specialize in researching and investing in no-load mutual funds.

When asked for the names of their favorite international funds, they both chose Harbor.

Harbor is one of only several funds to get a five-star ranking from Morningstar's Mutual Funds Values newsletter.

Litman says that Harbor is the only no-load fund that has started to concentrate on fast-growing Latin America, which represents 9 percent of its portfolio -- mostly vis-a-vis Mexico. Another 15 percent is in other emerging-growth countries. Litman also notes that the fund has been underweighted in Japan for a few years, helping it avoid the pitfalls of the deflated Nikkei index.

The manager, Hakan Castegren, "is a real stock-picker; he's going around the world picking companies," Brouwer adds. Furthermore, he says, Harbor -- up an average of 19 percent in the past three years -- has consistently beaten the Europe, Australia, Far East Index, the benchmark for international funds.

MEMO: A reader wanted to know why foreigners are said to be buying U.S. stocks as the dollar rises. Montgomery's Skeen explains that foreigners often like to put some of their assets in dollar-denominated securities at times when the dollar rises, because they consider the investment as much a bet on currency movements as stock movements.

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