New Horizons drooping but hopeful Laporte believes a wrung-out market creates opportunities


October 04, 1998|By Bill Atkinson

John H. Laporte has had a stellar career as a portfolio manager at T. Rowe Price Associates Inc., but he's feeling like Tony Mandarich -- jinxed.

Mandarich landed on the cover of Sports Illustrated in April 1989, where he was celebrated as one of the best offensive linemen ever to come out of college. He never lived up to his billing and his career has been a bust ever since.

Laporte, who manages New Horizons Fund, has had his share of fame, too. He was trumpeted as "domestic stock fund manager of the year" in 1995 by industry newsletter Morningstar Mutual Funds after returning a stunning 55.44 percent.

Six months later, the fund peaked and began to decline. The honor had been more curse than blessing, he says.

"In retrospect, it is like being on the cover of Sports Illustrated; the fall is about to come," Laporte said.

Just how bad has it been for Laporte and his $4.5 billion fund, which invests in rapidly growing small companies?

"Lousy," says Laporte, who is 53. "It is painful. I don't like losing money for the shareholders."

Laporte is friendly and soft-spoken, but his frustration bubbles to the surface. In his modest corner office, crammed with stacks of papers and reports, he looked at his computer screen in disbelief last Wednesday.

A stock in New Horizons' portfolio called CBT Group, the world's largest maker of computer-based training programs, reported that third-quarter earnings would not be as strong as expected. It slid $4.25, to $10.937, that day, and has plunged from its July high of $63.875.

"I thought this was a pretty good business, and the miss wouldn't kill the company," said Laporte, who recently visited management in California.

Another stock in his portfolio, Quorum Health Group Inc., skidded, too, after announcing that it would cooperate with a government investigation into its procedures for filing Medicare cost reports.

The stock tumbled $5.875, to $15.812, and has fallen from a high of $33.812 in April.

"This is brutal," he said, as his computer screen locked up on him.

"It is very frustrating seeing companies decline 30, 40, 50 percent with no change in fundamentals."

As a result, New Horizons has suffered like most other mutual funds that employ the small-company strategy.

Investors withdrew about $45 million in August from the fund, but Laporte said outflows have stopped. The fund was closed to investors in 1996, but it is still open to 401(k) clients.

Performance has sagged, too, with New Horizons down 12.4 percent as of Sept. 25. The return still beats the Russell 2,000 index, the benchmark for small stocks, which was down 16.5 percent and the Lipper Small-Cap Fund Index, down 14.9 percent.

That's little consolation to Laporte, whose fund has returned 20.54 percent over the past five years that ended June 30.

But he's been through tough markets before. In 1990, during the recession, New Horizons returned a negative 9.54 percent, only to bounce back a year later with a 52.16 percent return.

"This market feels very much like 1990 in terms of the viciousness of the decline," he said.

He blames the slump in small-cap stocks partly on investors' desire to put their money into blue chips, such as Coca-Cola Co., General Electric Co. and Microsoft Corp.

He also points to "momentum" investors, who buy stock in anticipation of rising earnings or stock prices. If earnings don't meet expectations, "they just go out and shoot the stock at any price," he said.

Laporte said it will take a drop of 5 percent to 10 percent in the Dow Jones industrial average and the Standard & Poor's 500 stock index before the shares of small firms start moving higher.

"We need more of a capitulation in the large-cap blue chips," he said.

There is a bright side to Laporte's nightmare. He said he is finding plenty of bargains to put into New Horizons, which has a portfolio of about 300 companies.

His favorites include Baltimore-based Sylvan Learning Systems Inc., which is down 46 percent from its July high and trades in the high teens.

"I think that is one of the best plays in the education marketplace," Laporte said. "It is a steal in my view."

He also likes MSC Industrial Direct Co., which markets metalworking and maintenance supplies, and is growing about 30 percent a quarter. Its shares are down 45 percent from its July high to around $18. And he likes transport company Coach USA Inc., which has fallen 63 percent from its $52 high.

These companies have "no warts," Laporte said. "I am seeing value in the marketplace like I haven't seen since 1990. I think I am going to make a lot of money from here."

Pub Date: 10/04/98

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