David J. Eiswert

Tech manager explains why current rally is different from last one.

Michael Ryval 5 March, 2010 | 7:00PM

Science and technology stocks staged a dramatic rally last year, putting an end to a decade when the sector languished in the doldrums. This year, the sector is caught in a downdraft of concerns about Greece's debt crisis spilling beyond Europe, and investors who think that technology stocks may revert to their bad old ways.

All of which fires up David J. Eiswert, 37, manager of the $93.1-millionTD Science & Technology - I and vice-president at Baltimore-based T. Rowe Price & Associates Inc. "Tech investors are 'dedicated pattern' investors," he says. "They look for certain keys to buy or sell, buying stocks when profits accelerate, or they think there are positive earnings revisions."

This pattern was evident last year, when tech stocks rallied because investors decided "things had stopped getting worse," says Eiswert, whose fund returned 51.4%, compared to 33.1% for the median fund in the Science & Technology Equity category.

Today, he observes, investors are bailing out as they see a pattern that occurred in 2003-04. That period saw stocks bottom in the summer of 2003, rally in the fall, peak in January 2004, and then correct.

This time, Eiswert maintains, is different for three reasons. First, the index has barely moved in six years; the Nasdaq Index was at 2,000 points in 2004, versus 2,130 today. Second, multiples are less than half of those in 2003-04. For instance, Intel Corp. INTC traded at 30 times forward earnings, versus 11 times today.

Third, cash on the balance sheet, working capital efficiency and corporate governance has much improved at many tech companies. "Capital expenditures as a percentage of sales are at record lows," Eiswert says. "It's not like they have been on a binge."

In the face of the uncertainty, Eiswert is optimizing his portfolio by trading out of marginal ideas and adding to the best ones. In early February, he sold some small holdings, and added to large-cap names such as Cisco Systems Inc. CSCO and Google Inc. GOOG.

The latter is under pressure because of tensions with the Chinese government. "China is an issue, but it will not affect the company in the next one to two years," says Eiswert. "In the short- to- mid-term, we see Google's ad and search business improving significantly. That is enough to own Google."

From his perspective, stocks are very reasonable. The network-equipment maker Cisco Systems is US$23.80 a share and has $5 per share in cash. Based on $1.80 earnings in 2011, the stock trades at a price-earnings multiple of 10.

The wireless-equipment provider Qualcomm Inc. QCOM is also very cheap, says Eiswert, as its shares are US$37, and it has $11 per share in cash on the balance sheet. The stock trades at about 10.8 times 2011 earnings. "Clearly, we're not paying very much for these stocks."

A native of Oakland, Maryland, Eiswert is a 16-year industry veteran who has spent more than a decade in technology. After graduating in 1994, from St. Mary's College, where he earned a BA summa cum laude, in economics and political science, he worked for two years as a foreign-currency-options trader at Chase Manhattan Bank in New York and London.

Eiswert went back to school and in 1998 completed an MA in economics at the University of Maryland. It was there that he developed an interest in the telecom field when he attended a class on the economics of telecommunications. "I always had a bug for tech," says Eiswert, recalling that he also built a computer out of a kit in his undergrad years.

Eiswert moved to Washington, D.C., where he got a taste of technology working for a small market-research consulting firm that served the technology and telecommunications industry.

In 2000, he was hired by Fidelity Management & Research as a software and telecom sector analyst, and assisted the manager of the Fidelity Select Technology Fund. Two years later, he joined Boston-based Mellon Growth Advisors, where he was on the growth team and covered semiconductor firms and software providers.

In 2003, Eiswert went to T. Rowe Price as a telecommunications equipment analyst who covered the U.S. and Europe. In October 2008, he assumed responsibility for TD Science & Technology from Jeff Rottinghaus. Later that year, he adopted a more aggressive stance in the portfolio as valuations were very depressed. Lately, he's become more aggressive again.

Eiswert has about 100 names in the TD fund, which is dominated by a 66% weighting in the U.S. Single holding are limited to around 6%. Turnover has been moderate at 54.9% for the six months ended June 30, 2009.

As someone who takes a one- to- two-year horizon, Eiswert maintains that stocks are attractive on all measures. Moreover, he believes that investors who hang in will be rewarded. "When we look into March-April-May, we will be on very firm ground."

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Michael Ryval

Michael Ryval