While David Cooke believes that a recovery in the technology, media and telecommunications sectors is under way, he says it is important to be discerning when it comes to stock selection.
"Increasingly, we are looking at companies that are growing their earnings as part of the cyclical recovery that we've seen in the past couple of quarters," says Cooke, 38, a vice-president at Toronto-based RBC Asset Management Inc. and co-manager of the $318.5-millionRBC Life Science and Technology. A technology and telecommunications specialist, Cooke uses a five-part investment process to evaluate companies. Initially, he focuses on sectors that are growing. "While some may be more established than others, the main factor we look for is growth."
Cooke seeks firms that have established sector leadership, either by developing leading-edge products or gaining customers. A strong business model is the third criteria. As well, he checks for management that has demonstrated its financial skills. Finally, he focuses on valuations.
"We look mostly at price-to-earnings ratios and compare them to growth rates and establish what we believe is an appropriate price for that company, and when to sell it, too," says Cooke.
Besides co-managing the Morningstar four-star rated technology fund since he joined RBC in March 2000, Cooke has been a senior member of the team that runs the $1.02-billionRBC U.S. Equity. He has also co-managed the $93-millionRBC U.S. Mid-Cap Equity since July 2001, the $23.6-millionRBC Global Technology Sector since its inception in June 2000, and the $2.1-millionRBC Global Communications & Media Sector since its inception in December 2000.
An engineer by training, the native of Trail, B.C., honed his analytical skills in the military and telecommunications industries. After he graduated in 1986 with a bachelor of engineering sciences degree from University of Western Ontario he landed a job as a communications and electronics engineering officer with the Canadian Armed Forces. During a four-and-a-half-year stay, he helped manage the operation of radio and telecommunications systems.
Interested in the investment world, he enrolled in the MBA program at York University and graduated in late 1991. Though he specialized in international business and finance, his first job after completing his studies at York was at Unitel Communications Inc., which later became AT&T Canada Inc. and, most recently, Allstream Corp.
Starting in 1992, he worked as a senior manager in charge of capital budgets in the network planning and engineering group that built Unitel's national high-bandwidth network. "It was a great lead-in to technology investing," Cooke recalls. "We were doing project finance, selecting all the access equipment, switches and management systems."
In mid-1995, he fulfilled his career ambition when he was hired as a portfolio manager at Altamira Management Ltd. By the time he left in March 2000, he was co-manager ofAltamira Science & Technology, as well asAltamira e-business.
Cooke moved to RBC because he was attracted by the opportunity to help expand its line-up of global funds. However, one concept that didn't work out was one of his early assignments, Royal e-Commerce, whose mandate was to invest in a wide range of companies with e-business strategies. He still manages the fund, now RBC Global Technology Sector, after it was repositioned in June 2002 as part of a rationalization of RBC's technology-related offerings.
Cooke tends to be a high-turnover manager who likes to limit his stock-specific risk. His portfolio turnover last year in RBC Life Science and Technology was a brisk 198%. He holds more than 100 names, keeping his maximum for a single holding to about 2.5%.
Firmly in the growth-style camp, Cooke maintains that valuation metrics such as price-to-book are not as relevant as growth criteria in the technology sector. "The key is forecasting revenue growth, and the resulting earnings growth. But you have to be selective."
Veritas Software Inc. ( VRTS/NASDAQ) is a representative holding. A leader in information storage management, the firm's stock has a high price-earnings multiple of 40. But it has a so-called PEG ratio (price/earnings to growth) of two, based on a 20% expected growth rate. Says Cooke: "It's better than the overall market. As long as growth continues, we're okay with the valuation."
As for the growth prospects for the economy as a whole, Cooke is guardedly optimistic. "Gross domestic growth is still pretty modest for this year and next, but we are in a growth situation," he says. "We can see it in revenue growth and in improved earnings growth, especially in the cyclical sectors such as technology. We are positioning ourselves for this cyclical recovery."
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