Stretching the meaning of value.

Lester Blair favors dominant players with profitable track records

It hasn't been easy being a value investor over the past few years, unless you have an elastic interpretation of that investment philosophy. For Lester Blair, president and chief investment officer of Blair Capital Management in Chicago, stretching that definition has meant loading up on technology shares and finding companies that dominate their particular sectors, as well as selectively applying traditional valuation methods like low price-to-earnings (P/E) ratios to choose potential picks.

"Fifty percent appreciation in a stock's price is a minimum target," says Blair, who manages the $13 million Blair Capital Management Mid-Cap Blend fund, a concentrated portfolio of 25 stocks. "It's easier to keep track of a smaller number of stocks, and it helps minimize losses," he says. "We're a small shop, so we don't have time to take major skids on our positions."

To maximize returns, he screens for companies with a profitable five-year track record, reasonable P/E ratios compared to competitors rather than an overall index, and market leadership in both the Old and New Economies.

But he shuns technology companies "that can't show a profit," preferring those with actual earnings. At one point last year, about half of the Mid-Cap Blend fund was in tech names; he's since pared that down to 28.35%. His nouveau value philosophy helped the fund return 26% in 1999, beating the Standard & Poor's 500-stock-index's return of 19.53%.

Blair likes Actel (Nasdaq: ACTL), a Sunnyvale, California, semiconductor manufacturer. The company's main product is field programmable gate arrays (FPGA) equipment, used in designing semiconductors for the military/aerospace and communications industries. "They're a major player in the FPGA area," says Blair, and he expects its dominant status, along with other new products, will boost its shares.

For an Old Economy pick benefiting from New Economy trends, temporary employment services firm Robert Half International (NYSE: RHI) gets Blair's nod. The Menlo Park, California, company formerly specialized in providing temporary help to just the finance and accounting fields. Now, gobert Half dispatches personnel in such areas as information technology, paralegal and legal support staff, and Web design and marketing. "There'll be a tight labor market for awhile and I think they can profit" in that environment, he adds.

Shares of Comdisco (NYSE: CDO) have been beaten down lately, but Blair thinks that makes it an attractive "traditional value play." The Rosemont, Illinois, company's core business is buying, selling and leasing computers. Comdisco is expanding beyond its traditional business lines, developing a high-speed, always-on digital network for example.

Bounding out Blair's technology-heavy picks: ADC Telecomm (Nasdaq: ADCT) and Applied Micro Circuits (Nasdaq: AMCC). Minnetonka, Minnesota-based ADC Telecomm provides hardware and software to upgrade communications networks; its emphasis on expanding the bandwidth of existing systems should boost its bottom line. And Applied Micro Circuits, based in San Diego, builds and develops a variety of tailor-made products for high-speed networking applications. Despite its high price, "it's still in our portfolio and it's been zooming," he says.

Powerful Picks

Company                                  12-Month
Exchange: Symbol            Price(*)   Price Target

Actel                        $36.81         56
Nasdaq: ACTL

ADC Telecommunications        60.75         76
Nasdaq: ADCT

Applied Micro Circuits       128.88        250
Nasdaq: AMCC

Comdisco                      31.06         72
NYSE: CDO

Robert Half International     61.13         80
NYSE: RHI

Company                     P/E on Projected
Exchange: Symbol             2000 Earnings     Growth

Actel                             26.7          20.0%
Nasdaq: ACTL

ADC Telecommunications            59.6          26.4
Nasdaq: ADCT

Applied Micro Circuits           176.5          43.8
Nasdaq: AMCC

Comdisco                          22.0          15.6
NYSE: CDO

Robert Half International         33.0          19.7
NYSE: RHI

Company
Exchange: Symbol            Why Stock Will Outperform

Actel                       * Growth seen from new applications for
Nasdaq: ACTL                  products of dominant maker of field
                              programmable gate arrays (FPGAs)
                              equipment

ADC Telecommunications      * Expansion into cabling and fiber
Nasdaq: ADCT                  optics to boost shares of telecom firm

Applied Micro Circuits      * Semiconductor concern riding wave of
Nasdaq: AMCC                  demand for faster computer networks

Comdisco                    * Buyer and reseller of computers:
NYSE: CDO                     traditional value stock: targeted
                              acquisitions

Robert Half International   * Temporary staffing services firm
NYSE: RHI                     should benefit from offering personnel
                              in other industries like law and
                              information technology

(*) Closing price as of 04/28/00

Source: Lester Blair, Blair Capital Management; Yahoo! Finance.