Interview with Noah Blackstein, manager, Dynamic Power American Fund

A: I’d say Motorola. That’s a new big holding. In the last couple of quarters the company has turned in some key numbers, as they’ve moved into handsets in addition to their semi-conductor business. They’ve showed good upside potential for the last couple of quarters. Their margins in semi-conductor have been improving. They wrote off Iridium and they acquired GI – which is into the set-top cable box for web-enabled television. So we recently added them, and they’ve had the product launch. It’s stock was recently at $115, and I think, within the next 12 to 18 months, it will reach $160 to $180. We bought the position at the beginning of November in keeping with our philosophy of buying stocks with strong fundamentals, margin improvements, and the accelerating earnings momentum. That’s what we’re seeing Motorola.

Q: On the flip side. Is there anything you’ve dropped, or maybe sold off, because of the way you see things?

We had a large holding in Microsoft, and I’ve been more cautious about it lately. And it has nothing to do with the U.S. Justice Department investigation. It has more to do with the way people are able to access information now. We’re at the end of the PC era. Just like there was a shift from the mainframe to desktop, PC structure. The new era sees a proliferation of thin-client, web-enabled e-communication. That’s why you see so much interest in Research in Motion’s e-mail pager. You’re starting to see set-top boxes giving you through your television to the Net. Things like 3Comm’s Palm Pilot. All these are going to throw a wrench in Microsoft’s structure.

Microsoft has come out with Windows GE. It’s a palm top, like 3Comm’s. Microsoft’s still meets our investment discipline. It’s still got the fundamentals but there’s no significant earning growth. And right now there’s some question about where things are going in the U.S. in terms of a top down economic strategy. If I see significant numbers in both their new product and in those economic numbers, we’ll get interested again.

Q: But if there’s a company that might be able to make the transition, it’s Microsoft, right? Or maybe not?

A: Well we’re in a new computer market. Remember IBM was dominant in the 80s. Then came Microsoft and Intel. But Microsoft is smart and has shown flexibility to adapt.

Q: Where do you fall in the argument about the new economy? I was talking with Ian Ainsworth, who manages the e-business fund for Altamira, and he was talking about how the internet has changed the cyclical nature of earnings for some companies. How much of this do you think is for real? And how much of it isn’t? Does it apply to some companies, and not others?

A: Well, we’re in the second phase of internet adoption. The first was the consumer getting online and getting information, communicating and discovering this big neat thing. But that only takes us so far. You got to look at where we are going, which is business to business to transactions

You start by looking at companies like General Motors, and how they’ll use the internet has the medium for trade and exchange. They’ve make $82 billion worth of transactions with their suppliers. So you’ll see Fortune 500 companies move to web-enable themselves, which is the Sun Microsystems/Oracle vision of the world. And it’s just started. I don’t believe in an absolute new paradigm. But many companies will be come more efficient, and therefore more competitive on a global scale by taking advantage of the some of supply-chain efficiencies that the Internet offers.

Q: What’s your turnover rate?

@page_break@A: We’ll we’ve only been running for just over a year. And it’s mostly just money coming in for investment, but we’ll probably fall in above average. We could end up in excess of 100%, but remember that we’ve got less names than a lot of funds. Some have 300 stocks, and they sell 30 through a year, versus selling 30 stocks out of our 50. Our price targets are disciplined, but they’re not set in stone. When a stock exceeds our target price, we’ll sell unless we can find come fundamental reason to raise our price target.

Q: For what sort of reasons? Do you have a top-down economic view?

A: Yes we do our own economic view. Interest rates projections are very important to what we do. Secular trends are very important as well, including the trends in software, technology, wireless communication, and health care demographics, as well as the trend toward consolidation in the financial services. But those are overlaid with our bottom up, stock picking approach.

Q: Can you explain more what you mean about your disciplined stock picking approach, that’s not set in stone?

A: Well, for example, Sun Microsystems price target has consistently moved up, and not because their stock price continues to go up. They’ve seen an acceleration of revenue growth, better than what our expectations had been. They’re now showing mid-20% revenue growth. When we see further upside like that, it’s a pretty good indication of where we’ll go with a stock. On the other hand, if it appears that the upside of stock has been priced in already, if can’t see a higher stock price ˜ mentally ˜ we’ll sell it.

Q: Where do you fall in the debate about meeting company executives? Because some people say they can sit in an office with spreadsheets to make their decisions, and they say we’ll, the higher persons position in a firm, they greater the sell job you’ll get.

A: We’re somewhere in the middle. Typically I’ll meet people at conferences that I attend. Occasionally I’ll meet CEOs. But at the end of the day it’s about our process and that the management of the company is interested in the increasing shareholder value. And at the end of the day that will be reflected by the numbers on the paper. The ability to report and to deliver the numbers on the quarterly reports. So I fall somewhere in the middle.

So it’s, first of all, did they make our fundamental screening process, then we might meet with management of some companies, and we’ll do you picking and choosing from there.

Q: What are you thinking about these days? What’s have you been talking about for the past week with the rest of the stock picking team?

A: We continue to be positive in terms of technology. We’re especially bullish on the wireless industry in North America. If we see the growth of wireless telephone that we’ve seen in Europe and Asia we’re going to see substantial price performance based on earnings and growth in some of the North American companies. Those types of valuations in the U.S. carriers could double their stock prices.