Applying 'Sell Discipline' to the Baby Bells Evergreen Manager Moves
>From Acquisitive Firms to Wireless and Utility Stocks
By Danielle Kost
Sunday, February 27, 2005; Page F04
Timothy O'Brien says he revived the $300 million Evergreen Utility &
Telecommunications Fund by knowing when to sell stocks.
He decided this year to reduce his stakes in Verizon Communications
Inc. and SBC Communications Inc. after they unveiled plans to make
The Evergreen fund rose 30 percent in the past 12 months,
outperforming the 3.3 percent gain of the Standard & Poor's
Diversified Telecommunications Services Index and the 6.4 percent
advance of the S&P 500-stock index.
"As merger mania was heating up in the telecommunications space, we
were concerned that the Bell companies were more likely to be the
buyers than the sellers," said O'Brien, 50, in an interview from his
office at Evergreen Investment Services Inc. in Boston. "Typically,
you want to own the sellers."
O'Brien took over the Evergreen fund in April 2002 after it lost
almost 40 percent of value in the previous two years. Since then, the
fund has risen at an annual rate of 15 percent, tripling the average 5
percent gain of competing funds, according to data compiled by
He "really turned around the fund's performance," said Andrew Gogerty,
an analyst at mutual fund research firm Morningstar Inc. in
Chicago. "Before that, it wasn't a very strong-performing fund."
O'Brien has brought a "sell discipline" to the fund, Gogerty said. "He
won't hold onto a falling stock to see if it will turn over. He will
be the first one to admit when he makes a mistake."
O'Brien's willingness to sell is reflected in the decisions to scale
back positions in New York-based Verizon, SBC of San Antonio and
Atlanta-based BellSouth Corp., companies whose shares are down or
little changed in the past year.
O'Brien has about 2 percent of his mutual fund's assets in Verizon,
SBC and BellSouth, down from as much as 3.5 percent at the start of
Verizon plans to buy MCI Inc., of Ashburn, for $6.75 billion, and SBC
is acquiring AT&T Corp. of Bedminster, N.J., for $16
billion. Atlanta-based Cingular Wireless LLC, which is owned jointly
by SBC and BellSouth, paid $41.3 billion to buy AT&T Wireless Services
Inc. in October.
None of the transactions will provide an immediate boost to profits,
O'Brien said. MCI emerged from the largest U.S. bankruptcy in history
in April, and AT&T's revenue fell for a 20th straight quarter in the
final three months of last year.
O'Brien holds about 60 stocks, which account for about 90 percent of
the fund's investments. The rest of the assets are split between bonds
One of the fund's best-performing stocks is its largest holding, TXU
Corp. Shares of Texas's biggest power producer almost tripled in the
past year. Only Apple Computer Inc. has done better among companies
in the S&P 500.
The Evergreen fund increased its stake in TXU in October 2002, a year
in which the stock fell 66 percent as the company cut jobs and its
dividend. TXU chief executive C. John Wilder was hired a year ago to
improve the company's finances. He has been selling assets and
reducing the company's debt. The stock closed Friday at $78.20 a
TXU has been "a home run for us," said O'Brien, who has degrees from
the University of Massachusetts in Amherst and the University of
Pennsylvania's Wharton School in Philadelphia. Before joining
Evergreen, he oversaw similar funds for Eaton Vance Corp. and Gabelli
Asset Management Inc. While O'Brien has reduced the fund's positions
in telecom companies, he has increased its wireless holdings. He added
to his position in Western Wireless Corp. during the third quarter and
initiated one in Leap Wireless International Inc. in August.
"I wouldn't call them household names," O'Brien said.
Western Wireless sells mobile-phone services in 19 western
U.S. states. The Bellevue, Wash.-based firm benefits from operating in
rural markets with fewer competitors. Last month, Alltel Corp., the
sixth-largest U.S. wireless company, agreed to buy it for $4.42
billion. Shares of Western Wireless gained 56 percent in the past year
and finished the week at $39.24.
Leap Wireless, a company spun off from Qualcomm Inc. that sells
unlimited local wireless calling services at a flat rate, emerged from
Chapter 11 bankruptcy protection in August. The San Diego-based
company's shares have risen 2.1 percent since then and closed Friday
at $27.15. Leap Wireless added a net 29,000 customers in the fourth
quarter for a total gain of about 97,000 for the year.
"They've got a strong balance sheet," O'Brien said. "They kind of fly
underneath the radar."
Exelon Corp., created in a merger five years ago by utilities in
Philadelphia and Chicago, is the fund's second-largest investment. The
owner of utilities has increased profit by cutting jobs and boosting
sales from low-cost nuclear plants. It agreed to buy Public Service
Enterprise Group Inc. for $12.8 billion in December, the biggest
utility acquisition in U.S. history. Exelon's stock rose 33 percent in
the past year. It ended the week at $45.50 "The company has been very
sensible," O'Brien said.
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