INDEX:
I. Market News: Low Inflation Report Boosts Markets
II. Heroes: Carr Gottstein, Colonial Data, Tripos, Ascend
III. Goats: Stop & Shop, AMSCO, Alliance Semi, Mississippi Valley
IV. Investment News: Is it Time for Woolworth?
V. Calendar: Monday's Economic Events
MARKET CLOSE
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DJIA: 4793.78, up 28.90
S&P 500: 584.51, up 1.41
NASDAQ: 1018.37, up 2.74
MARKET NEWS
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Tame inflation, conservative retail sales, continued good corporate earnings reports, and renewed belief that the Fed has engineered a mythical soft landing for the economy sent bonds and stocks higher today. No Friday the 13th bad luck this time around. In the middle of the afternoon, the NYSE had to impose program trading curbs as the DJIA was up more than 50 points. Toward the end of the session, however, both the NYSE and the Nasdaq gave back a sizable portion of their earlier gains. The one weak technology sector was the semiconductors. Despite good recent earnings from Micron Technology and Texas Instruments, skepticism about the stability of DRAM prices has market traders waiting nervously for Intel's earnings next week.
HEROES
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Carr Gottstein Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CGF)") else Response.Write("(NYSE:CGF)") end if %> pushed the price of its own shares up $2 3/8 to $8 1/2 when it announced that it plans to make a tender offer for roughly 49 percent of its own stock (7.5 million shares). The tender offer is for $11 a share, which is approximately an 80 percent premium over the stock's closing price yesterday of $6 1/8.
Colonial Data Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:CDT)") else Response.Write("(AMEX:CDT)") end if %> rose $2 1/4 to $18 on an analyst report by NatWest Securities. Analyst William Vogel reiterated a "buy" rating on CDT and expressed confidence that Colonial will be able to earn his estimate of $0.22 per share for the third quarter. Vogel predicts minimum earnings growth of 35 percent for CDT over the next three to five years.
Tripos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TRPS)") else Response.Write("(NASDAQ:TRPS)") end if %> rose $7/8 to $6 3/8. On Wednesday, Tripos announced a major collaboration with Menarini SRL, the leading Italian pharmaceutical company. The scientific collaboration is in an effort to find good leads for inhibition of inflammation and the joint effort could accelerate any drug discoveries by as much as two years. Tripos is the leading supplier of software and services to facilitate the discovery of new therapeutic and bioactive compounds in pharmaceutical, biotechnology, chemical, and agrochemical industries.
Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ASND)") else Response.Write("(NASDAQ:ASND)") end if %> soared $5 3/4 to $49 1/4 after reporting a net income rise of 184 percent for the third quarter. With analysts expecting earnings of $0.23 per share, Ascend posted two cents better at $0.25 versus $0.10 in the year-ago period. Accounting for a $0.07 charge from the acquisition of technology from Dayna Communications, Ascend's operating earnings were an impressive $0.32 per share. Ascend makes a range of high-speed digital wide area network access products.
GOATS
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Stop & Shop <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SHP)") else Response.Write("(NYSE:SHP)") end if %>, down $2 to $22, announced today that it sees gross margins hurting second-half 1995 results. The chain of grocery stores posted $1.40 per share for 1994 but believes it won't match that figure in 1995. Stop & Shop is blaming a strategy to boost sales for the lower margins and expects them to remain under pressure in the first half of 1996 because of continued promotional activity and the addition of new square footage.
AMSCO International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:ASZ)") else Response.Write("(NYSE:ASZ)") end if %> lost $1 7/8 to $17 1/2 after reporting lower earnings and sales for the third quarter. Both sales and earnings fell 5 percent below year-ago results. Margins for the third quarter also fell from 36% to 31% as sales of higher-margin products lagged. AMSCO posted earnings of $0.13 per share while the Street expected $0.22.
Alliance Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ALSC)") else Response.Write("(NASDAQ:ALSC)") end if %> lost $2 5/16 to $28 1/4 today when many of the chip stocks sold-off as nervous traders await next week's earnings reports. On Tuesday, Alliance announced solid earnings and had its earnings estimates upgraded Wednesday by SoundView financial. Looks like group psychology cost Alliance today.
Mississippi Valley Bancshares <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MVBI)") else Response.Write("(NASDAQ:MVBI)") end if %> lost $2 to $24 today after posting third-quarter earnings yesterday. The report from Reuters on the earnings announcement is one of those really helpful ones with a title that says "MVBI Q3 net up." And the report is simply the quick and dirty numbers. Well, here they are. MVBI posted earnings of $0.61 per share versus $0.48 in the year-ago period. For the first nine months of 1995, it has earned $1.67 per share. Only one analyst follows the stock according to First Call and there aren't any quarterly estimates, just an annual estimate for 1995 of $2.15, so it's hard to say who was disappointed by the earnings.
INVESTING NEWS: Could You See It Coming?
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We discussed Woolworth <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:Z)") else Response.Write("(NYSE:Z)") end if %> peripherally in our Kmart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KM)") else Response.Write("(NYSE:KM)") end if %> story last Friday in talking about how Kmart was doing all the wrong things. Taking this discussion as a starting point, we'll take today's coverage on CNBC about Woolworth suddenly becoming a value play and discuss how you as an investor might have anticipated the recent run-up in Woolworth from $13 to today's close of $16 1/2.
On April 13, Woolworth announced that it would stop paying its dividend because the company needed the money in order to pay its bills. On April 12th, shares were at a 52-week high of $18 7/8. After news of the dividend cut was released that night, shares tumbled to close at $15 7/8 the next day, a one-day drop of 19%. Shares of the company's stock continued to sell off throughout the following weeks, falling to $15 by June and tumbling to $13 by September.
The trigger to Woolworth's broad-based sell-off was the cut in its dividend payment, causing all kinds of concern about Woolworth's ability to continue as a going concern. The shares had already been under pressure from the 1994 revelations of financial improprieties and falsification of earnings results, so the dividend cut was seen by many as the final nail in Woolworth's coffin. Believing that Woolworth was just a bunch of five-and-dime stores, investors did not hesitate in dumping the company's stock.
Woolworth, a less emotional investor might have realized, is a bit more than just its discount stores. Owning Foot Locker, the uncontested champion of the athletic shoe retail market, and Kinney Shoes, a dominant force in the low-priced shoe market, there was a lot more value floating around than many investors conceded. An ambitious investor might have even looked at Foot Locker's cash flow to see what that property alone might be worth in a spin-off, and then determine whether or not Woolworth represented an opportunity.
In fact, why was Woolworth worth 20% less the day after it cut its dividend? The payment, around 3.5% at the time, was generous certainly, but did not add 20% to the company's market value, did it? In fact, there are retailers of all stripes that have never paid a dividend and yet if we were to issue a press release saying, "Retailer X does not pay a dividend," the stock would not drop 20% as a result. Can you picture it? Legions of bemused investors across America slapping their foreheads and saying, "Hey, Retailer X *doesn't* pay a dividend, does it? We better sell!"
A company's value as an ongoing concern is more than its ability to pay a dividend. An investor who saw Woolworth crater after the dividend cut and looked at Foot Locker's cash flow and Woolworth's $10 book value (based primarily on land it has amassed in its 100-year history and carried on the books at values determined in the 1920s) might have put Woolworth on his or her "stocks to watch list." When the stock continued to sell off and touched the $13 mark in September, with book value at $10 and Foot Locker alone worth around $8 per share by our calculations, he or she might have been tempted to buy.
In fact, Woolworth owns a huge number of stores beyond the Woolworth Discount Stores including Foot Locker, After Thoughts, Kinney, Kids Mart, and forty other individual retail properties. The dividend cut and widespread misunderstanding of what Woolworth is (with its specialty retail operations dominating operating results) would have made a nice opportunity for a cagey investor.
CALENDAR: Monday's Economic Events
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---13- and 26-Week Treasury Bill Auction
---August Manufacturing and Trade: Inventories and Sales (10:00)
---The following companies are expected to post quarterly earnings next week:
.AT&T CORP <T.N> $0.89 AHMANSON H.F. <AHM.N> 0.46 AIR PROD & CHEM <APD.N> 0.80 ALCO STANDARD <ASN.N> 1.03 ALLERGAN <AGN.N> 0.51 ALLSTATE CORP <ALL.N> 0.81 ALLTEL CORP <AT.N> 0.45 ALZA COPR <AZA.N> 0.22 AMERN BRANDS <AMB.N> 0.67 AMERN ELEC PWR <AEP.N> 0.83 AMERN HOME PROD <AHP.N> 1.25 AMERITECH <AIT.N> 0.84 AMGEN <AMGN.O> 0.52 AMR CORP <AMR.N> 2.83 APPLE COMPUTER <AAPL.O> 0.51 ARCH-DAN-MILDAND <ADM.N 0.32 ARMCO INC <AS.N> 0.00 ARMSTRONG WORLD <ACK.N> 1.23 BALL CORP <BLL.N> 0.71 BALT G&E <BGE.N> 1.05 BANC ONE CORP <ONE.N> 0.81 BANK BOSTON CORP <BKB.N> 1.12 BANKAMERICA <BAC.N> 1.58 BANKERS TRUST <BT.N> 1.53 BELL ATLANTIC <BEL.N> 0.99 BELLSOUTH CORP <BLS.N> 1.11 BEMIS INC <BMS.N> 0.40 BEVERLY ENTS <BEV.N> 0.25 BRISTOL-MYERS SQ <BMY.N> 1.33 CAROLINA PWR & LT <CPL.N> 0.96 CENT & SW CORP <CSR.N> 1.00 CERIDIAN CORP <CEN.N> 0.42 CHASE MANHATTAN <CMB.N> 1.38 CHEM BKG COPR <CHL.N> 1.58 CHUBB CORP <CB.N> 1.76 CINERGY CORP <CIN.N> 0.66 CITICORP <CCI.N> 1.58 CLOROX CO <CLX.N> 1.11 COCA-COLA CO <KO.N> 0.65 COLGATE PALMOLIVE <CL.N> 0.76 COMPAQ COMPUTER <CPQ.N> 0.91 COMP ASSOC <CA.N> 0.62 CONRAIL INC <CRR.N> 1.27 COOPER TIRE <CTB.N> 0.38 CORESTATE FIN <CFL.N> 0.92 CORNING INC <GLW.N> 0.54 CROWN CORK & SEAL <CCK.N 0.35 CUMMINS ENGINE <CUM.N> 1.27 DANA CORP <DCN.N> 0.59 DIGITAL EQUIP <DEC.N> 0.25 DONNELLY CORP <DON.A> -0.21 DSC COMMS CORP <DIGI.O> 0.44 DUN & BRADSTREET <DNB.N> 1.03 EATON CORP <ETN.N> 1.24 ECOLAB INC <ECL.N> 0.46 FED HOME LN MTG <FRE.N> 1.46 FIRST CHICAGO <FNB.N> 1.71 FIRST DATA <FDC.N> 0.58 FIRST INSTI BCP <I.N> 2.78 FLEET FINANCIAL <FLT.N> 1.08 FLEMING COS INC <FLM.N> 0.10 FMC CORP <FMC.N> 1.41 FPL GROUP <FPL.N> 1.27 FRUIT OF LOOM <FTL.N> 0.39 GEN DYNAMICS <GD.N> 0.94 GEN ELECTRIC US <GE.N> 0.95 GEN MOTORS CORP <GM.N> 0.22 GEN PUB UTIL <GPU.N> 1.09 GEN SIGNAL <GSX.N> 0.53 GENUINE PARTS <GPC.N> 0.64 GIDDINGS & LEWIS <GIDL.O> 0.25 GILLETTE CO <G.N> 0.45 GRT LAKES CHEM <GLK.N> 1.16 GTE CORP <GTE.N> 0.69 HARRAH'S ENTMT <HET.N> 0.44 HARRIS CORP <HRS.N> 0.83 HERSHEY FOODS <HSY.N> 1.04 HONEYWELL INC <HON.N> 0.63 ILL TOOL WORKS <ITW.N> 0.81 INTEL CORP <INTC.O> 1.02 INTERGRAPH <INGR.O> -0.17 INTL BUS MACH <IBM.N> 2.44 ITT CORP <ITT.N> 2.49 JAMES RIVER CORP <JR.N> 0.50 JOSTENS INC <JOS.N> 0.04 KELLOGG CO <K.N> 1.05 KEYCORP <KEY.N> 0.86 KIMBERLY CLARK <KMB.N> 1.00 KNIGHT RIDDER INC <KRI.N> 0.40 KROGER <KR.N> 0.49 LILLY ELI <LLY.N> 1.09 LOCKHEED MARTIN <LMT.N> 1.26 MATTEL INC <MAT.N> 0.68 MAYTAG CORP <MYG.N> 0.35 MCDONALDS CORP <MCD.N> 0.55 MCDONNELL DOUGLAS <MD.N> 1.53 MCGRAW-HILL COS <MHP.N> 2.11 MCI COMMS <MCIC.O> 0.40 MEAD CORP <MEA.N> 1.84 MELLON BANK <MEL.N> 1.12 MERCK & CO <MRK.N> 0.70 MERRILL LYNCH <MER.N> 1.42 MICROSOFT CORP <MSFT.O> 0.70 MOBIL CORP <MOB.N> 1.66 MONSANTO CO <MTC.N> 0.94 NATIONSBANK <NB.N> 1.80 NEW YORK TIMES <NYTa.A> 0.19 NEWELL COS INC <NWL.N> 0.42 NICOR INC <GAS.N> 0.13 NORTHROP GRUMMAN <NOC.N> 1.20 NORWEST CORP <NOB.N> 0.70 NUCOR CORP <NUE.N> 0.72 NYNEX CORP <NYN.N> 0.83 OCCIDENTAL PETE <OXY.N> 0.36 OHIO EDISON <OEC.N> 0.62 PACIFIC G&E <PCG.N> 0.93 PACIFIC TEL GROUP <PAC.N> 0.62 PANHANDLE EASTERN <PEL 0.44 PARKER HANNIFIN <PH.N> 0.72 PERKIN-ELMER <PKN.N> 0.41 PFIZER INC <PFE.N> 0.65 PHELPS DODGE <PD.N> 2.54 PHILIP MORRIS <MO.N> 1.68 PIONEER HI BRED <PHYB.O> -0.58 PNC FINL CORP <PNC.N> 0.62 POLAROID CORP <PRD.N> 0.56 PPG INDS <PPG.N> 0.88 PRAXAIR <PX.N> 0.43 PUB SVC ENTERS <PEG.N> 0.79 REEBOK INTL LTD <RBK.N> 0.91 REPUBLIC NY CORP <RNB.N> 1.50 ROHM & HAAS <ROH.N> 0.84 RYDER SYS <R.N> 0.43 SANTA FE ENG RES <SFR.N> 0.04 SANTA FE PAC GOLD <GLD.N> 0.08 SBC COMMUN INC <SBC.N> 0.86 SCECORP <SCE.N> 0.64 SCHERING-PLOUGH <SGP.N> 0.67 SCHLUMBERGER LTD <SLB.N> 0.71 SCOTT PAPER <SPP.N> 0.81 SEARS, ROEBUCK <S.N> 0.56 SHAWMUT NATL <SNC.N> 0.68 SILICON GRAPHICS <SGI.N> 0.34 SOUTHWEST AIRLINES <LUV.N> 0.44 SPRINGS INDS <SMI.N> 1.09 SPRINT CORP <FON.N> 0.71 STANLEY WKS <SWK.N> 0.70 SUN CO <SUN.N> 0.54 SUN MICROSYSTEMS <SUNW.O> 0.65 TANDY CORP <TAN.N> 0.74 TELEDYNE INC <TDY.N> 0.50 TEMPLE INLAND <TIN.N> 1.47 TIME WARNER <TWX.N> -0.12 TIMES MIRROR <TMC.N> 0.22 TORCHMARK CORP <TMK.N> 1.00 TRAVELERS GROUP <TRV.N> 1.19 TRINOVA CORP <TNV.N> 0.72 TRW INC <TRW.N> 1.45 TYCO INTL LTD <TYC.N> 0.88 UNICOM CORP <UCM.N> 1.55 UNION CARBIDE <UK.N> 1.21 UNION ELEC CO <UEP.N> 1.63 UNION PACIFIC <UNP.N> 1.13 UNISYS CORP <UIS.N> -0.25 US BANCORP <USBC.O> 0.70 US WEST INC <USW.N> 0.64 UST INC <UST.N> 0.56 VF CORP <VFC.N> 1.08 WARNER-LAMBERT <WLA.N> 1.35 WELLS FARGO <WFC.N> 4.62 WESTINGHOUSE <WX.N> 0.18 WILLIAMS COS <WMB.N> 0.43 WMX TECH <WMX.N> 0.48 YELLOW CORP <YELL.O> -0.09 ZURN IND <ZRN.N> 0.29.
Byline: Befumo/Sheard (MF Templar/MF DowMan)