I. Market News: Well, That's Out of the Way!---DJIA 5000
II. Heroes: Pittston, Avondale, H-wood Park, Caterpillar, Covenant
III. Goats: Vodafone, Reebok, Cycare, Monarch, Cambex, Essef
IV. Investment Perspective: More Trouble Plaguing Chip Makers
V. Calendar: Wednesday's Economic Events
MARKET CLOSE
DJIA: 5023.55, up 40.46 (RECORD)
S&P 500: 600.26, up 3.41 (RECORD)
NASDAQ: 1024.98, down 4.49
MARKET NEWS
The waiting game is over as the DJIA smashed through the new millennium marker and stayed there. So, the big question is now whether the Nasdaq Composite is headed for a millennium milestone of its own---1000? Technology stocks continue to struggle as a different group gets hammered each day. The victim du jour was the internet group. After reaching levels supportable perhaps only with industrial supplies of helium (or hot air), some of the recent high-flyers re-entered our atmosphere today.
HEROES
Pittston Minerals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PZM)") else Response.Write("(NASDAQ:PZM)") end if %> continued to climb today, rising $1 1/2 to $12 3/8 on news reported yesterday in this column. The company, involved in a joint venture in Australia, has discovered a high-grade deposit of nickel sulfide. With 1996 estimates currently at $1.44 per share, investors apparently believe that this number will rise in the coming months as the new deposit is factored in. Investors are encouraged to do their homework before entering this speculative natural resources company, as with any security.
Avondale Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AVDL)") else Response.Write("(NASDAQ:AVDL)") end if %> sailed ahead $2 to $15 5/8 today after it signed a contract with Maritrans Ocean Transport Inc., a unit of Maritrans Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TUG)") else Response.Write("(NYSE:TUG)") end if %> to build six tankers. These tankers will be used to carry petroleum products between U.S. ports under the Jones Act, legislation which mandates that a certain percentage of shipbuilding capacity be owned by U.S. citizens. These orders were apparently unexpected by the market. Avondale has surged since last June, looking like a technology stock as it almost tripled in two months.
Hollywood Park <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HPRK)") else Response.Write("(NASDAQ:HPRK)") end if %> rose $1 to $10 1/2 as it benefited from a change in laws regarding the ownership of casinos on racetrack property. Until recently, a pari-mutuel race track company could not own a "card club" operator's license for card clubs located on race track property. After this law was changed by the State of California, Hollywood Park moved to purchase the "card club" on its Inglewood property. Earnings estimates for next year should rise as a result of this purchase, explaining today's move.
Caterpillar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CAT)") else Response.Write("(NYSE:CAT)") end if %> benefited today from positive comments in Smith Barney's "morning call," rising $3 3/4 to $59 3/8. The "morning call" is the main organization's call to its brokers, telling them what stocks to push hard to customers that day. When brokers were alerted that Smith Barney analyst Tobias Levkovitch upgraded Dow-component Caterpillar from "outperform" to "buy," they apparently got real excited. Levkovitch sees U.S. inventories coming down and order trends rising, suggesting that the retail industry is still "robust." Reebok (see Goats below) was another product of the vaunted morning call today.
Covenant Transport <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CVTI)") else Response.Write("(NASDAQ:CVTI)") end if %> rose $1 1/4 to $13 3/4 as Alex. Brown trucking analyst John Larkin upgraded eleven trucking stocks in a flurry of activity today. Covenant was raised from a "buy" to a "strong buy" along with six other trucking concerns. Larkin believes that although the small-shipment carriers have been experiencing softness recently, they can turn it all around in the second quarter as economic growth has been better than expected and the inventory adjustment is complete.
GOATS
Vodafone Group plc <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:VOD)") else Response.Write("(NYSE:VOD)") end if %> plunged $4 5/8 to $33 7/8 today when the U.K.-based mobile telecommunications concern reported that the proportion of business customers on the network is set to fall around 40% for fiscal 1996, meaning that revenues per customer will decline precipitously. A decline in the proportion of business customers has held back revenues per customer for the last six months and will continue to do so for the foreseeable future. The company has operations in Britain, Europe, Australia, Hong Kong and Mexico.
Sneaker-manufacturer Reebok <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:RBK)") else Response.Write("(NYSE:RBK)") end if %> needed re-soling after today, losing $2 1/2 to end at $28 3/4 when a Smith Barney analyst lowered the rating on the stock to "underperform/high risk," about as bad as it gets under Smith Barney's rating system. Reebok smashed through its 52-week low today as Smith Barney added its name to the list of high-profile brokerage firms that have downgraded the ailing shoe company; BT Securities and Dean Witter both rated the stock "neutral" in recent days. Reebok dumping began in earnest three quarters ago when the company first missed its earnings estimates. After missing them again in March and then in June, the company was pushed down to its old 52-week low set in mid-April. Reebok recently announced that it would buy back up to $200 million worth of stock and has also been estimated to make a little over $3.00 next year, suggesting that this stock is trading for less than ten times next year's earnings. Contrarians might want to take note of this company.
For those who think we at the Evening News forget about Folly in Arizona, we direct your eyes today to Cycare Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CYS)") else Response.Write("(NYSE:CYS)") end if %>, down $1 1/2 to $22 3/4 today. MF Yon profiled shares of Cycare Systems back in June of 1995 when it was around $26. Although the stock went higher after MF Yon called it fairly-valued, an investor who paid attention to him then avoided the decline back to June levels that has occurred in the past few weeks. Although one can never pick a stock's highs and lows perfectly, one can establish a "fair value" and minimize the risk involved in buying and selling equities, as MF Yon demonstrated admirably with Cycare Systems.
Investors who took a "gamble" on Monarch Casinos <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MCRI)") else Response.Write("(NASDAQ:MCRI)") end if %> lost $3/4 today to fall back to $5. The company released news that it was not selected by St. Louis to receive a lease for a downtown riverboat casino project. The Evening News must ask why anyone would have bought shares of Monarch Casinos on such a speculative venture when shares of other gambling operators with much more cash and much more stable long-term growth rates trade on P/Es below their estimated growth rates? Mind boggling. Incidentally, Monarch is one of the ten stocks in the mythical Dorfman Fund, which is about to conclude its market-losing year on December 1. Check out the weekly updates in the Talk With the Editors folder.
Some earnings disappoints brought two Nasdaq issues to their knees today. Cambex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CBEX)") else Response.Write("(NASDAQ:CBEX)") end if %> tumbled $1 1/4 to $6 1/8 after it reported a loss of $1.14 a share in its most recent quarter, the result of a huge write-down on many of its mainframe products. Essef Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ESSF)") else Response.Write("(NASDAQ:ESSF)") end if %> lost $2 3/4 to $14 1/2 after it reported that earnings per share increased by only 12% year to year, taking out a one-time gain last year, as sales increased by 15.6%. Their explanation? "The fourth-quarter's financial results were depressed by a number of variances from our plan that created a very disappointing result," commented Thomas B. Waldin, CEO. Un-huh.
INVESTMENT PERSPECTIVE: Who's Next With Chip Problems?
Investors involved in technology stocks, particularly shares of semiconductor, semiconductor equipment and online communications companies got hosed today as the Dow Jones Industrial Average finally posted its first close above the vaunted 5000 level. (For more on what the Evening News thinks about Dow 5000, check out the Motley Fool section of America Online's Dow 5000 area, succinctly titled, "Dow 5000: Who Cares?")
No doubt hoards of individual investors were again cavorting through the Fool boards, wondering aloud to themselves and others what the heck is wrong with semiconductor stocks and what has finally gone wrong with the online communications stocks. Let's look at what real-world events contributed to today's market activity.
The sparks started this morning for chip stocks when Cowan & Company downgraded Xilinx Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:XLNX)") else Response.Write("(NASDAQ:XLNX)") end if %> to "neutral" from "buy," pushing shares of the CMOS (complementary metal oxide silicon) programmable logic device maker down $2 3/4 to $29 3/8. Drew Peck of Cowan cited concerns about soft orders for Xilinx's products in November as we move into the traditionally weak December order season, meaning that he believes there's a high probability that Xilinx will underperform its consensus estimates for the quarter.
Shares of logic chip manufacturers crumpled across the board, with Altera Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ALTR)") else Response.Write("(NASDAQ:ALTR)") end if %> losing $3 1/4 to $51 7/8, LSI Logic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:LSI)") else Response.Write("(NYSE:LSI)") end if %> down $2 3/4 to $40 and Integrated Silicon Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ISSI)") else Response.Write("(NASDAQ:ISSI)") end if %> falling $1/2 to $22 1/2. Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TXN)") else Response.Write("(NYSE:TXN)") end if %> continued its slide after concerns about decreasing spot prices for DRAM were aired again this weekend, but Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MU)") else Response.Write("(NYSE:MU)") end if %> actually managed to hang tough today, rising $3/4 to $50 5/8 after the company held a positive call with analysts this morning. Details of the call are scanty as only the Wall Street elite were invited, but apparently some of them liked what they heard.
Related to Xilinx's pain was the precipitous tumble in shares of Credence Systems Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CMOS)") else Response.Write("(NASDAQ:CMOS)") end if %>, down $3 1/4 to $26 1/2, whose trading symbol indicates the logical connection between Xilinx's fate and its own. Credence makes capital equipment for CMOS manufacturers and the "logic" at work here is if Xilinx is getting downgraded for lower-than-expected revenues, it will not be buying as much capital equipment as the Street previously thought. Whether or not weak orders for a quarter will really stop semiconductor manufacturers from building capacity to meet the demand they anticipate in the next decade continues to be an open question, but obviously from the very phrasing here you can see where the Evening News stands on this issue.
Internet stocks were also active on the downside today; apparently the "short squeeze" has abated. A "short squeeze" occurs when investors who have bet that the share price of these companies will come down set stop-buy orders in order to minimize their downside. What happens on thinly traded issues, which most of these Internet related companies were until recently, is that a lot of stop-buys can get triggered on any sizable move, causing stocks to rocket ahead.
CMG Information Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CMGI)") else Response.Write("(NASDAQ:CMGI)") end if %> lost $9 1/2 to $59 and Global Village (NASAQ:GVIL) fell $2 to $20 7/8; Netscape <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NSCP)") else Response.Write("(NASDAQ:NSCP)") end if %> lost $8 1/2 to $107 3/4, Spyglass <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SPYG)") else Response.Write("(NASDAQ:SPYG)") end if %> was down $14 to $90 3/4 and America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMER)") else Response.Write("(NASDAQ:AMER)") end if %> fell $4 3/4 to $67 3/4. Where will any of these stocks go? Who knows? The valuations have left the realm of sanity for the most part.
CALENDAR: Wednesday's Economic Events
---October Treasury Budget Report (2:00)
Byline: Befumo/Sheard (MF Templar/MF DowMan)