I. Market News: Late Blue Chip Blunder Ends Streak
II. Heroes: Brit. Bio., Hills, Sterling Soft., Quick/Reilly, Data Broad.
III. Goats: The Gap, Best Buy, Orion Net., Trimble Nav., IQ Software
IV. Investment Perspective: November Same-Store Sales
V. Calendar: Friday's Economic Events
MARKET CLOSE
DJIA: 5074.49, down 31.07
S&P 500: 605.37, down 2.27
NASDAQ: 1059.22, up 1.65
MARKET NEWS
On the back of a strong bond market, stocks forged ahead slightly, pushing even further into record territory on the Dow. Someone forgot to tell the Dow it was having a good day, though. In the last hour, the Blue Chip got sucker punched and fell more than 31 points on the day. Not bad considering its week-long rally. The Nasdaq held up remarkably given that some analysts are still forecasting wailing and gnashing of teeth in the semiconductor industry.
HEROES
During a conference call today, British Biotech PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BBIOY)") else Response.Write("(NASDAQ:BBIOY)") end if %> disclosed that Marimastat, a metalloproteinase inhibitor, has apparently inhibited the growth of four types of cancers, reducing tumor size in some cases. This was enough to spark a rally in the shares, causing them to rise $31 1/2 to $67 in a flurry of trading activity. The company, however, has cautioned that the interim study only consisted of 94 patients and a more extensive Phase II trial will use 500 human volunteers to test various doses. An analyst who follows the company believes most of the buying activity in the stock has been in retail accounts based on the relatively small size of the orders. Institutional investors are apparently sitting this one out. Abaxis Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ABAX)") else Response.Write("(NASDAQ:ABAX)") end if %>, another fledgling biotech, rose $13/16 to $6 5/16 today on unrelated news; the company shipped its first nine Piccolo blood analysis systems.
Good news from ailing retailer Hills Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HDS)") else Response.Write("(NYSE:HDS)") end if %> buoyed the shares $1 3/8 to close at $11 3/4 today. Based on their November results, the company believes that it can make its fourth-quarter sales forecast and believes that it will exceed the current estimate for earnings before interest, taxes, depreciation and amortization (EBITDA), around $130 million. Hills Stores operates discount retail stores in 12 Midwestern and Northeastern states. The company recently came out of the bankruptcy it was driven to by stiff competition in the Northeast.
Sterling Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SSW)") else Response.Write("(NYSE:SSW)") end if %> popped up $2 5/8 to $59 and National Home Health Care <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NHHC)") else Response.Write("(NASDAQ:NHHC)") end if %> moved ahead $1 1/16 to $5 7/16 on similar news---both companies are mulling whether or not to spin-off subsidiaries. Sterling Software is considering a spin-off of its Electronic Commerce operations, which account for 35% of the company's revenues. The National Home Health Care plan is much more definite; it has agreed in principal to a spin-off of the company's Florida operations, which consist of outpatient medical centers. After the spin-off, the public would own about 50% of the resulting company and National Home would keep about 36%, with the management of the unit holding the balance. Spin-offs such as this often create opportunities for investors willing to do their homework, as valuations can be rather frustrating for a company breaking up into little pieces.
Anticipation of a legal settlement is often worse than the reality. Quick & Reilly Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BQR)") else Response.Write("(NYSE:BQR)") end if %>, which had traded as high as $30 3/4 two weeks ago, has been killed recently because the New York Stock Exchange initiated disciplinary procedures against the company's specialist firm, JJC Specialist Corp. The stock rebounded $1 3/8 to $25 3/8 today, however, when investors discovered that the company would only be fined $100,000. A specialist firm is contracted by an exchange to maintain a "fair and orderly market" in listed securities. The New York Stock Exchange found that JJC failed to do this on eight occasions from January 1993 to May 1995, violating rules regarding certain kinds of percentage orders. Basically, this amounts to a slap on the wrist. Surprisingly, officials at Quick & Reilly could not be reached for comment.
Some readers of the Evening News are probably dismayed that we have not covered the Internet-related issues a little more. The problem is that so little that surrounds the changes in value in these companies is associated with fundamental events that we can call, in good conscience, "news." Take Data Broadcasting <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:DBCC)") else Response.Write("(NASDAQ:DBCC)") end if %>, for example, up $2 to $14 today after the Microsoft Network unveiled an enhanced version of its World Wide Web site that will include Data Broadcasting's stock market quotes and other financial data. Another free Web page generating no revenues for a tiny company.
GOATS
The Gap <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GPS)") else Response.Write("(NYSE:GPS)") end if %> gapped today, falling $3 1/8 to $45 1/4 after disappointing same-store sales numbers were released. For the month of November, the Gap posted an anemic 1.0% same-store sales increase, which did not fare well compared to larger retail chains, indicating continued weakness in apparel stores. The validity of same-store sales numbers for making long-term investment decisions, however, is something that the Evening News has ridiculed on occasion. Great same-store sales numbers in terrible retail environments often translate into deep price cutting rather than increased profits. Despite recently outperforming estimates, however, the Gap has not seen its estimates moved up by brokerage analysts. Two firms, in fact, have downgraded the stock based on its price.
Best Buy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BBY)") else Response.Write("(NYSE:BBY)") end if %> posted worse-than-poor same-store sales; they came out and said Thanksgiving weekend was a bust for them. Down $1 1/4 to $20 1/2, Best Buy sees earnings for their fiscal third quarter at about the same level as last year given the disappointing turnout for the crucial holiday weekend. In spite of a same-store sales increase of 11%, Best Buy is still hurting on the profit end of things because they are giving too much away. Further support for the investment thesis that same-store sales, in and of themselves, are about as useful as isolated P/Es in producing long-term, market-beating returns.
Orion Network Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ONSI)") else Response.Write("(NASDAQ:ONSI)") end if %> fell dramatically for the second day in a row, losing $1 3/8 to close at $6 7/8 on Orion Atlantic's deferral of a $300 million high-yield bond financing. Orion Atlantic is a limited partnership 41% owned by Orion Network Systems. Proceeds from the debt sale were to be used to repay other debt as well as that old catch-all, "for general corporate purposes." (Does this include a water cooler?) Orion owns and operates an international satellite communications network and only came public last August at the stunning price of $14. Not knowing how much its affiliate's ails affect the mother company, one has to wonder whether or not this might represent an attractive investment at some point.
Trimble Navigation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TRMB)") else Response.Write("(NASDAQ:TRMB)") end if %> is a long way from the $35 high it set only two months ago, losing $2 1/4 to $20 3/8 today on a rating cut. Analyst Brian Modoff of Rauscher Pierce Refsnes moved the company down to a---get this---"buy-market outperformer" from a "buy-focus." What the heck that means is beyond us here at Fool HQ, but Modoff did say something intelligible; he is concerned about the fourth quarter because of declining gross margins. Offering a translation, we can suggest that Mr. Modoff is trying to say that the company ain't gonna make its fourth-quarter numbers but still represents an attractive long-term position. Analysts are currently looking for $0.20 a share versus $0.15 a year ago. It's probably more reasonable to expect $0.18 or $0.19 if the company is having some pressure on its gross margin. Despite the long-term potential of Trimble's global positioning products, with estimates at only $0.89 a share for FY '96 and long-term growth numbers of around 35%, $35 was a little rich for the shares. By the same token, however, at $20 they start to look pretty interesting, especially considering that if the company can book 30% growth and make about $0.85, they should trade for around $26 next year. That leaves some potential for upside surprises.
IQ Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IQSW)") else Response.Write("(NASDAQ:IQSW)") end if %> lost $1 3/4 to $13 1/2 today when it reported disappointing results for the fiscal fourth quarter on top of announcing that one of the company's co-founders has resigned. Substantial insider sales in the past few weeks have put a lot of pressure on the stock, apparently all justified looking at today's not-so-great news.
INVESTMENT PERSPECTIVE: November Retail Numbers
Store Total Same StoreAmerican Eagle +30.0% +10.6%
Ames Department -2.5% -2.6%
AnnTaylor +2.1% -15.9%
Bed, Bath & Beyond +37.9% +4.9%
Best Buy +41.0% +15.0%
Bombay Co. N/A -3.0%
Bon-Ton Stores -5.8% -9.8%
Cache Inc. +17.0% +1.0%
Carson, Prarie Scott -8.2% +3.6%
Catherine's Stores +4.6% -1.0%
Cato Corp. +6.0% +2.0%
Charming Shoppe -11.0% -13.0%
Chico's FAS +3.4% +3.1%
Claire's Stores +12.0% +3.0%
Consolidated Stores +13.5% +2.3%
Dayton Hudson +8.4% +1.7%
Designs Inc. +17.0% +4.0%
Dillard Dept. +6.0% +3.0%
Dollar General +13.2% -3.1%
Dress Barn +6.0% -3.0%
Edison Brothers -11.5% -7.7%
Federated Dept. +94.7% +2.4%
Filene's Basement -2.0% +1.0%
Fred's Inc. +7.8% +3.0%
Gantos Inc. -10.0% -9.0%
Gap +19.0% +1.0%
Goody's Family +14.5% +7.7%
Grossman's -10.3% -5.9%
Gymboree Corp. +82.0% +46.0%
Hechinger -9.0% -8.0%
K-Mart +2.0% +4.3%
Kohl's Dept. +25.6% +10.5%
Lechters Inc. +5.3% -4.0%
Limited +6.0% -3.0%
MacFrugal's -3.8% -12.2%
May Department +8.5% +1.0%
Melville -0.2% +4.9%
Men's Warehouse +27.3% +9.0%
Mercantile Stores +6.0% +6.2%
Merry-Go-Round -27.0% -16.0%
Michael's Stores +23.0% +5.0%
Natural Wonders -7.8% -9.6%
Neiman Marcus +4.9% +2.4%
Old America +12.9% +3.6%
Pacific Sunwear +39.0% +3.0%
Penney, JC +3.5% +1.8%
Perfumania +14.0% +1.3%
Pier 1 Imports +18.0% +12.6%
Profitt's +14.0% +13.0%
Ross Stores +7.0% +3.0%
Sears +7.5% +5.1%
Sharper Image +6.0% +1.0%
Shoe Carnival -11.4% +19.2%
ShopKo +5.2% +0.0%
Solo Serve Corp. N/A -0.3%
Sports & Recreation +34.0% +3.3%
Starbucks Corp. +49.0% +6.0%
Sunglass Hut +37.1% +4.1%
TJX Cos. +36.0% +0.0%
Today's Man +5.0% -9.0%
United Retail Group +6.0% +0.0%
Value City +10.7% +2.4%
Venture Stores -14.0% -15.0%
Waban +10.9% +0.5%
Walmart +13.3% +3.0%
Woolworth +2.0% -1.3%
Younkers Inc. -5.9% -5.9%
CALENDAR: Friday's Economic Events
---November Nat. Assoc. of Purchasing Management Survey (10:00)
---November Car Sales
Byline: Befumo/Sheard (MF Templar/MF DowMan)