INDEX:
I. Market News: Markets Slip
II. Heroes: PHP, ABTI, PRDM, NAGC
III. Goats: AHIS. NETK, ASAI, WNDR
IV. Investment News: What Moves The Market?
MARKET CLOSE
DJIA: 5059.32, down 50.57
S&P 500: 605.94, down 5.99
NASDAQ: 1025.27, down 1.14
MARKET NEWS
This morning's profits became afternoon losses as people took money off the table that they had thrown in for yesterday's bounceback. Maybe they just needed a couple billion extra dollars to do that last-minute Christmas shopping.Yesterday's technology winners became today's losers, the biotechs receiving a lot of scared money, and Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:K)") else Response.Write("(NYSE:K)") end if %> of all companies said that profit growth would slow next quarter.
Where goes Coke, so goes the market? It's about as good as anything else.
HEROES
No material news to be reported at PHP Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:PHP)") else Response.Write("(NYSE:PHP)") end if %>, but that did not stop the stock from popping up $1 1/2 to $24 1/8. We've mentioned PHP Healthcare in previous editions as having received a lot of speculative attention due to its allegedly "revolutionary" innovation -- Integrated Systems of Care or ISOCs. Blue Cross of New Jersey has contracted with PHP to launch some ISOCs in southern New Jersey. Historically, PHP has had a large portion of revenues from CHAMPUS and other government programs. But in recent quarters, because of these ISOCs, the company's portion of private insurance revenues has skyrocketed, up to 50% of overall sales. At more than 60 times next year's earnings, however, people might be getting a little hysterical here.
Dan Dorfman is in the middle of a hot streak, folks. No, his old picks are not working out splendidly -- no one bothers to track that. Rather, his latest touts have really moved after the touting was done, making the money managers feeding him ideas very happy. Today it was Alpha-Beta Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ABTI)") else Response.Write("(NASDAQ:ABTI)") end if %>, up $1 7/8 to $9 1/4. Dan said that Tom Kikis of Kikis Fusco Asset Management will soon announce that he has a 5.4% stake in the beaten-up biotech. Kikis is supposedly thrilled about two of Alpha-Beta's development-stage drugs -- one to "boost white cells to fight post-surgical infections," the other to "increase blood cells to boost the immune system." Hambrecht & Quist is supposedly hot on the stock as well with a price target of $20 for next year. Investors are cautioned that any projected profits mentioned by the Dorf should be taken with a healthy dose of skepticism, as there is, in the biotech industry, many a slip twixt the cup and the lip.
Paradigm Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PRDM)") else Response.Write("(NASDAQ:PRDM)") end if %> powered ahead $1 1/2 to close at $13 1/2. According to Dow Jones, the company has been boosted by the investor realization that the company is "well-insulated" from the pricing pressures that have crushed other SRAM producers like Integrated Device Technologies and Integrated Silicon Solutions. Commodity SRAM prices are reportedly plunging at a rate of 50% per year, particularly in the 10-, 11- and 12-nanosecond chips. The faster processors, however, have shown more resiliency -- and it is here that Paradigm makes its money. This niche player could conceivably grow earnings while competitors making slower processors post profits below last year's levels. We are sure MF Chips over the Semiconductors folder has some input here as well -- check him out over in the Industry Analysis message boards.
National Gaming Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NAGC)") else Response.Write("(NASDAQ:NAGC)") end if %> rose $2 1/8 to $12 today after closing a pretty complicated agreement with HFS, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HFS)") else Response.Write("(NYSE:HFS)") end if %> and Motels of America to cut apart the assets of Forte plc's North American Travelodge Operations. Under the agreement, National Gaming will receive 16 hotel and motel properties with 2,900 rooms and an interest in another 96 hotels for $98 million. This acquisition is National Gaming's first step outside of the gaming industry as the company focuses on becoming a hotel owner and operator in the United States.
GOATS
In late September, AHI Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AHIS)") else Response.Write("(NASDAQ:AHIS)") end if %> came public with 4.2 million shares priced at $14 apiece. Today, the bottom fell out, the stock closing down $7 3/8 to $6 1/8. What the heck happened? Apparently the acquisition of Lakewood Health Plan, an independent physician association (IPA), has not come to fruition -- a fact that the company was counting on when it forecast profits for the fiscal fourth quarter. The company now expects a loss in the fourth quarter and the first quarter -- and the buyout of Lakeland might never happen. Three company insiders might have had a whiff of this when they dumped 440,000 shares to the tune of $6.1 million on November 1st -- the first day they were allowed to sell shares. Underwriter Volpe Welty, which put a "strong buy" on the shares two months ago, sure as heck did not anticipate this, as it only got around to cutting the stock to "neutral" this morning after the announcement. Smith Barney, also involved in the IPO, slashed their rating from "buy" to "neutral" as well. Egg on some brokerage house faces.
Network Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NETK)") else Response.Write("(NASDAQ:NETK)") end if %> was savaged today by enraged investors, losing a whopping $3 1/8 to close at $4 7/8. The company's sin? It stated that it expected to post a $2.0 million fourth quarter operating loss -- and this is before it put in any write-offs related to its acquisition of British networker Fivemere Ltd. The company's revenues are expected to be off more than 40% versus year ago levels. Network Express completed a large Japanese contract in the fourth quarter which caused its Japanese revenues to tank -- down to only $600,000 compared to $5.3 million in the previous period.
Atlantic Southeast <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ASAI)") else Response.Write("(NASDAQ:ASAI)") end if %> got stung today, losing $3 5/16 to $22 1/16, after a story in the Wall Street Journal that Delta Air Lines might take back a lot of the small, marginally profitable routes that it has handed over to Atlantic to make the no frills service happen. This could definitely put a cork in Atlantic Southeast's revenue potential.
The second executive in as many months has left Wonderware <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:WNDR)") else Response.Write("(NASDAQ:WNDR)") end if %>, causing the stock to plummet $2 9/16 to close at $13 9/16 today. CFO Norman Farquhar's abrupt departure follows that of company founder and CEO Dennis Morin's exodus in late November. Wonderware said shortly after Morin skedaddled that earnings growth would be in the 13% to 19% range, well below the 20%+ that the company had previously forecasted. Today's departure apparently made some investors nervous, although Farquhar swore up and down he was simply pursuing other opportunities.
INVESTING PERSPECTIVE: Why Does the Market Move
A note sent to Fool HQ last evening called into question my statement in yesterday's Evening News that the Fed had "provid[ed] the shot in the arm the market needed after yesterday's ugliness." Now, the dear Fool who wrote it took my words a little stronger than I had intended, as his interpretation had me saying that the market had risen "solely" because the Fed had cut rates. But without getting into what was intended by my comments, I do think that this presents an interesting point of departure.
Why does the market move? Why today, for instance, was the market holding up across the board pretty splendidly until the broader indices caved upon the announcement that no balanced budget was forthcoming? Why did that fact seem to be some kind of watershed, dissolving a rally that had been going on in the broader market (as measured by some arbitrary indices, we grant)?
A pretty complicated dance of equities goes on every single day, with stocks rising and falling based on a myriad of considerations that are impossible to completely map out. The fact that most network anchors come on television and say the "market" went up or down and give the Dow's performance is pretty ludicrous. We can forgive them somewhat as a good portion of their audience is presumably bored by such stuff and the Dow 30 does track the S&P 500 pretty reliably when measured over long periods of time. However, all this attention to one number does substantially mislead investors as to what is really going on.
The major factor in the last few days has been rate cuts. Will they happen or won't they? On Monday, one was not going to happen. On Tuesday, one did happen and immediately people were talking about whether next month would bring another one. This morning, people thought one would come if the budget could be balanced. When it looked like that was not going to happen, people decided to take their cash and run to the Sierras.
All in all, the Dow has shed about 115 points in the last three days -- a paltry 2%, certainly, but it sure is a big enough number to command the attention of the naive. The Nasdaq Composite, which is a reasonably good measure of the activity of over-the-counter stocks, was off from Monday a little more than a percentage point. The S&P 500 is off somewhere in between.
On one front, people talk like this 1-2% move in two days is significant and mention all these huge reasons having to do with furloughs and rate cuts and balanced budgets. In the backdrop, you have all of these fund managers making their year-end statements appear as if they had all winners and few losers. Amid all of this we have the technology stocks, hands-down until October the best performers of the year, now getting pounded as short-termers take profits (or losses) to go to the next 24-hour ride, confident their constant jumping about will result in long term outperformance (a confidence Fools, of course, do not share).
It could be said that the possibility of a rate-cut is constantly being priced into and out of the market. Monday it was out. Tuesday in. Wednesday out. And so on. In this scenario, the forward-looking market is taking anything as a potential sign for what will happen next and hence, always overreacting, moving the other way when the first bit of contrary data comes out. It could also be said that this is just a rationalization pasted on an inherently random thing. Many times when the Dow is down 9 points and someone attributes it to a Federal Reserve Governor having had a black cat cross his path, we know to be suspicious.
"So why did the "market" go down?" people still ask, nervous as the aforementioned cat. "It went down less than 2%," a Fool answers back. "Don't sweat it." When I give that answer I know that turns people right off. They want a convenient explanation -- they want me to blame it on Bill Clinton, or the government, or Jeff Vinik, or FMR Inc. They do NOT want to hear me say the movement is actually minimal if viewed to scale.
Here in the Evening News if I said, "The market did not really move if you measure it right, and even if it did, it did not do it for any reason that can be known," we would probably not sell a lot of copies here at Fool Press. So, like many things in Fooldom, we straddle a fence. On one hand we say that the noise is so much "sound and fury, signifying nothing" -- on the other hand we celebrate it in the Market News section, competing with CNBC for the most superficial rendering of the market's doing. So if I err on one side or another -- forgive me. I "know not what [I] do."
Byline: Randy Befumo (MF Templar)
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