Friday, February 16, 1996
MARKET CLOSE

INDEX:

I. Market News: Slow and Steady Wins the Race
II. Heroes: Zoran, Remedy, Cohu, Blyth, DonnKenny, Healthsource
III. Goats: General Motors, Avid, Pinnacle Systems, Gibson Greetings, Reno Air, Cognex, Interpore
IV. Investment Perspective: Where's the Cash at CyberCash?
V. Another Foolish Thing: Subscribe to the Evening News!

MARKET CLOSE

DJIA: 5551.37 -28.18 (-0.50%)
S&P 500: 651.32 -4.26 (-0.65%)
NASDAQ: 1090.54 +2.51 (+0.23%)

MARKET NEWS

A little up, a little down. Why is it when you look only at the percentage change of each of the major market indexes you are underwhelmed at the actual sizes of each day's moves? We can think of more exciting things than watching the NASDAQ rise 0.23% or the Dow fall 0.50% while the S&P 500 drops 0.65%---like watching grass grow, for instance. Of course, it is all these little moves that make your money grow over the long haul, despite how boring it is to watch them over the short haul.

HEROES

You are probably coming straight to this section to figure out why Zoran Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ZRAN)") else Response.Write("(NASDAQ:ZRAN)") end if %> surged 4 1/2 to 32 today, right? You probably think that we can offer some kind of insight into why the company moved over 16% today in heavy volume, right? Wrong. There was no news on the wires to explain why this recent public offering in the video compression chip arena was rocketing up towards its old 52 week high of $40. Zoran came public back on December 14th at $13 1/2 and one of its three underwriters, Oppenheimer & Co., recently started coverage with an outperform rating. Zoran Corp. reports earnings at 5:00 PM EST today, so there might be some anticipation of excellent results. Zoran's chip offerings compete in some product categories with C-Cube Microsystems, meaning to get more details you should head over to the Desktop Video area in Industry Research.

Check out our special Stocks to Love Collection yesterday? Heck, we liked it so much we left it up again today. It seemed timely, given that two of those sweethearts produced soothing gains today. MotleyFool's darling, Remedy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RMDY)") else Response.Write("(NASDAQ:RMDY)") end if %>, surged 3 3/4 to 75 1/2 today as the incredibly valued company got even more incredibly valued. As you found out in MotleyFool's write-up last evening, Fortune 500 companies outsource their help-desk functions to cash-rich Remedy. Cohu Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:COHU)") else Response.Write("(NASDAQ:COHU)") end if %>, the shares that MF Templar had a yen for, popped up 1 15/16 to 28 today in anticipation of blockbuster earnings to be released tomorrow. Cohu has been keeping its head above water in recent weeks in spite of the fact that the semiconductor equipment industry is out of favor. Of course, not all true love flourishes immediately. MF Fletch's dear one, General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GM)") else Response.Write("(NYSE:GM)") end if %>, fell 2 1/4 to 50 1/4 after news reports that it was carrying higher than usual inventory for this time of year.

Blyth Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BTH)") else Response.Write("(NYSE:BTH)") end if %> continued to benefit from the announcement of a distribution of agreement with Hallmark Cards two days ago, surging 1 3/8 to 33 3/8. Blyth has been a raging success in the candle market, developing innovative candle products which have produced sizable earnings growth in the past few years. In recognition of its success, Hallmark is now going to sell its candle manufacturing equipment to Blyth and bring Blyth on as a preferred vendor in the merchandising and distribution of candles. Hallmark will replace its existing Canterbury line of candles with Blyth's line of premium products for distribution to Hallmark specialty stores.

Despite DonnKenny Inc.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:DNKY)") else Response.Write("(NASDAQ:DNKY)") end if %> report of a loss of $0.28 per share in their fourth quarter today, their bullish outlook for next year communicated in the conference call caused the shares to surge 2 3/8 to 12 5/8 today. The New York apparel maker said it had "very strong prospects" for 1996---especially with its Mickey & Co. joint-venture with Walt Disney Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DIS)") else Response.Write("(NYSE:DIS)") end if %>. DonnKenny reportedly stated that it was comfortable with estimates of $1.30 earnings per share (EPS) to $1.40 EPS---right in line with the $1.37 EPS consensus estimate according to Zacks. Rodman & Renshaw analyst Marie de Lucia reiterated her buy rating.

Healthsource's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HS)") else Response.Write("(NYSE:HS)") end if %> results in line with expectations was enough to make the Street happy today, pushing the shares up 3 1/2 to 39 3/8. Healthcare providers have been suffering from a surge in costs and an inability to make revenues rise as quickly, causing many stocks to take substantial hits upon missing estimates by a penny or two. Everen Securities also reiterated their buy rating on the stock. Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:OXHP)") else Response.Write("(NASDAQ:OXHP)") end if %> surged last week when it made its numbers as well. Humana <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HUM)") else Response.Write("(NYSE:HUM)") end if %> showed the perils of being a penny light, continuing to drop today, down 1 5/8 to 25 5/8, after having reported disappointing earnings two days ago.

GOATS

Avid Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AVID)") else Response.Write("(NASDAQ:AVID)") end if %> slumped 1 1/2 to 16 3/4 today after reporting disappointing earnings after the close yesterday. Avid, which warned about lower profits a month back, only came across with $0.07 earnings per share compared to $0.36 a year ago. Avid also announced it would take a charge next quarter relating to its "letting go" of 6% of its workforce. And, as when any large company suffers a dearth of orders, its suppliers also got the shaft. Pinnacle Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PCLE)") else Response.Write("(NASDAQ:PCLE)") end if %> lost 1 5/8 to 20 1/8 after Dan Dorfman did it the favor of pointing out that sales to Avid accounted for 46% of its profits last quarter. Pinnacle makes special effects hardware and software for Avid's digital editing workstations.

Citing a need for "management direction," Gibson Greetings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GIBG)") else Response.Write("(NASDAQ:GIBG)") end if %> showed Chairman and CEO Benjamin Sottile the door today. "The board determined that this was an appropriate time to seek new management direction," Gibson said in a statement. Gibson also released earnings today of $0.29 per share, compared to consensus expectations of $0.83 in Zacks Analyst Watch. Gibson lost 1 1/2 to 14 on all of this bad news. Gibson has been embroiled in a lawsuit with Banker's Trust <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BT)") else Response.Write("(NYSE:BT)") end if %> over some derivatives it purchased that blew up in its face. The company was only brought public again a few years ago, after being one of the first leveraged buy-outs (LBOs) in the crazy days of the '80s. Gibson makes greetings cards.

Reno Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RENO)") else Response.Write("(NASDAQ:RENO)") end if %> managed to pull a profit of two cents in the fourth quarter, but it was not enough to keep the shares aloft. They lost altitude in heavy trading today, falling 1 1/8 to 8. Reno's load factor for 1995 was 62.9%, up from 60.6% in 1994. Reno mentioned in the conference call that its break-even point was a load factor of 62%, compared to a break-even point of 65% last year---a significant improvement. MF Wings over in the Airlines area in Industry Research (KEYWORD:SECTOR) probably has a lot more informative things to say about the action in Reno today.

Cognex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CGNX)") else Response.Write("(NASDAQ:CGNX)") end if %> took a break today after its torrid rise from $22 at the beginning of February, slumping 3 1/2 to 25 1/4 in heavy trading. The maker of machine vision systems has seen some good news in the month, the first being that its CEO canceled his proposed share offering, citing the stock's volatility. Next, Cognex acquired Isys Controls for a cool $35 million in stock. Finally, an order of $2.4 million was announced from Shinkawa, a manufacturer of semiconductor equipment. Perhaps someone realized that a significant portion of Cognex's sales are to the semiconductor equipment manufacturers and now the over-hyped predictions of disaster in that sector will affect Cognex's growth as well.

Interpore International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BONZ)") else Response.Write("(NASDAQ:BONZ)") end if %> was broken today, falling 1 1/4 to 5 after reporting disappointing earnings for its fiscal fourth quarter. Interpore reported earnings of $0.10 per share compared to the $0.11 per share it made last year---a definite disappointment. Interpore surged last year when Merck's osteoporosis drug, as well as Merck's alliances with osteoporosis oriented companies, was big news. As always, though, failure to turn hype into profits tends to lead to falling stock prices.

INVESTMENT PERSPECTIVE: Where's the Cash at CyberCash?

CyberCash <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CYCH)") else Response.Write("(NASDAQ:CYCH)") end if %> was unleashed upon the unsuspecting analog world today, in a sizzling initial public offering (IPO). Those who were among the lucky got their shares delivered to their brokerage accounts this morning at $17 per share. The poor sap individual investors who got involved with the deal faired worse, as the first trade today was at $25 a share. Even they did okay, though, all things considered, as the shares promptly rose $3 1/4 to close at $28 1/4 on the day.

CyberCash started life when entrepreneur Dan Lynch and VeriFone <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:VFI)") else Response.Write("(NYSE:VFI)") end if %> founder Bill Melton got together in August of 1994. In less than two years after its founding they are spinning off about 20% of the company to the public, worth $67.8 million bucks at close of business today. VeriFone <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:VFI)") else Response.Write("(NYSE:VFI)") end if %>, a massive designer of transaction automation systems for credit cards and the disbursement of government benefits, got in early, purchasing 10% of CyberCash for $4.0 million a little more than a year ago. The deal has paid off in spades for VeriFone, but with the whole darn business being valued as of today at a cool $339 million, CyberCash still has no revenues to speak of and only processes a couple thousand transactions a day. Compared with the several *million* analog transactions made every day, this company is small potatoes right now. Why are people so excited about it?

CyberCash's claim to fame it is Secure Internet Payment Service, a name that bespeaks confidence and certainty in your online transactions. The Service has three components: the electronic "wallet" on the customer's personal computer (PC), a program on the merchant's server and a program that lives within CyberCash's servers. CyberCash gives away the "wallet" and merchant software for free in order to encourage their use. What happens when the customer decides to buy something is that he fills out an order form. The merchant's server promptly presents an invoice and demands payment. The consumer then gets to open his CyberCash Wallet and clicks the "Pay" button. When the magic "Pay" button gets hit, the customer chooses a credit card and the CyberCash server gets involved. Directly connected to the credit card companies, the CyberCash server engages in a digital dance with the merchant server and the customer's Wallet in a series of encrypted messages that has the payment made from the selected credit card without having the credit card number sent over the Internet.

CyberCash is armed with a number of high profile partnerships, the benefit of having a well-established company like VeriFone own 10% of it. Mastercard, Open Market, CheckFree, Sun Microsystems, Netscape Communications and Cisco Systems are among the companies that signed up with CyberCash to use their digital wallet. CyberCash's competition at this point is as numerous as their partners, with CheckFree <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CKFR)") else Response.Write("(NASDAQ:CKFR)") end if %>, DigiCash, First Virtual Holdings, Intuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INTU)") else Response.Write("(NASDAQ:INTU)") end if %> and a Visa/Mastercard/Netscape/Microsoft standards consortium, just to name a few.

It is not all up from here though, by any stretch. Even if we ignore small-fry competition like DigiCash and First Virtual, CyberCash has some seriously entrenched competition to outdo. Intuit, for instance, enjoys a substantial competitive advantage over CyberCash at the moment, as it develops its own secure transaction software. Whereas CyberCash had 400,000 copies of its software in the pipeline for distribution at year-end, Intuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INTU)") else Response.Write("(NASDAQ:INTU)") end if %> had an installed base that was measured in millions. Adding an option to an existing product is always much less costly to launch than creating a whole new menu of options within a new software product. With Intuit's hammerlock on the personal finance market, the fact that CyberCash lacks an agreement of any kind with them is but one of a number of competitive hurdles a company like it will have to overcome before it can grow into its market cap.

CheckFree <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CKFR)") else Response.Write("(NASDAQ:CKFR)") end if %>, until recently an exclusive partner of Intuit in the electronic transaction market, has been re-making itself ever since it got the news Intuit wanted to create its own business unit to do electronic transactions. With the acquisition of Servantis Systems in mid-January, CheckFree is set up to do the digital shuffle between customer, merchants and banks, as it now sells electronic commerce software to banks and corporations. Partnering with GM's Electronic Data Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GME)") else Response.Write("(NYSE:GME)") end if %> to market its electronic payment system with EDS's Virtual Branch remote banking system, CheckFree does not want for high powered partners either.

Small revenues, no standards, big competition and big valuation---this is the kind of stuff that gets the shortsellers going. Although there will be plenty of space on the big digital highway, ponying up this early to own a company when the standards have yet to be set seems a bit risky. If Morgan Stanley's Technology IPO Guidebook is any guide, investors are best served by loading up on a few of these speculative babies rather than putting all of their eggs in one basket. Mary Meeker's exhaustive examination of the IPO market since the early '80s determined that an incredible amount of value was created from technology IPOs in the past 15 years, but a massive amount of it was concentrated in a few winners. As expensive as this recommendation would seem, the smart money would buy a basket of electronic commerce stocks rather than simply betting the farm on one. If you cannot commit to that, there are probably less speculative places you can stick your money---like orange juice futures, for instance. (Just kidding!)

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Byline: Randy Befumo (MF Templar)