Wednesday, March 27, 1996
MARKET CLOSE
INDEX:
I. Market News: Dow Down, Tech Stocks Rebound
II. Heroes: EMC, CompUSA, Tech Data, PaymentTech
III. Goats: Health Care & Retirement, James River
IV. Investment Perspective: Tech 2: Oppression
V. Another Foolish Thing
MARKET CLOSE
DJIA: 5626.52 -44.08 (-0.78%)S&P 500: 648.91 -4.06 (-0.62%)
NASDAQ: 1093.88 +5.53 (+0.51%)
Technology stocks staged a small comeback today. In the news are C-Cube (recovering from an IBM-related scare) and EMC (added to the S&P 500), with both stories covered by exclusive FoolWires in the new FoolWire section in our Stock Research area -- check it out! Also pop in on MF Merlin's Economic News area on the Evening News screen, where today he discusses the Bureau of the Census' February report on new orders for durable goods.
Mile High Fools! Drop what you're doing! Grab your car keys! Rush to The Tattered Cover bookstore to meet Head Fools Tom and David Gardner who will be there from 7:30 to 9:00 pm MST *today* -- signing books. They'd love to meet you!
EMC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> jumped $1 7/8 to $21 3/4 today after it was announced that the company would replace Cray Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CYR)") else Response.Write("(NYSE: CYR)") end if %> on the S&P 500 late yesterday. Cray is being swallowed up by Silicon Graphics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGI)") else Response.Write("(NYSE: SGI)") end if %>. EMC's graduation to the S&P 500 from the MidCap 400 was reason for celebration for Medaphis <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MEDA)") else Response.Write("(NASDAQ: MEDA)") end if %> shareholders, as Medaphis rose $4 1/4 to $50 1/8 when it got to go to the MidCap 400 from the SmallCap 600. Finally, Coherent <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: COHR)") else Response.Write("(NASDAQ: COHR)") end if %> surged $2 3/4 to $42 1/8 after it was promoted to the SmallCap 600 from, well. . . nothing. Get the full details on all of these switches in the FoolWire titled "S&P Additions Rise" in the list box to the right of the Evening News.
Fast-growing computer retailer CompUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> rang up $3 1/8 to $53 after it announced a surprisingly solid first quarter sales and a two-for-one stock split. CompUSA chief executive officer (CEO) James Halprin told Reuter's he was not "convinced there is a slowdown. . . I certainly haven't seen it in my customer base." CompUSA racked up sales of one billion for the first quarter, a 29% increase from year-ago levels on a 14.1% rise in comparable-store sales growth. Detractors who have been clamoring about a slowdown in PC sales have been skeptical of CompUSA's ability to maintain its growth. By focusing on sophisticated users rather than trying to enter the crowded first-time-buyer market, CompUSA has managed to maintain its growth and gain market share in the process.
After a number of quarters of disappointing results, Tech Data <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TECD)") else Response.Write("(NASDAQ: TECD)") end if %> finally came through for investors. The stock popped up $2 1/4 to $16 5/8 today after the company beat consensus estimates by 9% last night. Bear Stearns raised the stock to "buy" from "attractive" after it took a look at the numbers, citing a stable gross margin, clear balance sheet, strong expense controls and an ability to take market share in these troubled times. Tech Data stumbled last year when it installed a new computer system to keep track of orders that completely threw them off, leading to a few quarters of sorry results as the Clearwater, Florida concern got its act back together.
First USA's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FUS)") else Response.Write("(NYSE: FUS)") end if %> offering of 21% of its payment technology subsidiary First USA PaymentTech <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTI)") else Response.Write("(NYSE: PTI)") end if %> has gone pretty well, with PaymentTech scaling up $2 1/4 to $36 today. The shares, which came out last week at $21 a share, are still seen as attractive by many investors eager to get involved with electronic payment companies. National Data <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NDC)") else Response.Write("(NYSE: NDC)") end if %>, which popped up $2 1/4 to $32 7/8 today, has also benefited from the rush into this group, buoyed by the fact that it beat consensus estimates last week. Investors perceive these companies as the ultimate winners in the Digital Age as more and more money is transferred electronically.
QUICK TAKES: NEWBRIDGE NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NN)") else Response.Write("(NYSE: NN)") end if %> rose $4 to $53 1/2 when it disclosed late yesterday that Pacific Bell had ordered an unspecified amount of its ATM switches. . . Growing faith in MELVILLE'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MES)") else Response.Write("(NYSE: MES)") end if %> diversification and spin-off strategy boosted the shares $1 7/8 to $35 1/4. . . OLYMPIC FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %> raced forward $1 3/8 to $19 today after it changed from the NASDAQ (old symbol OLYM). . . SAFEGUARD SCIENTIFICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFE)") else Response.Write("(NYSE: SFE)") end if %> got lifted $3 7/8 to $55 1/8 after it agreed to merge its real estate operations with Brandywine Realty Trust. . . SYNC RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYNX)") else Response.Write("(NASDAQ: SYNX)") end if %> surged $3 3/4 to $16 3/4 after the company reported an expanded relationship with IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>, details of which can be found in the "Sync Research Rises" FoolWire in the Evening News listbox. . . TEL-SAVE HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TALK)") else Response.Write("(NASDAQ: TALK)") end if %> soared $2 9/16 to $16 1/16 after it was featured in Investor's Business Daily's (IBD) New America page. . . WILMAR INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WLMR)") else Response.Write("(NASDAQ: WLMR)") end if %> also gained $2 1/2 to $21 1/2 after a mention in IBD's New America page. . . MF Boring's PRIME MEDICAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PMSI)") else Response.Write("(NASDAQ: PMSI)") end if %> rose $1 9/16 to $13 5/16 on no news
Merrill Lynch slashed its ratings on a number of long-term care companies today, presaging a general rout in the sector. Health Care & Retirement <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HCR)") else Response.Write("(NYSE: HCR)") end if %> was the hardest hit, losing $2 1/2 to close at $37 1/2 after being cut from "near-term buy" to "near-term accumulate", in spite of the fact that it was left as a "long-term buy". Beverly Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEV)") else Response.Write("(NYSE: BEV)") end if %>, down $1/8 to $10 1/2, Living Centers of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCA)") else Response.Write("(NYSE: LCA)") end if %>, falling $5/8 to $37 1/2, and Vencor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VC)") else Response.Write("(NYSE: VC)") end if %>, dropping $7/8 to $33 1/8, were also cut, but did not suffer as hard at the hands of the market. Analyst Lucy Olwell believes that growth over the next 12 to 18 months will be subdued because of a more moderate reimbursement environment, coupled with lower-than-normal occupancy rates.
Northstar Healthcare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSTR)") else Response.Write("(NASDAQ: NSTR)") end if %> continued to plummet after its independent auditor resigned, falling $1 5/8 to $3. The company has suspended its ex-financial officer and asked two of its directors to resign. Auditor KPMG Peat Marwick LLP cited "certain information" that made it unwilling to be involved with preparing the company's financials -- never a good sign. Needless to say, the earnings are going to be late as a result of all of this. Investors are cautioned to avoid holding on to companies in this kind of turmoil -- bankruptcy can completely wipe out whatever small remaining stake they have left.
Shares of James River <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JR)") else Response.Write("(NYSE: JR)") end if %> tore $2 to $25 7/8 and the stock of Kimberly Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> was rent $3 3/4 to $74 after Procter & Gamble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> announced it would cut prices on tissue paper. Kimberly Clark recently gained quite a bit of market share when it bought out Scott and has been using this increased leverage to pummel P&G. P&G has decided to pass on its cost savings from lower pulp prices in a bid to gain market share, a move that hurts James River and Kimberly Clark in spite of the fact that they both make their own pulp anyway. P&G only fell $1 5/8, to $85 3/4.
QUICK CUTS: INCO LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: N)") else Response.Write("(NYSE: N)") end if %> fell $3 1/4 to $31 5/8 after it announced its bid for Diamond Fields Resources as investors became concerned over the dilution. . . PIXTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PIXT)") else Response.Write("(NASDAQ: PIXT)") end if %> tumbled $1 7/8 to $8 5/8 after Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> informed the company it was ending development of Field Emission Displays. . . VISTA 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VIST)") else Response.Write("(NASDAQ: VIST)") end if %>, down $2 13/16 to $10 1/16, continued to fall after it forecast a surprise $5 million net loss for fiscal 1995. . . Sodak Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SODK)") else Response.Write("(NASDAQ: SODK)") end if %> lost $3 to $22 1/4 after the Supreme Court issued a ruling that changed the rules for how Indian tribes get approval from states to build casinos.
INVESTMENT PERSPECTIVE:
Technophrenia 2: The Oppression of Large Categories, or Why Wall Street Wants You To Believe There Is Such A Thing As The Technology Sector
When upsetting the apple carts of conventional wisdom, it often occurs to me to question exactly what is at stake. Why do people want to believe in the "stock market" as opposed to a "market of stocks"? Why does Wall Street push the notion of a "technology sector" when all of the concrete, historical evidence suggests that this once-useful category has now become an anachronism? It is only by exploring what the establishment gains from holding on to certain facile notions that you can figure out what it will take to transform the status quo.
Large categories are at once comfortable and awe-inspiring. This apparent disparity arises from the intersection of inertia and what can only be called "hugeness". Inertia is simple historical persistence. People are by nature pretty stubborn and do not relinquish old notions even after reality stops supporting them. Old ideas are comfortable -- they are a known quantity that can be bandied about in polite conversation. "Hey, how is the market doing?", people will ask, quaintly referring to the thirty industrials that make up only a minuscule smidgen of the nine thousand listed equities. The very question presupposes that measuring the performance of the market is a simple thing, when in fact the abundance of indices would suggest that measuring the market is actually a pretty difficult and uncertain endeavor.
Coca-Cola has built a multi-billion dollar business based on the fact that you will probably reach for their brand of flavored soda water over the others. Ideas can gain the same kind of brand equity. Neophytes never question the fact that you can somehow measure the ebbs and flows of the market and thus attain some sort of predictive power over it -- this is the root of technical analysis, an art that many believe creates itself. Despite the academic brilliance of works like Burton Malkiel's "A Random Walk Down Wall Street" that completely thrash the predictive ability of various Cartesian chart formations, technical analysis still continues to gain new adherents.
If you accept that somehow the market as a whole is measurable, things become a little less scary. Suddenly you do not have to deal with the random churning to and fro because there are people who through some dark art can actually tell you what is going to happen next. The ethos that pervades technical analysis is similar to the positivism of the late 19th century -- science will explain everything in a neat and mechanistic package, it is just a matter of time. Just as relative and quantum physics put a stop to this in science, the sheer size of the market of individual stocks will eventually overcome similar notions about the stock market.
Face it, the idea that there might be over nine thousand stocks out there moving in random patterns on a day-to-day basis without anyone being able to say what will happen next is kind of scary if you are accustomed to something else. It is a little like believing in God -- suddenly the world is not a scary and painful place, but everything does have a purpose, it is just a matter of attaining a deeper, almost mystical, understanding. People want to believe in the stock market and the technology sector because these are discreet things with defined boundaries which, once identified, can be measured and understood through technical arts.
At the same time, many on the Street understand the truly random nature of day-to-day price movements. That same group also understands that no matter where the Dow, S&P 500 or other market indices go, a portfolio that is a sensible combination of short and long positions can make pretty decent returns over time. When a Wall Street analyst takes a look at a stock like Broderbund <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BROD)") else Response.Write("(NASDAQ: BROD)") end if %>, for instance, she knows better than to compare it to Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %>, Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> or even Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORCL)") else Response.Write("(NASDAQ: ORCL)") end if %>. Broderbund develops consumer software, whereas Intel manufactures specialized semiconductors, Compaq produces computer and network equipment, and Oracle creates enterprise software that is used by businesses, not consumers. All of these things imply that there is a pretty well-developed understanding among those practicing the art of investing that stocks move on their own merits, regardless of the overall market, and that some companies within the so-called "technology" sector can do well while others get crushed by circumstance. Why all the lip service to the "stock market" and the "technology sector"?
"Hugeness". Big, complicated things scare people. Wall Street leverages this native reaction to make individual investors feel helpless. It is a big market, a huge tech sector -- how can one person actually go through and figure out what is going on with the whole thing, unless they resort to technical witchcraft? According to Wall Street they cannot -- so come and get your money professionally managed, either with a broker, a money manager or in a mutual fund. Otherwise, you do not have a chance -- things are too complex for the little guy to add any value. Wall Street wizards get paid the big bucks to study the crystal balls and come up with the ideal technology allocations. Why try to do this yourself when you can buy it for what seems to be a pretty cheap price -- consistent underperformance of mechanical averages.
Let me be clear -- I think that anyone who seriously has looked at the companies in the "technology sector" understand very well the fact that many of these industries are no longer emerging. Semiconductor equipment companies, for instance, do two and a half times the business of classic capital equipment manufacturers who allow auto makers, airplane builders and other durable goods producers to make their products. The firewall that has been built between the two in order to shove semiconductor equipment into the ambiguous technology sector with semiconductors is crumbling as more people realize that this industry moves to its own rhythms independent of what is happening to Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %>.
The goal of Technophrenia is pretty straightforward -- after convincing you that it is a market of stocks and that the "technology sector" needs to die, we will explore what separate industries can emerge from the wreckage and take their place along side the airlines, the railroads and the oilfield service and equipment groups, as distinct entities with their own set of strengths and weaknesses. Individual investors are beginning to understand that by breaking the market into smaller pieces and by smashing the techs into distinct industries, they can build their own well-diversified portfolios that are poised to take advantage of the dramatic changes we are witnessing through our computer monitors and that they can make some money in the process.
The industries I am going to suggest over the next seven days are not set in stone -- rather they are a work in progress, my attempt to rearrange the conventional wisdom in thinking about technology companies in order to spark some new ideas about how investors might look at stocks. Should we group all software companies together or understand that consumer software and enterprise software have completely different markets, kind of like how discount retailers, drug stores, department stores and specialty retailers are seldom compared. Tomorrow, I will outline the broad industries I see emerging from the technology area and I will spend the remaining six segments mapping these out as much as possible.
ANOTHER FOOLISH THING: The Weekly Fool on Paper
For those among you who prefer paper and staples to chips and bytes, The Weekly Fool is now available in a paper format. Ideal for Fools on the run, The Weekly Fool is a compilation of the week's happenings. If you don't have time to scour every corner of Fooldom, yet you want to stay in the loop---sign up! This paper version is also an ideal gift for your friends or relatives who have Foolish inclinations but no Foolish technology. Share this unique newsletter with them, and help them learn about sound investing principles and strategies as well as potential stock picks. To subscribe, for more information, or for a sample copy, contact MF Numbers ([email protected] or 800-717-0701).
Byline: Randy Befumo (MF Templar)