A Special Section in Fooldom today covers the initial public offering (IPO) of Yahoo! and looks at recent IPOs of other Internet search engine companies. MF Merlin's Economic News today covers the Consumer Price Index, reports on manufacturing and retail sales, and the University of Michigan's report on consumer sentiment and consumer expectations. You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on the Evening News screen.
In tonight's Investment Perspective, renamed "Fool's Gold", MF Templar focuses on connectivity stocks, which took a hit today. Tomorrow we'll offer the first in a series of bi-weekly interviews, kicking off with Jim Cramer, formerly of Smart Money magazine. And next week. . . stay tuned for the earnings reports of companies like Sun Microsystems and C-Cube Microsystems on Monday!
Retail stocks continued to rally after yesterday's release of the March sales data. From department stores to specialty outlets, the gains trickled in all day. Rejuvenated bellwether Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> rose $2 3/4 to $51 5/8 while Dillard Department Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DDS)") else Response.Write("(NYSE: DDS)") end if %> tacked on a $2 3/4 gain to $36 1/2. Dayton Hudson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>, home of the butt-of-retail-world-jokes known as Mervyn's, even managed an impressive $4 3/4 to $91 3/8 gain after a smaller jump yesterday. Consolidated March Same Store Sales information is available by following this route: Fool Main Screen --> Stock Research --> FoolWire --> 4/11: March Sales Data).
The Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: YHOO)") else Response.Write("(NASDAQ: YHOO)") end if %> IPO surged today, closing at $33 -- up $8 1/2 from the opening price of $24 1/2. As the offering was only priced at $13 initially, this means that the original institutional shareholders made almost 100% on their money on the first trade. The retail volume was tremendous, with small bids buying all day while large players sold huge blocks of shares. Internet search service Yahoo!, with all of six modest PCs running its main catalog, was worth $854 million by market close -- or $142 million per computer. In unrelated IPO news, SuperGen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUPG)") else Response.Write("(NASDAQ: SUPG)") end if %>, a pharmaceutical company that came public yesterday, tacked on $1 3/8 to close at $6 15/16 today.
Advanced Technology Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATLI)") else Response.Write("(NASDAQ: ATLI)") end if %> surged $5 to $35 after the company's ultrasound device was approved for use under a premarket application by the Food & Drug Administration (FDA) -- the first time that has ever happened. The Ultramark 9 High Definition Imagining Ultrasound System is used in breast examinations to help determine whether masses are benign or malignant (cancerous). If the procedure is any more pleasant than a mammogram, the company has a solid chance of developing a real business out of this.
QUICK TAKES: For the second time in three days, DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> refused to comment on its gains, climbing $3 1/2 to $39 7/8. . . Speculation that its pharmaceutical business would be spun-off caused FOXMEYER HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FOX)") else Response.Write("(NYSE: FOX)") end if %> to rise $1 1/4 to $19 1/4. . . Cotton sportswear manufacturer NITCHES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NICH)") else Response.Write("(NASDAQ: NICH)") end if %> surged $2 to $7 1/4 after reporting blow-out second quarter earnings on substantially more shares. . . Overcoming a second quarter loss a year ago to post a $0.11 EPS gain this year caused LUMISYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LUMI)") else Response.Write("(NASDAQ: LUMI)") end if %> to rise $4 1/4 to $21 1/4. . . COMPUTER MANAGEMENT SCIENCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CMSX)") else Response.Write("(NASDAQ: CMSX)") end if %> rose $4 to $23 on solid first quarter earnings.
International Business Machines <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> crumpled under the weight of a series of downgrades today, losing $6 1/8 to $111 3/8 after SoundView Financial and Smith Barney weighed in. Some on the Street are growing skeptical of the "rebirth of the mainframe" thesis that is being propounded by some analysts and industry wags. Dow Jones wires quoted David Wu of Chicago Corp. as saying, "Hoping mainframes come back is about as logical as hoping the Roman Empire comes back.'' The downgrades focused on uncertainty about upcoming corporate earnings due to weakening consumer PC sales and fluctuations in the dollar. SoundView's downgrade today comes as a bit of a surprise to many, as Gary Helmig had made positive comments about IBM at about $114 back on February 15th (check the Old News Pile for the 2/15 issue of the Evening News for details).
CellStar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLST)") else Response.Write("(NASDAQ: CLST)") end if %> revealed today that more is going on than just a wayward chief financial officer (CFO). Cellstar tumbled $2 1/2 to $6 1/8 on news that first quarter estimates would come in below the current consensus. Raymond James slashed their rating on the cellular phone reseller and the rest was history. Before the CFO walked last week, Cellstar was in the $20s -- a long, hard fall for disillusioned shareholders. The Street still sees the flight of the CFO as a sign that something is very rotten at CellStar, and it will probably eschew these shares for quite some time (in Street terms, meaning about six months if nothing is really wrong). The other CFO-embroiled stock for the week, Viasoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VIAS)") else Response.Write("(NASDAQ: VIAS)") end if %>, picked up $1 1/2 today after no more bad news came out of Arizona.
QUICK CUTS: ONTRAK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ONTK)") else Response.Write("(NASDAQ: ONTK)") end if %> fell $1 3/8 to $13 3/4 after Smith Barney downgraded the semiconductor equipment manufacturer to "neutral" from "buy". . . Alex Brown analyst Larry Marcus cut ACTIVISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATVI)") else Response.Write("(NASDAQ: ATVI)") end if %> to "buy" from "strong buy" today based on slow sales of top titles, causing shares to sag $1 to $12 1/2. . . SUMMIT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BEAM)") else Response.Write("(NASDAQ: BEAM)") end if %>, maker of Laser vision systems, beamed down $1 1/8 to $19 1/2 after its president was replaced by another member of the executive team.
FOOL'S GOLD:
Connectivity Conundrum
Tensions are high in the connectivity arena, as shareholders of Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> can attest. Rumors of cancellations of double- and triple-orders for its new 28800 switches sent the stock down to the high $20s, where it perched again today after missing third quarter estimates by 20%. But even an upside earnings surprise could not shield shares of competitor Madge NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MADGF)") else Response.Write("(NASDAQ: MADGF)") end if %> from a nasty spill. Slower-than-expected sales of its "token ring" switches sent the shares into a tailspin, crashlanding $9 5/8 lower at $29 a share, compared to Bay's much more modest loss of $1 to end up at $27. One would have thought it would at least have been the other way around.
Rumors that Bay Networks was seeing a number of cancellations of its newest switch has hounded the stock for months, pushing it down from its 52-week high of $49 15/16. Fearing that they might not get enough, customers apparently doubled or tripled their orders to ensure they could get their hands on what they really wanted. When demand cooled and it became clear that there would be enough of the 28800 to go around, a round of order cancellations hit Bay Network's estimates like a ton of bricks. Everyone on the Street expected the stock to miss its numbers today -- the only question was by how much.
On the flip side, Madge surprised the Street and paid the price for it. Even though the profit and loss line showed the right numbers (taking out costs related to the Lannett merger), what worried analysts was the product mix. There was not enough revenue from Madge's core token ring operations, mainly due to Cisco's failure to resell the product. Madge, which recently merged with Israel-based Lannett Data Systems, could now be perceived by Cisco as a potential threat. The fact that Cisco is coming out with a Catalyst 5000 line of token ring switches based on Madge technology suggests that they might just be waiting for this product to kick in. Madge simply stated that a delay in a feature that could tie Madge's token ring systems to FDDI network backbones probably put off a number of Cisco customers who use FDDI.
Without topline (revenue) growth where they wanted it, the Street simply took Madge shares and threw them in the trash. Goldman Sachs analyst Ajay Diwan struck the company's name from his firm's recommended list and put a "moderate outperform" rating on the stock for its transgressions. Even Randall Yuen of Oppenheimer & Co. shaved $0.04 EPS off of this year's estimates, in spite of the fact that he kept the stock as a buy.
A positive story did emerge from the rubble, though. The company called today's rout a "short-term setback" and stressed the prospects for its Smart RingSwitch line of products -- due in the second and third quarter. The real news though is that the third quarter's introduction of new "transparent bridging" technology will represent a real breakthrough. Transparent bridging will allow token ring systems, developed by IBM and used mainly for mainframes, to communicate with more-widely-implemented Ethernet systems. This is a vital product in the Webbed World and is why Yuen maintained his buy rating today. Until "transparent bridging" becomes reality, the rapid growth of token ring switches that the Street was looking for will not happen.
Both of these companies are networkers that have not met 100% of the Street's expectations and have paid the price for it. Regardless of whether or not their long-term prospects were intact or desolute, the Street looked for the quarterly numbers to be "just right" and unless all the I's were dotted and the T's were crossed, it was no dice. Growth is all about stumbling, though -- the company that can consistently grow quarter by quarter for decades is not very common. This is the reason why Automated Data Processing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AUD)") else Response.Write("(NYSE: AUD)") end if %> touts their 100-plus quarters of double-digit earnings growth -- it is a fairly rare thing. In the end, though, a Fool cannot help but believe that looking for good years and not sweating an occasional bad quarter is the way to go. How many people reading this column today know more about token ring, transparent bridging or FDDI than the institutions? Probably more than a few. It is these people, posting in the Madge NV folder and in the Networking folder, who will give the individual investor the best idea of what to do.
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Byline: Randy Befumo (MF Templar)