Rick Whittington of Soundview Financial has once again turned bullish on certain semiconductor stocks. By this evening we'll have a Special Section examining Whittington's upgrades and downgrades, which have had a strong effect on the semiconductor industry. We also have a chat tonight with Rupert Baines of Analog Devices, Inc., to discuss the white-hot ADSL sector of the networking industry, to be held at 9 pm ET.
MF Merlin's Economic News today covers the GDP, unemployment insurance claims, and factory orders. 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 Fool on the Hill, MF Templar focuses on today's market drop. Enjoy!
CyCare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CYS)") else Response.Write("(NYSE: CYS)") end if %> shares took off today, up $4 5/8 to $44 on rumors of a takeover and bidding war. The company focuses on providing medical data management systems for physician practices. Possible buyers include HBO & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HBOC)") else Response.Write("(NASDAQ: HBOC)") end if %>, Shared Medical Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SMED)") else Response.Write("(NASDAQ: SMED)") end if %>, Equifax <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EFX)") else Response.Write("(NYSE: EFX)") end if %>, and Medaphis <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MEDA)") else Response.Write("(NASDAQ: MEDA)") end if %>. Wheat First analyst Miles Russ pointed out that companies in the industry have sold for three times revenues, valuing a CyCare buyout at $45 per share, but he also noted that a bidding war might drive the price up as high as $60.
Perhaps partly spurred by SoundView analyst Rick Whittington's upgrade of six semiconductor issues, several chip companies had strong a strong day, but they weren't the ones he upped. Lam Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LRCX)") else Response.Write("(NASDAQ: LRCX)") end if %>, a day after saying it is on track to meet Street expectations, saw its shares rise $2 3/4 to $43. And Novellus <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NVLS)") else Response.Write("(NASDAQ: NVLS)") end if %>, on no apparent new news, rose $3 1/2 to $58 1/2.
Regional waste and recycling company Superior Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUPR)") else Response.Write("(NASDAQ: SUPR)") end if %> reported earnings of $0.10 per share, beating estimates handily, by three cents. President and CEO G. W. Dietrich pointed to a 58% increase in landfill volume, and noted that, "Our recycling operations remained profitable in the face of a 60% decrease in the average price received for recyclable waste paper products." Impressed, Alex. Brown reiterated its "buy" rating on the company, which rose $1 3/4 to $16.
QUICK TAKES: RENT-WAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RWAY)") else Response.Write("(NASDAQ: RWAY)") end if %> shares popped up $1 1/8 to $13 3/4 after the President and CEO was quoted in Investors Business Daily as going after 6-10% of the $4 billion rent-to-buy industry. . . QUANTUM HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QHRI)") else Response.Write("(NASDAQ: QHRI)") end if %> shares rallied $1 3/4 to $16 1/4 when the company agreed to be bought out by home care network manager Olsten <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %> in a $273 million stock swap deal. . . Power conversion company ZYTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZTEC)") else Response.Write("(NASDAQ: ZTEC)") end if %> blasted ahead $4 1/8 to $38 3/4 after announcing record sales and earnings last week. . .QUIDEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QDEL)") else Response.Write("(NASDAQ: QDEL)") end if %> shot up $13/16 to $5 15/16 after announcing today that it received FDA approval to market its rapid-result strep throat test. . . PLAY-BY-PLAY TOYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PBYP)") else Response.Write("(NASDAQ: PBYP)") end if %> was lifted $2 to $14 5/8 after agreeing to buy privately-held Ace Novelty Company in a $44 million deal.
XeTel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XTEL)") else Response.Write("(NASDAQ: XTEL)") end if %> posted earnings of $0.22 per share for their fourth quarter, well above year-ago earnings of $0.05, with revenue up 98%. But Prudential Securities spoiled the party, cutting estimates of future earnings for the company, and sending shares down $1 1/4 to $8 3/4. XeTel is a supplier to original equipment manufacturers in the telecommunications, networking and computer industries.
Daw Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DAWK)") else Response.Write("(NASDAQ: DAWK)") end if %> stumbled $1 1/4 to $5 5/8 after revealing problems with its gross margins. These were apparent when the provider of ultra-clean manufacturing environments reported earning $0.05 for the first quarter, substantially less than the year-ago $0.18, on revenues that actually rose by a considerable 39%. Analysts had been expecting $0.07. Ronald W. Daw, President and CEO, admitted that, "gross margins continue to be at levels that are unacceptable." He added that revenues this quarter were at record levels, and that "this is a strong indication the semiconductor industry is strong and healthy."
A lot of investors today had their high hopes quashed. IPC Information Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IPCI)") else Response.Write("(NASDAQ: IPCI)") end if %>, provider of telecommunication services to the financial services industry, reported earnings of $0.34 per share, in line with estimates. But investors, hoping for more, sent shares tumbling down $5 to $20. Also harshly treated was Applied Science and Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASTX)") else Response.Write("(NASDAQ: ASTX)") end if %>, which beat estimates by a penny on record revenues, with net income rising 111%, only to see its shares drop by $1 3/4 to $21 1/4.
QUICK CUTS: LASER INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: LAS)") else Response.Write("(AMEX: LAS)") end if %>, which received FDA approval for its skin-resurfacing (read: wrinkle-reducing) laser and saw its shares nearly double in the past two weeks, surrendered a little, dropping $3 1/8 to $16 1/4. . . INTERFACE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTF)") else Response.Write("(NASDAQ: INTF)") end if %>, which designed computer/printer interfaces, reported earning only $0.08 per share, less than in the year-ago quarter, sending shares plummeting $2 7/8 to $15. . . Developer of the Mosaic browser SPYGLASS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %>, after advancing some 40% in the past few days, started heading in the opposite direction, down $2 1/2 to $30 3/4, when Duff & Phelps downgraded it from "buy" to "accumulate". . . MAGAININ PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MAGN)") else Response.Write("(NASDAQ: MAGN)") end if %> fell $2 1/4 to $10 1/8 a day after announcing the efficacy of its tumor inhibitor Squalamine. . .
FOOL ON THE HILL:
A Gut-Wrenching Drop
Economically-minded Fools got a charge today when some numbers crunched by practitioners of the "dismal science" destroyed a week's worth of market gains. The culprit was stronger-than-anticipated numbers for the U.S. Gross Domestic Product (GDP) in conjunction with a substantial drop for first-time jobless claims for the week.
GDP is a measure of the goods and services produced by this country internally. With a 2.8% gain in the GDP for the first quarter, the economy is starting to fire on all cylinders. Expectations according to Technical Data were for 1.5% -- a pretty significant difference, considering GDP for the fourth quarter of 1995 was a mere 0.5%.
The increase in GDP suggests the economy is heating up -- something that scares the pants off of people who are guarding America against the dreaded curse of inflation. Greenspan & Co. have fought a strenuous war against price inflation over the past few years and only recently started to ease up after the long, drawn out struggle of 1994 and early 1995. What the uptick in growth suggests is that the Federal Reserve will not be cutting rates any time soon -- something that perturbs those that have bought financial assets over the past few weeks in anticipation of future rate cuts.
The 30-year bond broke above 7.0% for the first time in months on this news, ending the day at a 7.010% yield after being close to 6.0% just two months ago. The high GDP number was viewed as much worse than expected because of a number of extenuating factors. Many economists believe that as much as 0.3% was shaved off of the number by the strike at General Motors, actually understating the already comparatively-big number. Add to this that this year the GDP is now being figured using a new method that many say produces results that are lower than what would have been under the old system, and you have an outright disaster -- a growing economy!
Confirmation of the strength in the GDP came from the jobless claims numbers, as new requests for unemployment insurance fell 24,000 to 348,000 for the week ended April 27th. Expectations had been for only a 5,000 drop. Many people reacted more strongly to this number because of the pending monthly unemployment report tomorrow, as there is a lot of uncertainty now what this will show. A stronger-than-expected job market in conjunction with a stronger-than-expected economy tells a lot of people that no more rate cuts are forthcoming this year, causing a lot of short-term negativity for financial assets like stocks and bonds.
Stocks and bonds are constantly competing for investment money. Large institutional players like insurance funds and pension funds are constantly comparing their "risk-free" returns in bonds versus their potential returns in stocks and re-allocating assets to take advantage of the existing climate. When things get uncertain like this, money goes out of both markets to reconsider where to go. If interest rates continue to rise, it will suck money out of the stock market and really pound financial companies like banks, lenders and insurance companies because it will affect their cost of capital.
As Fools look ahead to the long term, short-term volatility induced by concerns about a strengthening economy spells opportunity -- particularly if the Fool in question has a sweet tooth for growth stocks, which do well when growth increases. So even though the economy surged in spite of winter weather, government shutdowns and auto strikes, you should view the damage in your portfolio today as a temporary setback and not the harbinger of doom. Tomorrow's report on March Personal Income and Consumption will be watched closely by many as a true measure of inflation, so when it comes out at 8:30 AM keep an eye out for the increase in the average hourly wage. If it is above about a nickel, brace yourself for another rough ride tomorrow.
ANOTHER FOOLISH THING:
The Borefolio's 19th Up Day!
Some of you Fools might not be paying attention to MF Boring's portfolio. And that isn't too surprising, perhaps. After all, it *is* called "Boring". But we'd like to point out that Boring has quietly been beating the Nasdaq, and has, in fact, just ended his 19th straight day of gains. And this on a day when the Nasdaq dropped over 21 points and the Dow nearly 77. So head on over to the Borefolio from the Fool main screen and see what he's holding.
Transmitted: 5/2/96 5:54 PM