This is a Super Tuesday for HMO stocks, with United Healthcare, Genesis Health Ventures, Columbia Healthcare, Oxford Health Plans, and Coventry Corp. all reporting earnings. We'll be covering them in a Special Section, complete with conference call reports and background information. America Online announces earnings tomorrow, so be prepared for an extensive Special Section.
MF Merlin's Economic News today covers announced job cuts and last week's retail sales. 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 penny stock follies, epitomized lately by Comparator Systems. Enjoy!
The board of directors of Horsehead Resource Development <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HHRD)") else Response.Write("(NASDAQ: HHRD)") end if %> has authorized a repurchase of all shares at a cash price of $5.75. This caused shares to skyrocket $1 7/8 to $6, a rise of roughly 50%. After the repurchase, which begins in the next few days, the company will revert to being a private company which does not have to publicly report its financial condition. Why would a company do this? Well, if it feels that it is grossly undervalued, it might not feel there is any benefit to being public, and it might also worry about being taken over. Once it takes itself private, if a company wants to acquire it, it will have to negotiate on Horsehead's terms, with Horsehead not being at the mercy of the market.
MapInfo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MAPS)") else Response.Write("(NASDAQ: MAPS)") end if %> shares went off the map today, up $3 3/4 to $17 1/4 after the company announced that it would partner with Vision International to develop technology for spatial access to Sybase databases. MapInfo specializes in desktop mapping software, which can manage and leverage geographic data found in databases such as shipping orders, tax records, and customer contact lists. The company has seen its shares plunge from $40 to $10 1/2 in the past year.
Coherent Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CCSC)") else Response.Write("(NASDAQ: CCSC)") end if %> got a vote of confidence from the Street today, when Robert Baird raised its rating on the wireless and satellite communications company from "Buy-2" to "Buy-1". Investors sent shares careening up $5 3/4 to $24 3/4. The press release explained that, "We are upgrading Coherent Communications. . . due to the near-term subperformance of the shares, valuation and our expectations of accelerating top and bottom-line momentum in its business both in the current quarter as well as later this year." Last month the company reported earnings up 29% and sales up 14% from the year-ago quarter.
QUICK TAKES: Italian footwear company FILA HOLDING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> stomped over estimates, kicking shares up $5 7/8 to $76 7/8 as it reported earning $1.08 compared with $0.62 last year. . . Apparel-retailer LOEHMAN'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LOEH)") else Response.Write("(NASDAQ: LOEH)") end if %> made its debut today in an initial public offering (IPO) and after being priced at $17 and opening at $21 3/4, it closed the day at $23 5/8. . . APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: APPL)") else Response.Write("(NASDAQ: APPL)") end if %>, up $1 1/4 to $26 7/8 has been enjoying a nice rally in the past few days, largely on rumors that IBM will license the Apple operating system and offer it in future models. . . WELLCARE MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WELLE)") else Response.Write("(NASDAQ: WELLE)") end if %> reported after the close last night that it might release its preliminary audited results by May 14th, apparently assuaging the nerves of the market and boosting the share price $1 5/8 to $11 today. . . Semiconductor equipment manufacturer Integrated Measure <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IMSC)") else Response.Write("(NASDAQ: IMSC)") end if %>, recently spun-off from Integrated Process <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IPEC)") else Response.Write("(NASDAQ: IPEC)") end if %>, rose $1 3/4 to $20 3/4 after it was profiled on Investor's Business Daily's New America page.
Whittaker Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WKR)") else Response.Write("(NYSE: WKR)") end if %> shares plunged $4 3/8 to $18 1/2 when the company reported that it foresees a loss in the second quarter for its communications division and gains in sales for its aerospace division. The company sells high-technology products and services to both industries and provided many explanations for the poor communications performance, including customer order delays, new product scheduling, new product launch-related expenses, and delays in realizing synergies from an acquisition. President and Chief Executive Officer Thomas Brancati stressed that demand appears strong for forthcoming communications products and that the company is taking action to improve performance.
Retirement Care Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RCA)") else Response.Write("(NYSE: RCA)") end if %>, which owns and operates retirement and nursing homes in the Southeast, reported record results today, with revenue up 67%. However, analysts had expected higher numbers, and shares took early retirement, slipping $1 1/2 to $11 3/8. President Chris Brogdon expressed pleasure with the company's progress and also announced the company's largest acquisition to date -- a 710-unit retirement and assisted living facility in St. Petersburg, Florida, called Majestic Towers. Last month the company called off merger plans with NewCare Health Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NWCA)") else Response.Write("(NASDAQ: NWCA)") end if %>, disappointed by NewCare's financial performance.
Zenith Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZE)") else Response.Write("(NYSE: ZE)") end if %> dropped $5 1/2 to $17 3/8 today after a tremendous seven-day rally almost quadrupled the stock. The kick-starter was an announcement that the company was working with US Robotics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> to develop a cable modem with a telco upstream, meaning it could be deployed on conventional one-way cable systems. CNBC reporter David Faber suggested today that the potential market for this product might be limited, as many urban cable companies have reconfigured for two-way already and the majority of the 9.6 million Internet users who also subscribe to cable are based in cities. If Zenith/US Robotics modems got 10% penetration here at about $300 a pop and could garner 20% profit, it would be $60 million -- small potatoes for a company with more than a billion in current revenues. Zenith is still involved in digital video disks, high definition television and does have a cable modem in development -- along with about five other significant players.
Last night MF Boring, the manager of one of the Fool's two real-money portfolios, announced that he would be selling Zytec <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZTEC)") else Response.Write("(NASDAQ: ZTEC)") end if %>, a manufacturer of electronic-power supplies for electronic industries. Following standard Foolish procedure, he issued his announcement the night before he intended to sell, thereby giving all Fools the chance to sell along with him the next day, if not before him. MF Boring had bought the stock in late April when it was around $27, again, pre-announcing his trade the night before. He stated that his target price for the stock was $35. In the last two weeks, the thinly-traded issue skyrocketed, closing at $46 1/2 last night, and causing MF Boring to decide to sell, as his target had been far exceeded. Apparently a lot of Foolish investors followed suit, as shares fell $9 11/16 to $37 21/64 today.
QUICK CUTS: Boring portfolio holding LSC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LCSI)") else Response.Write("(NASDAQ: LCSI)") end if %> crashed $5 5/8 to $17 7/8 today, after reporting earning a penny more than in its year-ago quarter. The company specializes in direct-marketing. . . KENT ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KNT)") else Response.Write("(NYSE: KNT)") end if %> beat estimates by two pennies, reporting $0.36 per share, an 89% increase over the year-ago quarter. Sales were also up, by 44%, but investors must have hoped for even better results, as shares slipped $3 to $37 3/8. . . After a recent run-up, RGB COMPUTER AND VIDEO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EDIT)") else Response.Write("(NASDAQ: EDIT)") end if %> gave back $3 1/4 to $15 3/4 on no apparent news. . . SENSORMATIC ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRM)") else Response.Write("(NYSE: SRM)") end if %> continued to fall after yesterday's disappointing earnings result, dropping $1 1/8 to $18 1/2. Even after you factor out the one-time charges, the company still lost money. The firm makes tags and other theft-prevention devices for the retail industry.
FOOL ON THE HILL:
Penny Stock Follies
They trade for under a dollar a share most of the time. Odds are they have never made a dime in earnings or paid a nickel in dividends. A look at the packets they send out to interested investors reveals half-finished documents, expansive and suggestive press releases that are not supported by later product deliveries, and a lot of hype. What do we call them? Penny stocks. "Micro-caps" if we are feeling politically-correct, although a Fool feels it important to point out that this oft-bandied-about term is normally misused.
There are so many things to talk about when discussing penny stocks that one hardly knows where to begin. Today's main suspect is Comparator Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IDID)") else Response.Write("(NASDAQ: IDID)") end if %>, a stock that sold for all of $1/16 last week. The stock closed today at $7/8, down $1/8 on the day after hitting an intra-day high of $1 25/32. Micro-cap? Hardly. With half-a-billion shares outstanding, this guy is almost worth $500 million -- the normal cut-off for defining a company as a mid-cap.
Comparator Systems is typical of the penny-stock family. The company peddles the "state-of-the-art Biometric Identity Verification System". This is the successor to the Model ID-1, an optical/analog device that "was noted for its unerring accuracy". In a recent press release, the company went as far as to say that law enforcement officers have used the previous model to "collectively [make] in excess of 1,000,000 identity verifications using ID-1s, without one error having ever been reported to the Company." Comparator nominally released this piece of propaganda to highlight the fact that the Biometric Identity Verification System would be unveiled at the CardTech/SecurTech Exhibition in Atlanta next week.
What Comparator neglected to tell investors is that despite the "unerring accuracy" it only generated about $90,000 in revenues last year. Most privately-owned used book stores or baseball card shops generate more in the way of revenues than Comparator, despite the supposed sophistication of its device. By comparison, Comparator's main competitor Identix did $8.8 million in the last quarter and made a profit of $400,000. As there are not a lot of details available in any public documents, "investors" in Comparator probably did not trouble themselves with figuring out how much money this company might make in the next 12 months to justify a $500 million market cap, instead focusing on the potential application of the Biomatrix to the Internet.
Yes, you saw correctly, the Internet. I quote the press release again:
"International Financial Systems, Inc. (IFSI), a wholly-owned Comparator subsidiary, announced this week its entry into the market for secure financial transactions over the INTERNET. . . The new IFSI plan will allow direct secure access to kiosks, teller platforms and personal computers, all to be connected to a financial institution's in-house computer system via the INTERNET, through software and specialized hardware components to be implemented on standard IBM-compatible or Macintosh PCs."
Why are penny stocks so darn popular if they are so absolutely ridiculous? A lot of misconceptions and mental blocks tend to make these stocks more attractive. The first idiotic notion is that somehow these stocks are cheap. You can buy a lot of shares for a relatively small amount of money, apparently acquiring a huge position. Sure, you can buy 1000 shares of Comparator for $1000 bucks, but there are half a billion shares out. Investors need to focus on what percentage of a company they own and ignore the fact that shares are broken up in pretty arbitrary dollar amounts. A share of US Robotics selling for $160 might actually be a better *value* than 160 shares of Comparator going for $1 a pop.
Investors need to recognize that they are buying dollar amounts of stock, not numbers of shares. Although once it mattered whether or not you could buy in blocks of 100 for purposes of commissions, today it does not matter whether you buy one share of US Robotics for $160 or 160 shares of Comparator -- both cost the same $20 commission at any discount brokerage.
Where you actually lose out on Comparator versus US Robotics is the spread. If you want to buy a share of Comparator, you need to pay the current "ask" price of $7/8. Now, right after you buy the share, you can only sell it for $13/16, meaning that the spread is $1/16. This may seem tiny, but this is 7.1% *one way*, or 14.2% for a buy and a sell. 14.2% of your money stays in the market maker's pocket no matter what happens to the stock. No wonder a lot of small, disreputable brokerages love it when people play these stocks. By comparison, "high-priced" US Robotics has an ask of $166 3/4 and a bid of $166, meaning the spread is only 0.45%, or a whole 0.9% round trip. Big difference, eh?
Neophyte investors look at the giant percentage gains in stocks like Comparator and begin to salivate, thinking that they can double, triple or even make 16-times their money inside a week. Wall Street in craps table-redux. A giant slot machine open from 9:30 AM EST to 4:00 PM EST every single day. After you factor out all all of the costs, despite the fact that a 1/8th move on a stock that cost 7/8ths means that you're up 14.3%. . . just enough to pay the 14.2% in spreads you would incur, not to mention the commission costs or markup.
Come on. . . I know it looks like easy money, but that is exactly why you should be suspicious as heck. These companies have no fundamental underpinning and trade on pure, unadulterated hype. Unscrupulous "professionals" get unwitting individual investors to pile into the stocks after hyping them with cold calls or online and then pull out at the top, leaving the little guy to hold the bag.
Conclusion? Just say no to penny stocks.
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