Today's Lunchtime News took a look at SyQuest which, being in violation of Nasdaq regulations, faces the possibility of eventually being delisted. May same-store retail sales numbers are out, and we've got a Special Section detailing them.
MF Merlin's Economic News today offers a discussion of the recent behavior of jobless claims data. You'll find the Economic News, as well as all our Special Sections, FoolWires, and earnings reports, on either the Evening News or Stock Research screens. In tonight's Fool on the Hill, MF Templar focuses on Carlton Lutts's Cabot Market Letter. Enjoy!
Today the WARNACO GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAC)") else Response.Write("(NYSE: WAC)") end if %> proposed to the AUTHENTIC FITNESS CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASM)") else Response.Write("(NYSE: ASM)") end if %>. For a merger, that is. Ironically, Warnaco spun off Authentic Fitness only several years ago. The specified ratios in the stock swap reflect a premium of 25% for Authentic Fitness, based on yesterday's closing prices. Although the deal is far from signed, today Authentic Fitness closed up $3 3/8 to $21 1/2, while Warnaco slipped $1 3/4 to $29 1/2. Warnaco makes intimate apparel and menswear, while Authentic Fitness is famous for swimwear, including the Speedo brand.
SYQUEST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYQT)") else Response.Write("(NASDAQ: SYQT)") end if %> rebounded $1 1/8 to $10 today. Yesterday shares of the financially-troubled storage technology company plunged on news that since it was in violation of Nasdaq requirements, it was in danger of being delisted (i.e. moved to the "pink sheets" -- "the bulletin board" -- the place where small stocks trade). Today investors seem to have realized that simply being in violation of listing criteria is only the first step in a very long road of delisting.
SURVIVAL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STIQ)") else Response.Write("(NASDAQ: STIQ)") end if %> announced strong third quarter earnings today, and was rewarded with a $1 1/2 to $11 3/8 rally in its shares. The company, which makes healthcare technology products like automatic injectors, reported net income of $0.12 per share, featuring a 59% increase in earnings over the year-ago period. Military sales increased 62%.
Between yesterday and today, CS Boston initiated coverage on a dozen companies, rating most of them "buy" or "strong buy". But most investors must not have been paying attention, as few of the stocks experienced any significant movement. Among those which did were textile manufacturer BURLINGTON INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BUR)") else Response.Write("(NYSE: BUR)") end if %> which rose $5/8 to $14 1/4, started at "buy". Also earning a "buy", but dropping, were programmable logic device developer XILINX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: XLNX)") else Response.Write("(NASDAQ: XLNX)") end if %>, down $1 5/8 to $31 1/2, and semiconductor manufacturer ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %>, down $3 1/8 to $42.
QUICK TAKES: LA QUINTA INNS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LQI)") else Response.Write("(NYSE: LQI)") end if %> surged $2 3/8 to $33 1/4 after being upgraded from "outperform" to "strong buy" by Morgan Stanley. It also earned a coveted berth on the "Fresh Money Buy List" of ten stocks favored by Morgan Stanley's gooroo Byron Wien... NATIONAL VISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NVAL)") else Response.Write("(NASDAQ: NVAL)") end if %> shares rose $5/8 to $5 on strong sales, which increased 20% in May... BALLY ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLY)") else Response.Write("(NYSE: BLY)") end if %> shares jumped $1 1/2 to $27 5/8 in the wake of announcement that HILTON HOTELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %> will buy Bally for $2 billion, making Hilton the largest casino gaming company in the world... OPTICAL CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCCF)") else Response.Write("(NASDAQ: OCCF)") end if %> announced a two-for-one stock split this morning, boosting shares of the fiber-optic cable technology concern $3 to $45. Hopefully this split will help calm volatility by increasing the extremely tiny float the company boasts.
Telecommunication and food company (yes, you read that right) DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> is embroiled in arguments with brokerage firm Asensio & Co., and according to market activity today, Asensio appears to be winning. Earlier this week, Asensio issued a "strong sell" recommendation, stating that Diana's products were easy to copy and that the company had little in the way of research or manufacturing capabilities. Asensio also argued that "Diana possesses no valuable technology" and that "Its stock is grossly over-inflated". Diana's press release in response today did little to assuage investor worries, and shares tumbled $13 1/2 to $74 3/8.
The U.S. Patent & Trademark Office upheld a patent on liposome drying technology held by LIPOSOME CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LIPO)") else Response.Write("(NASDAQ: LIPO)") end if %>, dismaying investors in NEXSTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NXTR)") else Response.Write("(NASDAQ: NXTR)") end if %>. Why? Because this patent is the subject of contention in a lawsuit between the two companies, questioning whether NeXstar's AmBisome anti-fungal drug infringes the patent. USB Securities analyst Marc Ostro noted that this decision weighs in Liposome's favor, which explains the $5 1/4 to $18 3/4 drop in NeXstar today.
Analyst ink was flowing today, and Goats were bleating. Goldman Sachs analyst May-Kin Ho downgraded immunotherapeutics firm CYTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYTL)") else Response.Write("(NASDAQ: CYTL)") end if %> from "market outperform" to "market perform", sending shares hurtling down $2 7/8 to $5 5/8. The company ended Phase II trials of its cell adhesion blockers upon the recommendation of the independent safety and data monitoring panel looking over the tests. (Not a good sign.) MICRO WAREHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MWHS)") else Response.Write("(NASDAQ: MWHS)") end if %> dropped $11 7/8 to $22 7/8, cut from "strong buy" to "neutral" by Alex. Brown after the firm warned of disappointing earnings due to weak Macintosh sales. MOBILEMEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MBLM)") else Response.Write("(NASDAQ: MBLM)") end if %>, cut to "market perform" and dropped from the recommended list by Goldman Sachs, discovered just how mobile its shares are, as they moved down $3 1/2 to $15 today.
QUICK CUTS: Ceramic capacitor manufacturer KEMET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KMET)") else Response.Write("(NASDAQ: KMET)") end if %> tumbled $3 7/16 to $19 1/4 after warning that first and second quarter sales would fall below year-ago levels and that it would be cutting its workforce by 12% and taking a $10 million charge for an early retirement program... DATA RACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RACE)") else Response.Write("(NASDAQ: RACE)") end if %>, after rocketing up 83% yesterday, presumably on an on-line PCWeek article's coverage of its remote communications technology, retreated today, slipping $1 7/8 to $6 1/8... PROXIM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PROX)") else Response.Write("(NASDAQ: PROX)") end if %> shares dropped $5 3/4 to $36 1/2 after the wireless data communications company filed to offer 2.5 million additional shares. The company only has 8.3 million shares outstanding now, and investors are clearly worried about the value of their shares being diluted... EXCEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> slipped $2 3/4 to $33 3/4 after Donaldson Lufkin & Jenrette initiated coverage with a lukewarm "market perform" rating... GANDALF TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GANDF)") else Response.Write("(NASDAQ: GANDF)") end if %> continues to crater on no news, off another $2 1/8 to $10 1/8 today. Perhaps dimming prospects for wide-market acceptance of ISDN play into this?
An Investment Opinion
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Eye of the Beholder
The names Cabot Market Letter, Carlton Lutts and PRESSTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRST)") else Response.Write("(NASDAQ: PRST)") end if %> have been hard to separate for two years now, ever since the Massachusetts-based newsletter began talking about the printing technology company's prospects. As Presstek has sailed from $27 in January of 1995 to touch on $200 in mid-May, Carlton Lutts and the Cabot Market Letter have been pounding the table all the way up. Now, as word of a long-standing Securities & Exchange Commission (SEC) investigation begins to circulate in wider and wider circles, Cabot stocks uniformly began to unravel this morning, to the delight of hard-pressed short sellers.
PRESSTEK FOLLIES: Discussion of the investigation into the trading in Presstek has been de rigeur for the Street for months now. Chairman and chief executive officer (CEO) Robert Howard is perceived by many as having a checkered history, having presided over the rise and fall of another high-flying technology in the '80s. Embittered short-sellers have been crying market manipulation for months as Presstek shares have apparently defied gravity, continuing to rise on the prospects for its PEARL imaging technology. German printing press manufacturer Heidelberger Druckmaschinen AG has licensed this proprietary technology and sells Presstek's plates and presses around the world.
The shorts have been happy the last two days, as Presstek's resiliency has buckled under a wave of news that caused many shareholders to question their position and begin to take some profits. Robert Howard, his son Lawrence and Presstek's vice chairman and chief executive Richard Williams, admitted to selling 99,100 shares between them yesterday, still holding on to 3 million shares. This news coincided with a vicious rumor that Presstek's patents for the PEARLsetter had to be re-examined. Another way of SEC investigation news engendered by comments from Timothy Lutts of the Cabot Market Letter admitted the SEC has asked the newsletter to hand over all materials related to Presstek.
News that Presstek had asked the U.S. Patent Office to re-examine one of its patents and reissue another did nothing to stem the tide, with Presstek sliding $31 1/2 to $77 1/2 on 13 times normal volume today. According to the company, ''key patent claims hadn't been held up in a recent government re-examination". This appears to contradict comments by Robert Howard in the Wall Street Journal yesterday, where he clearly stated that no patents of Presstek have needed to be re-examined, creating yet another credibility gap at a critical juncture in the company's life.
CABOT'S ROLE: As evidence from the above, Presstek is a company that definitely has its own set of problems. But for some bizarre reason a weird synergy has evolved between the printing press technology concern and the Lutts' family's newsletter and money management firm. Carlton and son Timothy are the brains behind the Cabot Market Letter, while Carlton's other son Robert runs the Cabot Money Management group. It was on Wednesday that all hell broke loose for the collective Cabot Goup, when Timothy Lutts told a wire reporter that the SEC wanted all materials relating to Presstek -- causing some to begin to grasp the potential severity of the Presstek situation.
The Cabot Market Letter has vaulted to prominence out of obscurity in the past few months, on the back of Presstek. Although the letter has been continually written since 1970, Hulbert's Financial Digest has only covered Cabot since late 1980. Its "emerging blue chip portfolio" has been a poor performer over the past 15 years ended December 31st, 1995, giving an annual average performance of 10.3% compared to 14.1% for the Wilshire 5000. While its three-year record is not so great, either, the past year and a half has been spectacular, with a great deal owed to the performance of little Presstek. The recent spate of commercials on CNBC have led off with the amazing return of Presstek, enticing investors with the promise of big returns possible in "heritage stocks" -- companies that rise up to 10 times over the time you hold them.
As far as the letter itself, the fairly unbiased Hulbert Digest had the following to say: "Lutt's market stock portfolio has had streaks of brilliance interrupted by serious stumbles... adding insult to injury, not only did this portfolio underperform the market, it did so with significantly more risk than the market". Cabot espouses a "buy and hold" approach, hanging on to his average recommendation for two years. Even Cabot's "emerging blue chip" portfolio, begun in 1990, has not done so hot -- according to Hulbert, the portfolio has done an average of 6.6% since the beginning of 1990, compared to 13.0% for the Wilshire 5000. Not exactly an inspiring return.
A WHIFF OF SCANDAL: The news that Carlton Lutts had spent some time talking to SEC regulators was too much for many who have followed the advice of the newsletter and it unleashed a flood of selling today in Cabot stocks. With individual investors and brokers nattering for months now that Cabot "really picked winners" and blindly following Cabot recommendations, it appeared people had discovered a "can't lose" proposition and more and began piling into the shares. These gains propelled the Cabot letter to even greater prominence, culminating to some degree in today's market slaughter of almost all the stocks recommended by Cabot over the past year.
Although it is unclear what regulators are after with their probe, some apparently fear that the Cabot Group itself might become a target of their investigation. With Robert over in the Cabot Money Management Fund "generally following the advice of the Cabot newsletter", it is not hard to figure out where some of the fund's $300 million in assets might be invested. If they were forced to divest any of the stocks that the newsletter had talked about in the past year or so, a lot of selling pressure on some mostly small- to medium-sized floats could be unleashed, propelling prices downard.
THE CABOT CASUALTIES:
* Carbon fiber wonder ZOLTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZOLT)") else Response.Write("(NASDAQ: ZOLT)") end if %>, down $16 13/64 to $66
* Self-propelled lift manufacturer JLG INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: JLGI)") else Response.Write("(NASDAQ: JLGI)") end if %>, losing $8 to $73
* Networker MRV COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MRVC)") else Response.Write("(NASDAQ: MRVC)") end if %>, down $11 3/4 to $54
* Air freight company GREENWICH AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GASIA)") else Response.Write("(NASDAQ: GASIA)") end if %>, losing $3 3/4 to $30 1/4
* Retail security player CHECKPOINT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKP)") else Response.Write("(NYSE: CKP)") end if %>, off $2 1/8 to $35
* Networker ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASND)") else Response.Write("(NASDAQ: ASND)") end if %>, losing $4 1/2 to $62 1/2
* Interneter NETSCAPE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSCP)") else Response.Write("(NASDAQ: NSCP)") end if %>, falling $2 3/4 to $60 1/4
* Online wonder AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>, off $1 1/4 to $46 3/8
* Removable storage concern IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %>, down $1 7/8 to $37 7/8
* Healthcare informatics concern SHARED MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SMED)") else Response.Write("(NASDAQ: SMED)") end if %>, off $2 1/2 to $65 1/2
* Private prison maven CORRECTIONS CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CXC)") else Response.Write("(NYSE: CXC)") end if %>, down $3 3/4 to $75
I, THE BEHELD: When asked by Reuter's to comment on Presstek's valuation today, an analyst cryptically replied "Value is in the eye of the beholder".' This was after lambasting Cabot for publishing earnings estimates of $20 to $50 a share -- estimates that he called ''unjustifiably and unrealistically" high. The distance he tried to put between himself and any comments on Presstek's value after slamming Cabot is ironic and the comment in the final analysis seems a bit sweeping and unrealistic. Value, although not always quantifiable, is not a purely relative construct either. Shares can range for months or even years outside the boundaries of conventional valuation, but in the end either the stock will come back in line with the perception of the market or the market will broaden its methodology of valuation to suit the industry.
Valuation is a philosophical tool developed over time -- Graham in the '30s focused on balance sheet and ratio analysis, while practictioners in the '50s and '60s were the first to estimate earnings and use forward earnings to predict stock prices. If people were all piling into the shares of Cabot stocks based purely on Cabot recommendations, when Cabot has a weak moment the stocks will begin to crumble -- the hard part is predicting when this might happen. While with the cool and calculated vision of hindsight, it is easy to say, "it had to fall". In the end, investors are presented with an entirely different situation.
An entire roster of stocks have been whacked because of Presstek's SEC troubles and the fact that Cabot has been sucked into them in some way. Among that list are more than a few companies that can be called undervalued, but one or two actually strike this Fool as interesting. Someone who spent some time tonight figuring out if any of the above might have temporarily fallen to bargain basement prices because of short-term hysteria could possibly do quite well. Rather than nattering "I told you so's" in the chat rooms and message boards tonight, the smart investors will be doing a little homework.