Today's Lunchtime News looked at Westinghouse's acquisition of Infinity Broadcasting. Also in Fooldom today are FoolWires on Bank of NY and RightChoice Managed Care, which take a look at the broader credit card and healthcare industries.
MF Merlin's Economic News today discusses this week's report on new claims for state unemployment insurance, yesterday's Federal Reserve "Beige Book" report, and today's release of data on international trade during April. 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 the Nasdaq's recent slide. Enjoy!
TEKTRONIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TEK)") else Response.Write("(NASDAQ: TEK)") end if %> moved up $3 to $41 1/2 this morning after beating consensus estimates by a penny with $0.86 EPS. Also announced today, at the PC Expo, was duplex printing capability on the Phaser(R) 550 color printer. Cowen & Co. upgraded the color printing, measurement, video and networking concern from "neutral" to "buy" and raised 1997 estimates. Goldman Sachs upped the firm from "market perform" to "moderate outperform", and Salomon and Jensen also took advantage of the rally to move up their ratings on the shares.
Some stocks that have been slaughtered in the past few days have begun to rebound. For example, C-CUBE MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CUBE)") else Response.Write("(NASDAQ: CUBE)") end if %> edged up $3 1/2 to $35 3/4, CALIFORNIA AMPLIFIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CAMP)") else Response.Write("(NASDAQ: CAMP)") end if %> rose $1 1/4 to $22 1/4 and power supply manufacturer ZYTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZTEC)") else Response.Write("(NASDAQ: ZTEC)") end if %> moved up $2 3/4 to $16 3/4. Mechanical-design automation concern STRUCTURAL DYNAMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SDRC)") else Response.Write("(NASDAQ: SDRC)") end if %> also recovered a little, up $2 3/4 to $22 1/2, after getting pounded two days ago when Adams Harkness raised its rating on a competitor, PARAMETRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PMTC)") else Response.Write("(NASDAQ: PMTC)") end if %>.
QUICK TAKES: COMPLETE MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CMI)") else Response.Write("(AMEX: CMI)") end if %> rose $1 5/8 to $12 3/4 after the company agreed to purchase New Jersey's largest occupational medical services company... OSHKOSH B'GOSH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GOSHA)") else Response.Write("(NASDAQ: GOSHA)") end if %> announced yesterday it would be taking a charge next quarter to close an unprofitable plant, a move that the Street rewarded today by bidding the shares up $1 1/2 to $18 1/8... BE AEROSPACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BEAV)") else Response.Write("(NASDAQ: BEAV)") end if %> rose $7/8 to $13 3/4 after reporting a profit in its fiscal first quarter versus a massive loss after a charge last year... Design automater SYNOPSIS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SNPS)") else Response.Write("(NASDAQ: SNPS)") end if %> popped up $3 to $40 after a Goldman Sachs upgrade from "market perform" to "recommended"... Direct marketer of computer connectivity products BLACK BOX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BBOX)") else Response.Write("(NASDAQ: BBOX)") end if %> jumped $2 1/2 to $22 1/2 today when its underwriter William Blair started covering the company, issuing a "buy" rating... Two days after setting a speed record with Fibre Channel, ANCOR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ANCR)") else Response.Write("(NASDAQ: ANCR)") end if %> continued to climb, up $1 to $16 3/4.
Wireless and mobile transaction system developer TELXON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TLXN)") else Response.Write("(NASDAQ: TLXN)") end if %> got mashed for $4 5/8 to $9 7/8 after reporting that it will lose $0.50 EPS in the first half of 1997. Hambrecht & Quist cut the stock to "hold" from "buy" as a result. The company announced new management and cost-cutting initiatives yesterday, which Senior Vice President and Chief Financial Officer (CFO) Kenneth W. Haver expects, "should allow Telxon to return to double digit sales growth and profitability in the second half sufficient to produce profits for the full year".
A rising medical loss ratio combined with the announcement of lower-than-expected profits crushed HMO RIGHTCHOICE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIT)") else Response.Write("(NYSE: RIT)") end if %> today, down $2 1/2 to $13 1/2. Also down in sympathy was UNITED HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNH)") else Response.Write("(NYSE: UNH)") end if %>, losing $2 5/8 to $48 1/4, and downgraded by Cowen & Co. from "buy" to "neutral". Since HUMANA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUM)") else Response.Write("(NYSE: HUM)") end if %> warned of disappointing earnings several weeks ago, investors appear worried about the entire sector. PACIFICARE OF FLORIDA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHSYA)") else Response.Write("(NYSE: PHSYA)") end if %> received approval today to expand its services, but succumbed to the market mood, falling $3 1/4 to $68 3/4.
BANK OF NEW YORK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BK)") else Response.Write("(NYSE: BK)") end if %> slipped $1 1/4 to $51 1/4 after the company announced that it would use the proceeds from the sale of a large credit-card portfolio to create a $350 million charge-off provision for its remaining credit card operations. Alex. Brown cut the bank from "buy" to "neutral". As many investors suddenly registered doubts about the health of credit card-related concerns, financial companies got whacked. OLYMPIC FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %> dropped $2 1/8 to $20 7/8, MBNA CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KRB)") else Response.Write("(NYSE: KRB)") end if %> was down $3/4 to $27 7/8, and FIRST USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FUS)") else Response.Write("(NYSE: FUS)") end if %> lost $2 1/2 to $54 1/2. Today Prudential Securities added THE MONEY STORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MONE)") else Response.Write("(NYSE: MONE)") end if %> to its "Single Best Idea" list, but it wasn't enough to keep shares from behaving like financial lemmings, dropping $7/8 to $22.
QUICK CUTS: PRESSTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRST)") else Response.Write("(NASDAQ: PRST)") end if %> continued to get mashed, down $7 1/4 to $43 today, after revising earnings down to $0.06 EPS from $0.10 EPS in the last quarter in a dispute over accounting conventions. Presstek shares hit a high of $200 about a month and a half ago... READ-RITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RDRT)") else Response.Write("(NASDAQ: RDRT)") end if %> lowered third quarter earnings expectations due to order cancellations, and fell $13/16 to $14 3/8 for its troubles... ALCO-STANDARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASN)") else Response.Write("(NYSE: ASN)") end if %> announced a spin-off of its office products unit and warned of disappointing earnings, falling $9 5/8 to $49... Inter-networking application developer NETMANAGE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETM)") else Response.Write("(NASDAQ: NETM)") end if %> lost $1 53/64 to $11 5/16 after being downgraded from "buy" to "hold" by Smith Barney... DATA TRANSLATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DATX)") else Response.Write("(NASDAQ: DATX)") end if %> met earnings estimates of $0.15 per share today, but investors must have been hoping for more, as shares slipped $1 3/4 to $17 1/2.
An Investment Opinion
by Randy Befumo (MF
Templar)
FOOL ON THE HILL
May Has Disappeared
INVESTORS WHO TAKE A LOOK AT THE NASDAQ COMPOSITE will notice that something very curious has happened in the past few days -- May has completely disappeared. It was May of 1996 that saw the Nasdaq National Market hitting all-time highs of about 1250, aided by soaring names in the computer, software and peripherals industries. More than a few "speculative" issues were flying higher as well, adding some heft to the Nasdaq's torrid run from the neighborhood of 1100 where it began in mid-April.
THE NASDAQ COMPOSITE ROSE APPROXIMATELY 14% from the second week in April to the second week in May. If the Nasdaq kept going at this rate, it would increase about 361% in 12 months -- a pretty snazzy return. Given this daunting rate, it really was a matter of time before the ever-cruel yang of the market would take what it had given before. The complicated dance of equity valuation played out between millions of parties every day is known as an erratic and jagged dance, best compared to the unschooled gesticulation in nightclubs rather than to the practiced rhythms of a waltz.
"WHY IS THE NASDAQ DOWN SO MUCH?" people continue to ask. Fools know that being preoccupied with the market is counter-productive, but when you see the Nasdaq Composite drop from 1235.40 last Wednesday to 1,167.34 today, losing 6.5% of its value in the space of seven trading days, you cannot help but wonder. How much money has disappeared in seven days? I actually could not find this out, which is a little ironic. The Nasdaq Composite is a market capitalization weighted index, meaning that it represents the actual value of the companies in the index. However, the fact that the conversion is not well known underscores how empty these indexes really are -- I mean, if people are not in touch with the true value of the market, what they heck do these funky changing index numbers really mean?
ALL THIS SAID, WHAT FACTORS ARE INFLUENCING this jagged move down?
QUESTIONS ABOUT THE SECOND QUARTER. When a few companies in a particular industry start to issue profit warnings, the rest of the industry tends to take a hit. Witness today's pullback in the managed care industry after RightCHOICE's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIT)") else Response.Write("(NYSE: RIT)") end if %> admission that costs were rising and revenues were not. When you have most of the Street believing that the "technology" industry is actually an industry, and not a collection of diverse and less and less related businesses. When a motley group of names like ALLIANCE SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALSC)") else Response.Write("(NASDAQ: ALSC)") end if %>, PROXIMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRXM)") else Response.Write("(NASDAQ: PRXM)") end if %>, QUARTERDECK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QDEK)") else Response.Write("(NASDAQ: QDEK)") end if %>, MADGE NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MADGF)") else Response.Write("(NASDAQ: MADGF)") end if %> and EXAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EXAR)") else Response.Write("(NASDAQ: EXAR)") end if %> all forecast weakness, some take it as a sign of weakness in the entire "technology" industry rather than as industry-specific or company-specific problems.
END-OF-THE-QUARTER WINDOW-DRESSING. Portfolio managers looking to lock in their quarterly performance bonuses and look good for the shareholders are dumping the highfliers that are in trouble and the lowfliers that are embarrassing. Although the effect of this tends to be exaggerated in the popular press, in this particular quarter, given the huge volatility, it makes sense that some portfolio managers would be indulging in some protective selling to tighten up their own bottom line. The money garnered from dumping these stocks would either sit in cash or be recycled into high-quality growth names -- thus the term, "flight to quality".
THE FUTURE RISK FOR MANY COMPANIES IS NOT being fully discounted in the current prices. Many cutting-edge technology companies have seen exploding market capitalizations in recent weeks as many investors have gotten very excited about their prospects. High-speed Internet access, high-speed networking, large-scale removable data storage, optical cable -- all of these technologies and more have seen exploding market capitalizations based on slim revenues and slimmer profits. This not to say that these companies don't have exciting possibilities -- they do. But those possibilities need to be discounted over the amount of time it will take to realize the earnings stream that owners in the end are really looking for.
FOR INSTANCE, IN A WORLD WHERE ISDN, XDSL, wireless cable with telco downstream, cable modems with telco downstream, two-way cable modems and satellite-based Internet access (the recently-announced DirectPC), who the heck is going to be able to pick a winner? Will it just be whoever is first to market, or will ease of use come into play? Are there other technologies that could supercede these? Another example is removable storage -- certainly investors here have a better idea of what technology the consumers are buying, but a lot of questions still revolve around what "standard" will be adopted to replace the microfloppy -- or if any standard will ever replace the microfloppy. This is not to say investors shouldn't be putting money into these companies if they are cheap -- this is just to say that the amount the financial markets, which effectively discount cash flow over a six- to twelve-month time horizon, will pay for future cash flows is going to be lower than comparable companies. Buying risk at a premium, or even a normal valuation, is a great way to enjoy volatility.
THIS IS NOT TO SAY THAT THE MARKET IS OVERVALUED, undervalued, retrovalued, or whatever -- this is to suggest that there are concrete and logical reasons for the market being where it is today and that an intelligent observer willing to look at the companies out there and take advantage of market inefficiencies should not really care about where the market is. If there are cheap equities out there and you have the magic three- to five-year time horizon, load up. If you don't fulfill any of these criteria, be careful. (Anyone interested in looking at where the Nasdaq Composite has gone year-to-date can just click HERE to see a graph Keith Pelczarski (MF Czar) did today.)
