Greetings, Fools! MF Bogey here sitting in for Randy Befumo (MF Templar) and Selena Maranjian (MF Selena). Apparently someone upstairs forgot that Toto and Dorothy live in Kansas and not Alexandria, VA. With tornado warnings all around and a nasty twister actually preying on a neighboring town, Fool HQ is down and out for a few hours waiting for power to resume. Not living in Alexandria, Kansas, or Oz, I have the luxury of being able to type out the news for you tonight. Please pardon my brevity here as I'm new to the news scene :) Your regularly scheduled top-notch news crew will be back in action tomorrow for Lunchtime News. Finally, to those more affected by Mother Nature's twisted sense of humor than we at Fool HQ, our best wishes for a safe evening.
Presstek (PRST) - This much-maligned high-flyer, err... or is that "low-flyer" issued a press release Friday responding to "misinformation in the marketplace". In their press release the company stated that of fourty-eight different patents they hold in the U.S., only one of them is being reexamined, and this at the company's request. They also have one patent being reissued at the company's request. The company holds sixty-two patents world-wide that contain over 1,000 claims. Presstek officials also disclosed that insiders sold stock worth just $17.8 million dollars in prior years as opposed to the $153.8 million reported by one of the news services (not the Fool, we swear!). The three shareholders in question, Robert Howard, Richard Williams, and Dr. Lawrence Howard hold over 3 million shares combined.
The Company also said that they did not have any input at all into Cabot Market Letter's recent prediction for second quarter results ending in June 30. On the heels of this press release, the market took shares of Presstek up $19 to land softly at $75, some 33% higher. Shares are still far below their high of $200, though.
Also in the news was Valujet (VJET). Despite having a shareholder lawsuit lobbed at them, more encouraging news came from their CEO, Robert Priddy. According to a story in today's Wall Street Journal, Priddy is enthusiastic that Valujet can get up and back in the air within the next 30-60 days. Priddy also pointed out that the company has $200 million in cash to see it through its tough times. Valuejet was up $1 5/16 to $8 15/16, some 17% higher.
QUICK TAKES: Coverage in this weekend's issue of Barron's caused shares of HYDE ATHLETIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HYDEA)") else Response.Write("(NASDAQ: HYDEA)") end if %> to surge $1 1/2 to $6 1/2. Unsubstantiated comments of the Prudent Speculator's Al Frank projected $0.50 EPS in 1996... MICROTEK MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MTMI)") else Response.Write("(NASDAQ: MTMI)") end if %>, up $2 1/4 to $15, put in a good quarter this morning, reporting $0.17 EPS versus $0.09 EPS a year ago. The quarter was so good that ISOLYSER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OREX)") else Response.Write("(NASDAQ: OREX)") end if %> decided to give Microtek holders $16.50 in Isolyser stock in the pending merger... CAPSTONE PHARMACEUTICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DOSE)") else Response.Write("(NASDAQ: DOSE)") end if %> is getting INTEGRATED HEALTH SERVICES'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IHS)") else Response.Write("(NYSE: IHS)") end if %> Symphony Pharmacy Services business for $125 million in cash and $25 million in common stock, boosting Capstone shares $2 to $13 1/4.
MORE QUICK TAKES: MANHATTAN BAGELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BGLS)") else Response.Write("(NASDAQ: BGLS)") end if %> bounced after hitting the cement this morning, rebounding $3/4 to $14 1/2 after Friday's disastrous 50% drop on news that its old California management team had cooked the books... Friday's news that CARAUSTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSAR)") else Response.Write("(NASDAQ: CSAR)") end if %> will buy a major stake in Tenneco's recycling operations continues to benefit the shares, up $2 3/8 to $27 1/8 this morning... NETSCAPE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSCP)") else Response.Write("(NASDAQ: NSCP)") end if %> got a boost of $3 1/4 to $58 1/4 when SoundView Financial rated the stock a "short-term buy", stating that concerns about Microsoft taking market share were unfounded... AMERICAN RADIO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMRD)") else Response.Write("(NASDAQ: AMRD)") end if %> rose $2 1/2 to $38 1/4 after Merrill Lynch rated the shares a "strong buy". The analyst apparently believes that American Radio might be the next to go in the consolidating radio industry.
Cyrix (CYRX) as reported in today's Lunchtime News was down again today. The company disclosed on Friday that they are looking for a loss in this quarter of more than $15 million dollars. The company cited aggressive pricing and delays in orders for their new 6x86 processor. Most brokerage houses lowered their estimates today and cut their ratings in line with Cyrix's statements Friday. CYRX was down $5 3/4 to $16.
Micrion Corp. (MICN) got slapped around today by $3 1/4 falling to $12. The company reported that one customer will be "stretching out" deliveries of Micrion "head-trimming" sytems for disk drives. For those of us who need a translation here (and I'm one of them!), "stretching-out" means "we aren't doing enough business right now and don't need your darn products so forget about it for a while". The contract in question is an "open" contract which basically means that the product deliveries can be stretched out for as long as the customer wants. This bit of negative news means that Micrion won't make as much money as they thought, and more importantly, as *analysts* thought for the upcoming quarters. Thus, the stock gets slammed.
QUICK CUTS: DIGITAL BIOMETRICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DBII)") else Response.Write("(NASDAQ: DBII)") end if %> expects third quarter revenues to be only $1 million, way below expectations, dropping the stock $3/4 to $5 1/2 in short order... NEOZYME <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NIIUF)") else Response.Write("(NASDAQ: NIIUF)") end if %> and NABI INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NABI)") else Response.Write("(NASDAQ: NABI)") end if %> announced that they have halted their Phase II clinical trials of HyperGAM+CF, causing Neozyme to give up $4 3/4 to $46 1/4 and Nabi to fall back $2 3/16 to $8 15/16... The ever-volatile ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ETEC)") else Response.Write("(NASDAQ: ETEC)") end if %> fell back $2 to $21 1/2, as speculators in the recent initial public offering clashed with those bearish on the prospects for semiconductor equipment in general... Teaching by example that investors should be wary of companies which rely heavily on one or a few customers, STORMEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STMD)") else Response.Write("(NASDAQ: STMD)") end if %> fell $2 3/8 to $11 1/4 after reporting that customer Maxtor Corp. is experiencing "significant business problems". StorMedia's second-largest customer, Maxtor accounted for 40% of StorMedia's 1Q earnings.
Fool Take
As I just reported, Cyrix got smashed today after their bad earnings announcement. But the heart of the matter and the crux of the investment lesson is not that bad earnings mean lower prices. The lesson to be learned is about branding, market leadership, and consumer demand. As Tom and David Gardner have hammered home, along with many other Fools, over the past several years, great companies are those that define an industry, that lead the charge and that build the brands. They are those companies who react to consumer demand. We've seen it in Iomega, America Online, Nike, Microsoft, Coca-Cola, and countless other great names. The best companies in the world capture the imagination of the buying public. So, what does this have to do with Cyrix. Absolutely NOTHING. That's the problem.
Words like "Pentium", "Pentium Pro", "Intel Inside" -- what do they mean to you? Well they should mean Intel, cool commercials, and the best damn computer marketing campaign in a long, long time. Are Intel's processors any better than Cyrx's? Maybe yes, maybe no. But "Pentium Pro" is a heck of a lot cooler than "6x86." Marketing, marketing, marketing. It's why the VCR beat Betamax, why Coke and Pepsi BOTH won. Remember the soda wars where they had the Coke and Pepsi taste tests? Both sodas made it into the imaginations and subconscious of every person within eyeshot of a television or radio.
Conclusion: Those companies that capture the hearts and minds of the world's consumers are those companies that define their industries, that make it thorugh the lean times, and that always make great investments. Cyrix is not one of those companies. My guess, using the "Greater Cockroach Theory", is that this isn't the last piece of bad news we'll see from Cyrix. Bad news usually begets more bad news. For those of you looking for a bargain in Cyrix shares, make sure you know what you're buying before you take the plunge.
David Forrest - MF Bogey - A Fool
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Firewall Stocks Burning Hot [Note: This is reprinted from February 9, 1996, and focuses on the interesting emerging sector of firewalls. Keep in mind that prices quoted below are from February.]
"Firewalls" are red-hot items on Wall Street. These security devices are becoming increasingly vital for companies setting up dedicated servers on the Internet. A "firewall" is a device that is used to protect networks from intruders, ensuring that all traffic on the network is one-way---going out and not in. It is established by a router or special software installed in the network. With so many companies interested in venturing onto the Internet but paranoid about what they could let into their networks should they make that leap, firewalls are the solution to their problems.
Most investors have relied on sizzling initial public offerings (IPOs) like Raptor Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RAPT)") else Response.Write("(NASDAQ:RAPT)") end if %> and Secure Computing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SCUR)") else Response.Write("(NASDAQ:SCUR)") end if %> to get involved with the burning firewall market. They salivate as they try to figure out which of the remaining private concerns like CheckPoint Software will run next to investment bankers to cash in on their newfound popularity. One ex-defense contractor has moved into the firewall market with decided strength---Harris Computers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NHWK)") else Response.Write("(NASDAQ:NHWK)") end if %>. Harris exploded today, up 7 to 33 1/2 (26.4%) after a stunning rally that has moved the shares up from $11 just three weeks ago---all on news that its firewall product was ranked number two by industry researcher Data Comm.
Many Wall Streeters wrote off Harris "Corporation", as it used to be called, after the Cold War ended. Even though the company has still managed to get business out of the Defense Department, like a recent five-year contract to provide Special Operations Forces with new secure tactical radios, the fact that in 1995 70% of its work was done for the military left many investors feeling sick to their stomach.
Harris responded to the inevitable slowdown in defense business in 1994 by throwing all of its money into research and development. Among the 200 new products they came up with was the CyberGuard Firewall for UNIX systems, a computer system originally conceived to protect government computer networks against hackers. With the rapid expansion of the digital world, however, Harris suddenly had a whole new market for its firewall products---corporate America, looking to get out on the 'Net, but wanting to make sure their networks were protected from intruders. Harris's computer operations were so successful, in fact, that it spun them off as Harris Computer Corp.---which has nothing to do with parent Harris Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HRS)") else Response.Write("(NYSE:HRS)") end if %> today.
Harris Computer recently came to the Street's attention when it and Concurrent Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CCUR)") else Response.Write("(NASDAQ:CCUR)") end if %> proposed a merger. Concurrent, which is a penny stock traded on the NASDAQ Bulletin Board, operates a real-time computer network business as well. In the most recent revision of the proposed "transaction," Harris would give Concurrent its real-time computer business and about 230,000 of its 2.0 million shares to Concurrent in return for 10 million shares of Concurrent and $10 million in preferred stock.
This deal would put Harris's Internet Security business out as a separately traded issue. With $10 million in revenues, the Internet Security business compares well with competitors. This assuages many shareholders' objections to the original merger, as they felt that the Internet Security business should be judged on its own merits and not crammed in with the rest of Harris and Concurrent's businesses. Apparently, investors getting involved with Harris now are anticipating the spin-off of this unit.
Why would Harris shareholders want the firewall business separate? It helps to look at who else is involved in the market. With Raptor Systems, Secure Computing, CheckPoint Software, Border Network, America Online IBM and Sun Microsystems as the only other players, a company with $10 million in revenues today is potentially worth 6-10 times revenues all on its own. The market is growing 60-70% per year and is currently dominated by UNIX platforms (67%). A $60-100 million valuation for the Internet Security business means that even at today's prices, you are getting the rest of Harris for free and a company that could potentially generate staggering returns on equity. With Harris pulling down $45 million in revenues last year, looking to double that this year, and being currently valued at only $60 million, Harris seems to be substantially underpriced.