Today's Lunchtime News focused on security & bomb detection stocks, which are soaring following recent bombing tragedies. We'll have two conference call summaries tonight, for Avid Technologies and 3M.
MF Merlin's Economic News today previews the critical economic news stories to be released this week. 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 market indices. Enjoy!
WHOLE FOODS MARKET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WFMI)") else Response.Write("(NASDAQ: WFMI)") end if %>
The call was on Friday, July 26th.
The replay number is 1-800-633-8284, reservation #1858642.
DIME BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DME)") else Response.Write("(NYSE: DME)") end if %>
The call was on Friday, July 26th.
The replay number is 1-800-593-1266.
Footwear-maker REEBOK INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBK)") else Response.Write("(NYSE: RBK)") end if %> raced ahead $3 1/2 to $34 3/4 today. Reebok will buy back 24 million of its 72.5 million shares outstanding at a price of between $30 and $36 cash in a Dutch auction. A Dutch auction is when a company agrees to buy back a fixed amount of its outstanding shares within a certain price range. Offers come in from investors who specify the price within the given range at which they will sell their shares. The company then buys back the shares of those who bid the lowest first and continues on up the line until they have bought back the amount they said they would.
GOOD VIBES: Just the right few words in a press release can add millions to your market capitalization. Or better yet, have someone else say the right few words and save all that money on the press release. Garrett Van Wagoner of the Van Wagoneer Funds recommended shares of COMPUTER TELEPHONE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CPTL)") else Response.Write("(NASDAQ: CPTL)") end if %> on TV's "Wall Street Week," sending shares of the discount long distance services concern up $2 to $11 today. Merrill Lynch upgraded ROHR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHR)") else Response.Write("(NYSE: RHR)") end if %> to long-term buy, upping the shares $1 3/8 to $21... A possible break-up of DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> into multiple public companies gained credibility when they hired Hambrecht & Quist to advise them on Friday, boosting the shares $1 5/8 to $24 1/8 today.
QUICK TAKES: AVIATION SALES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVS)") else Response.Write("(NYSE: AVS)") end if %> rose $1 1/2 to $21 1/4 after reporting quarterly earnings of $0.36 EPS... CAREMARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CK)") else Response.Write("(NYSE: CK)") end if %> beat estimates by a penny today, rising $1 1/4 to $23 1/8 when it reported earnings of $0.30 EPS... FIRST PAYMENTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTI)") else Response.Write("(NYSE: PTI)") end if %> popped up $2 3/8 to $41 3/8 when it said it was buying privately-held GENSAR HOLDINGS for $170 million in cash... CALIFORNIA FEDERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAL)") else Response.Write("(NYSE: CAL)") end if %> rose $1 1/4 to $22 5/8 when privately-held FIRST NATIONWIDE bid $23 1/2 in cash for the California savings & loan... PRATT HOTELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PHC)") else Response.Write("(AMEX: PHC)") end if %> rose $1 3/8 to $6 1/4 after it and HOLLYWOOD CASINO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HWCC)") else Response.Write("(NASDAQ: HWCC)") end if %> hired Salomon Brothers to "explore strategic transactions regarding the Sands Hotel & Casino."
NEWBRIDGE NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NN)") else Response.Write("(NYSE: NN)") end if %> continued to get hosed today, down $6 1/2 to $41 5/8, as another brokerage analyst began to talk down the stock to clients. Rumors were that Needham & Co. was telling customers that Newbridge will miss its first-quarter estimates, right on the heels of similar naysaying over at UBS Securities. Needham still maintains a "strong buy" on the shares, however, despite the fact that its sees Newbridge missing the $0.51 EPS hurdle it set. The possibility of missing consensus estimates in these volatile times is enough to make any investor think twice about holding the shares.
WEATHERFORD ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WII)") else Response.Write("(NYSE: WII)") end if %> dropped $3 to $25 3/4 today after the chairman of the company announced he was taking a "leave of absence." The diversified energy services and manufacturing concern gave Philip Burguieres a three-month leave of absence for "stress-related health reasons," apparently socking investor confidence about the shares. Having management leave doesn't have to be all bad, however. Note that the news of Yosi Amran being ousted as the chairman of INDIVIDUAL, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INDV)") else Response.Write("(NASDAQ: INDV)") end if %> caused the shares to rally $1 to $7 1/4.
And just when you thought it could go no other way. MAGAL SECURITY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MAGSF)") else Response.Write("(NASDAQ: MAGSF)") end if %> gave back $2 1/8 to $9 today after Josephthal Lyon cut the stock to a "sell." Magal is one of the many firms that has recently been benefiting from all the attention fixated on bomb security in the wake of the TWA 800 and Olympic bombing tragedies. The analyst cut the stock on a price basis and knocked most of the gains off of its pals, as well. INVISION TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INVN)") else Response.Write("(NASDAQ: INVN)") end if %> closed up only $1/2 to $26 after being up as high as $34 1/8 during the day. Similar stories at AMERICAN SCIENCE & ENGINEERING <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ASE)") else Response.Write("(AMEX: ASE)") end if %>, up $1 3/8 to $16 1/2 after hitting $18 3/4 during the day, BARRINGER TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BARR)") else Response.Write("(NASDAQ: BARR)") end if %> rising $2 1/4 to $10 3/8 after hanging out at $14 today and THERMEDICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TMD)") else Response.Write("(AMEX: TMD)") end if %> down $1 1/4 to $27 1.2 after hitting $31 1/8 this morning. ICTS HOLLAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ICTS)") else Response.Write("(NASDAQ: ICTS)") end if %> was up $3 5/8 to $12 3/4, close to the high.
QUICK CUTS: FOUNDATION HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FH)") else Response.Write("(NYSE: FH)") end if %> blew its fourth quarter estimate of $0.74 EPS, coming in at $0.62 EPS and dropping $1 7/8 to $25 7/8... SUNGLASS HUT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RAYS)") else Response.Write("(NASDAQ: RAYS)") end if %> dropped $1 7/8 to $10 3/4 today after Montgomery Securities cut its numbers, dragging OAKLEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OO)") else Response.Write("(NYSE: OO)") end if %> down $2 to $31 3/4 as well... INTEGRA LIFE SCIENCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IART)") else Response.Write("(NASDAQ: IART)") end if %> got pounded for $2 3/8 to $5 3/8 today after it said the ramp-up of its artificial skin product would be slower than anticipated... OPTICAL SENSORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OPSI)") else Response.Write("(NASDAQ: OPSI)") end if %> was mashed for $1 13/16 to $6 11/16 after sales of its SensiCath catheter were slowed by a product developed by its marketing partner, Marquette Electronics... ARTERIAL VASCULAR ENGINEERING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AVEI)") else Response.Write("(NASDAQ: AVEI)") end if %> fell $5 3/4 to $25 after posting earnings of $0.25.
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
On the Accuracy of Indices
Are indices an accurate way to measure the performance of the stock market? Generations of investors have taken this shibboleth for granted. Even if we accept as fact the dubious premise that the market as a whole can be measured in some systematic way and that this information is useful for the selection of individual securities, the validity of most of the common market measurements leaves quite a bit desired.
One fact that grew out of my extensive research in producing the Dow Dividend Spreadsheet is that the listed returns for an index can diverge wildly from the underlying returns of the stocks that make up the index. The Dow Dividend Spreadsheet is an Excel 4.0-7.0 spreadsheet that measures the return of all thirty Dow stocks individually on an annual basis from 1961 to the present in order to accurately measure the historical returns of the Dow Dividend Approach.
The petitio principii that indices accurately measure the returns of the underlying stocks fails to account for all components of total return. Indices fail to accurately capture and recognize the value of dividends including stock dividends, special dividends and spin-offs. Price-weighted and market-capitalization-weighted indices like the Dow Jones Industrial Average and the S&P 500 are designed to accurately reflect only one component of total return -- capital appreciation. Although there is some adjustment to all indices for dividends, this adjustment fails to properly account for the full power of the compounding effect of all dividends over time.
Historically, this presents a serious anomaly when looking retroactively at market history and examining the performance of stocks as an asset class over any period of time. Failing to accurately account for dividends means that most of the oft-quoted numbers for stock performance over various periods of time are wrong. This is because removing the compounding aspect of dividends paid from the overall stock return equation fails to recognize the full value of equities. Given the fact that all sources of historical quotes are down today, I will defer my detailed comparison of the Dow Jones Industrial Average with the thirty stocks that make up the Dow until tomorrow.
There is also a capricious element to the selection process which renders smaller indices vulnerable to large-scale shifts in composition. The most commonly referenced market index, the Dow, was dramatically affected by one shift in composition in the late '30s. In 1939 American Telephone & Telegraph (AT&T) was substituted for International Business Machines (IBM). If this substitution had not been made, the Dow would have broken 1000 in 1961, instead of 1972, and would be considerably higher than it is today. IBM was only returned to the Dow in 1979, making one wonder if another milestone, the sacred 2000-point barrier, might have been penetrated in the mid-70s instead of the mid-80s, had that substitution not occurred.
Market sages routinely quote returns from before the 1940s, assuming their relevancy without proof, despite the radical discontinuities between the economic realities in the '20s and the economic realities today. A few of the not-insignificant past conditions which are not in effect today include: a gold standard; a nominal tax rate below 10%; a majority of listed stocks concentrated in the transportation, industrial and commodity sectors; and 98% of all public corporations doing most of their business within the boundaries of the continental United States. The potential effect any or all of these could have had on inflation, fixed monetary policy and corporate profit growth have rarely been addressed in any systematic way by those who frequently bandy various 10-year returns for the markets, arguing that the "big bear" might be just around the corner.
Fools believe that stock market returns reflect business reality. Whether it was tulipmania occurring simultaneously with the disastrous consequences of the Thirty Years War, or the great crash of 1929 as a prelude to the decade-long bout of disinflation only possible with a fixed monetary standard, or the oil-shock that gave a systemic bout of dysentery to the market in the '70s, the market seldom moves for very long without this movement confirmed by economic realities. Certainly interest rates could move a point or two higher from their 30-year lows. Corporate profit growth could ebb as we potentially hit a slow patch in 1997. But comparing this economic situation with the '30s or the '70s is nothing short of naive, pretending that stock market values do not reflect economic reality but rather capricious sentiment.
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