Today's Lunchtime News featured a discussion of the value of historical quotes as a measure of company performance. Earnings Central continues to swell, with reports on UUNet, Digital, and Ventritex being added today. And coming soon is a special one-day-only sale in Fooldom, celebrating the one-year anniversary of FoolMart.
MF Merlin's Economic News today discusses second quarter employment costs, new home sales for June, and the Conference Board's Consumer Confidence Index reading for July. 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 continues his look at historical returns of market indices. Enjoy!
DIGITAL EQUIPMENT CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %>
1-800-633-8284 (reservation number 1838287)
If making it on the desktop is big news for AT&T's Worldnet, it is not hard to understand why making it on the servertop is a major deal for NETCOM ONLINE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NETC)") else Response.Write("(NASDAQ: NETC)") end if %>. The stock rose $2 to $18 1/4 after MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> said it would offer connections to Netcom on its "Internet Referral Server." Now users of Windows95 or Windows NT can choose an ISP directly from their browser. At the same time, Netcom will be offering a new service featuring Microsoft's Explorer Web browser. Another chapter in the Microsoft vs. Netscape battle draws to a close.
Semiconductor equipment maker LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LRCX)") else Response.Write("(NASDAQ: LRCX)") end if %> met analyst estimates of $1.29 per share for its fourth quarter, compared with $1.07 in the year-ago period. Investors, apparently expecting more crushing disappointment from anything related to semiconductors, must have been pleasantly surprised, as shares surged $2 1/8 to $24. Lam's revenues were up 46% from the year-ago quarter to this one, with fiscal 1996's earnings at $4.92 per share, compared with $3.27 for 1995.
HAUSER CHEMICAL RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HAUS)") else Response.Write("(NASDAQ: HAUS)") end if %> shares rocketed ahead $1 3/8 to $7 1/8 after the company announced expanded sales of its GMP (Good Manufacturing Practice) bulk paclitaxel into Europe. Bulk paclitaxel is the main agent in an anti-cancer drug which is expected to see sales of $1 billion by 1997. AMERICAN HOME PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> recently decided to retain its exclusive rights to distribute the product in the U.S. and Canada.
QUICK TAKES: BUGABOO CREEK STEAK HOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RARE)") else Response.Write("(NASDAQ: RARE)") end if %> and LONGHORN STEAKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LOHO)") else Response.Write("(NASDAQ: LOHO)") end if %> announced a revised definitive merger agreement, sending RARE shares up $1 1/8 to $8 1/8... Yesterday's pullback in the wake of a negative Barron's article has not kept PHYSICIAN RELIANCE NETWORK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHYN)") else Response.Write("(NASDAQ: PHYN)") end if %> down for long. The stock rose $1 7/16 to $14 7/16 after the company met earnings estimates of $0.13 EPS... PHYSICIAN COMPUTER NETWORK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PCNI)") else Response.Write("(NASDAQ: PCNI)") end if %> beat estimates by two cents, reporting $0.07 per share and rising $2 to $9 3/4... SUNGLASS HUT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RAYS)") else Response.Write("(NASDAQ: RAYS)") end if %> rebounded today, up $1 1/8 to $11 7/8, after falling yesterday due to an Alex. Brown downgrade from "strong buy" to "buy".
MORE QUICK TAKES: Automated-optical-inspection system developer ORBOTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORBKF)") else Response.Write("(NASDAQ: ORBKF)") end if %> jumped $1 1/8 to $12 5/8 after the company postponed a 2.5 million share offering... C. P. CLARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CPCL)") else Response.Write("(NASDAQ: CPCL)") end if %> rose $1 3/4 to $15 1/4 today after meeting estimates of $0.29 EPS early last week... Telecom concern WORLDCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WCOM)") else Response.Write("(NASDAQ: WCOM)") end if %> popped up $2 3/8 to $24 1/2 after posting earnings of $0.25 per share, three cents ahead of estimates... Analytical software concern SPSS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPSS)") else Response.Write("(NASDAQ: SPSS)") end if %> jumped $3 1/2 to $24 after forecasting 20-25% annual growth. The company is expected to report earnings of $0.21 per share for its second quarter tomorrow... GENERAL SURGICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GSII)") else Response.Write("(NASDAQ: GSII)") end if %> only lost $30,000 this quarter, compared with over a million dollars in the year-ago quarter. Shares rallied $1 5/8 to $11... AVID TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AVID)") else Response.Write("(NASDAQ: AVID)") end if %> lost $0.17 in its second quarter, beating estimates and rising $2 3/8 to $20 3/8.
After piling into security stocks last week, ultra-short-term investors must be looking for the next hot sector this week. ICTS HOLLAND PRODUCTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ICTSF)") else Response.Write("(NASDAQ: ICTSF)") end if %> dropped $2 3/8 to $10 3/8 this morning after the airport security hype began to evaporate. BARR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BARR)") else Response.Write("(NASDAQ: BARR)") end if %> was down $1 7/16 to $8 15/16, THERMEDICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TMD)") else Response.Write("(AMEX: TMD)") end if %> dropped $1 3/4 to $25 3/4, AMERICAN SCIENCE & TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ASE)") else Response.Write("(AMEX: ASE)") end if %> fell $3 to $13 1/2 and INVISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INVN)") else Response.Write("(NASDAQ: INVN)") end if %> slumped $2 to $24. The good news is that many still sell for as much as 15 to 20 times sales.
What Prudential giveth, it taketh awayeth. CHILDREN'S BROADCASTING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AAHS)") else Response.Write("(NASDAQ: AAHS)") end if %> dropped $1 3/4 to $6 1/8 after Prudential dropped the stock to "hold" from "buy." The reason? ABC Radio Networks and Children's Broadcasting terminated their agreement to have CBC sell advertising for the radio network, with ABC citing conflicts of interest. Just last week CBC said it had hired Southcoast Capital to help it explore "strategic alternatives" for maximizing shareholder value.
HEALTHSOURCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HS)") else Response.Write("(NYSE: HS)") end if %> was pounded for $1 1/2 to $11 3/8 this morning after the company came out with a second quarter profit warning. The health maintenance organization will only make $0.08 EPS to $0.12 EPS per share, compared with $0.20 lin the year-ago period, because of a higher-than-expected medical loss ratio. In response, Alex. Brown downgraded the company from "buy" to "neutral," and as if that wasn't enough, Merrill Lynch, Morgan Stanley, and Bear Stearns also cut the company.
COMSHARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSRE)") else Response.Write("(NASDAQ: CSRE)") end if %> dropped -- nay, plunged -- $7 7/8 to $17 1/4 this morning after the company stated it would report earnings on August 7th instead of tomorrow, as originally planned. The reason given was that the company had not yet completed audits of its U.K. subsidiary, but the sudden change apparently spooked quite a few investors.
QUICK CUTS: SWIFT ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFY)") else Response.Write("(NYSE: SFY)") end if %> swiftly de-energized $1 1/4 to $19 3/8 as investors got skittish about the energy exploration industry. The company is puzzled by the drop, noting that it expects to meet second quarter earnings estimates... Fellow energy concern KERR-MCGEE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMG)") else Response.Write("(NYSE: KMG)") end if %> beat estimates by six cents, posting $1.01 per share, but succumbed to profit-taking, slipping $2 1/4 to $57 5/8... With a symbol perhaps better suited to TAMBRANDS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMB)") else Response.Write("(NYSE: TMB)") end if %>, POLICY MANAGEMENT SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PMS)") else Response.Write("(NYSE: PMS)") end if %> dropped $4 1/4 to $37 this morning after reporting earnings fourteen cents short of consensus estimates of $0.68 EPS.
MORE QUICK CUTS: ACTION PERFORMANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ACTN)") else Response.Write("(NASDAQ: ACTN)") end if %>, manufacturer of die-cast and pewter collectibles, missed estimates by two cents, posting $0.14 per share on record revenues and slipping $2 1/4 to $11 1/4... GELTEX PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GELX)") else Response.Write("(NASDAQ: GELX)") end if %> lost less than analysts had expected, $0.32 per share, but was punished with a $2 1/4 to $11 1/2 drop anyway... VIDAMED <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VIDA)") else Response.Write("(NASDAQ: VIDA)") end if %> was warned by the FDA about illegal promotion of its Transurethral Needle Ablation (TUNA) system, and tumbled $1 1/2 to $9 3/8 as a result.
An Investment Perspective
by Randy Befumo (MF Templar)
FOOL ON THE HILL
Indices Don't Tell the Whole Story
My article yesterday on the validity of index-based returns when measuring the performance of the market got derailed by technical difficulties. Due to a temporary shutdown in historical quotes, dear readers, you had to wait 24 hours before getting the actual numbers to back up the argument I was making. Fret not, Foolish one, your prayers are answered and we have the data now.
The single most quoted number in market metrics is the current level of the Dow Jones Industrial Average. The index, which dates back to the late 19th century, is a price-weighted measure of market performance computed daily by adding up the value of all of the 30 component stocks and then dividing by a fixed number called the "Dow divisor." (For more information on the Dow Divisor, check out the History of the Dow Jones Industrial Average article that appeared in our weekend research and news magazine, Fool's Gold, back in May.) The index is called "price-weighted" because higher-priced stocks have a disproportionate effect on the returns of the index. This is distinct from the S&P 500, which allows higher-market-capitalization companies to have a disproportionate effect on the returns.
The Dow Jones Industrial Average started at roughly 616 on January 2, 1961 and stood a mere 35 years later at 5177.45 -- a 740.5% gain. The average annual return for the index over that period was 6.3%. For many investors, this would be the return of the "market" over the same period. Even for those who know well that the Dow and other indices are not designed to capture dividends at all, they still will slip and talk about the performance of the Dow as being synonymous with the performance of the market. For instance, investors routinely refer to the level of the Dow at a certain point in history and then talk about the level of the Dow now, creating an implicit relationship between the change in the Dow and the performance of the market.
What is wrong with this implicit relationship? It's pretty simple. The returns on the Dow Jones Industrial Average are pale when compared to the full-blooded returns of the Dow 30, a theoretical portfolio constructed of equal dollar amounts of all Dow stocks that includes all regular dividends, special dividends, stock dividends and spin-offs. Equalizing performance on a percentage basis, the return of the Dow 30 is quite a bit higher than the return on the Dow. In fact, over the same 35-year period I used to determine the 6.3% average annual return for the Dow, the Dow 30 returned 11.4%, a full 5.1% difference.
Market gooroos routinely call for various indices to hit pre-determined levels in various time periods, encouraging investors to attempt to time the market. The implied differences that they use to spur investors into moving are never measured with any reference to total return because the indices themselves are not constructed to reflect total return. The fact that there is no index constructed to measure the market on a total return basis bespeaks the general dominance of a short-term, capital appreciation-oriented view at the expense of any sort of long-term, total return approach.
Don't get overworked by this point, however. Many of the numbers quoted by the media are total return numbers, although you should always check the fine print. In the end, it is difficult to figure out how adding dividend returns retroactively might bias the total return number. The difference between the total return of the DJIA and the Dow 30 for the 35-year period I mentioned is larger than the average annual dividend return, which makes me question how accurately retroactive dividend additions capture events like one-time dividends and spin-offs. In the final analysis, the certainty with which many refer to index returns as accurately representing the total return of the market is undeserved.
[TOMORROW: "Buy & Hold Apocalypse," a Six Part Series that is a cross-over between the Lunchtime News and Evening News, begins. Be sure to check out the Lunchtime News for the first segment, "What Does Buy & Hold Mean?" and then be ready to read the Evening News for the next segment, "Does Buy & Hold Work?"]
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