CONTENTS
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I. Fool Features: US Robotics, Weekly Industry Reports
II. Conference Calls: AnnTaylor, Dayton Hudson, The Ltd.
III. Heroes: BioTime, Castech Aluminum, Associated Group
IV. Goats: Identix Inc., Harrah's Entertainment, Trump
V. Fool on the Hill: Electronic Design Automation
VI. Another Foolish Thing: The Foolish Portfolio Tracker
FOOL FEATURES
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The Lunchtime News featured a look at U.S. Robotics and its recent price decline. We've revamped our Special Section on retailers' earnings reports, incorporating conference call summaries from some popular retailers -- check it out. A slew of retailers are reporting tomorrow -- we've listed the access numbers to a bunch of conference calls below. Also of interest should be our Weekly Industry Updates, accessible from the Stock Research button on the main screen. There you'll read the latest on your favorite industries, brought to you by our crack industrial Fools
MF Merlin's Economic News today discusses the Federal Open Market Committee meeting scheduled for tomorrow. 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 electronic design automation (EDA) companies. Enjoy!
CONFERENCE CALLS
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Today's Calls:
ANNTAYLOR STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANN)") else Response.Write("(NYSE: ANN)") end if %>
7:30 a.m. EDT
1-719-386-9000 (access code: 214751) -- first airing of recorded comments
1-402-351-9977 -- replay
DAYTON HUDSON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
after 11:30 a.m. EDT
1-800-633-8284 (code: 1867400#)
INTIMATE BRANDS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBI)") else Response.Write("(NYSE: IBI)") end if %>
after 7:30 a.m. EDT
1-800-863-8517
THE LIMITED <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LTD)") else Response.Write("(NYSE: LTD)") end if %>
after 7:30 a.m. EDT
1-800-805-3502
HEROES
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The Food and Drug Administration (FDA) gave a green light to BIOTIME INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BTIM)") else Response.Write("(NASDAQ: BTIM)") end if %> to start its proprietary blood plasma volume expander, Hextend, in Phase III clinical trials. This news boosted shares $3 1/2 to $21 as investors waxed hopeful about the product which is designed to keep blood pressure and other medical measurements relatively stable during major surgery.
Merger and acquisition activity has moved to the aluminum stocks. CASTECH ALUMINUM GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTA)") else Response.Write("(NYSE: CTA)") end if %> has been purchased by COMMONWEALTH ALUMINUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CALC)") else Response.Write("(NASDAQ: CALC)") end if %> for $20 1/2 a share, boosting Castech $5 3/8 to $20 1/4. Commonwealth was also up $1 3/8 to $15 7/8 on the news.
ASSOCIATED GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AGRPA)") else Response.Write("(NASDAQ: AGRPA)") end if %> advanced $4 3/4 to $30 1/4 after the firm snagged AT&T's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> President and Chief Operating Officer (COO) Alex Mandl, originally perceived as the heir apparent for Ma Bell, to run its wireless Associated Communications subsidiary. Mandl noted that, "I will sincerely miss my many friends and colleagues at AT&T. But I cannot resist the challenge of pioneering a very significant telecommunications venture in the new regulatory environment." AT&T traded down $1 3/8 to $54 1/8 on the news, as the company announced the formation of a three-man team which will take on the duties of the COO.
QUICK TAKES: MEDCATH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCTH)") else Response.Write("(NASDAQ: MCTH)") end if %> shares surged $1 7/16 to $13 3/8 after the company announced plans to open its fifth cardiac hospital, in Bakersfield, Ca... AMERICAN WOODMARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMWD)") else Response.Write("(NASDAQ: AMWD)") end if %> advanced $7/8 to $6 after posting first quarter earnings of $0.28 per share, over five times more than the year-ago quarter... WINSTAR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WCII)") else Response.Write("(NASDAQ: WCII)") end if %> rose $1 1/8 to $17 1/2 after it reached an agreement with NYNEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NYN)") else Response.Write("(NYSE: NYN)") end if %> to provide local telecommunications services as a reseller in competition with NYNEX... POMEROY COMPUTER RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PMRY)") else Response.Write("(NASDAQ: PMRY)") end if %> continued to benefit from last week's news that the computer-services concern had snared over $40 million in contracts, rising $1 3/4 to $21 3/4. The company currently has about $250 million in trailing earnings... MANUFACTURED HOME COMMUNITIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MHC)") else Response.Write("(NYSE: MHC)") end if %> bid $26 a share for CHATEAU PROPERTIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPJ)") else Response.Write("(NYSE: CPJ)") end if %>, scuttling a $300 million merger of equals between Chateau and ROC COMMUNITIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RCI)") else Response.Write("(NYSE: RCI)") end if %> that would have made Sam Zell-controlled Manufactured Home the second-largest mobile home park owner. Chateau rose $2 5/8 to $25 7/8 on the news... Photo retail chain CPI CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPY)") else Response.Write("(NYSE: CPY)") end if %> warned of upcoming disappointing earnings, but bullishness about its prospects with a Kodak joint venture as well as its plans to buy back shares boosted the company $1 3/8 to $19.
GOATS
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An amended 10-Q filing from IDENTIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IDX)") else Response.Write("(AMEX: IDX)") end if %> had the company halted for most of the morning as buyers were rounded up for the beleaguered shares. Product sales short of forecast, problems with a recent acquisition, and the defection of a key customers dragged shares down $1 15/16 to $9 7/16 by the close of trading today. Adding insult to injury was a New York Times article likening the firm to the infamous fingerprint identification penny stock, Comparator. Identix took exception to the article, denying that there has been substantial insider selling and that the company relies heavily on a lone customer.
Investors betting on gaming stocks didn't fare well today. HARRAH'S ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HET)") else Response.Write("(NYSE: HET)") end if %> lost $2 5/8 to $18 1/8 on a Salomon downgrade from "strong buy" to "hold," with the firm also trimming its estimates and foreseeing that growth in the industry will nearly screech to a halt. 1996 earnings estimates were cut $0.15 to $1.35, 1997 from $1.80 to $1.35, and 1998 from $2.00 to $1.45. Harrah's, along with TRUMP HOTELS & CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJT)") else Response.Write("(NYSE: DJT)") end if %>, is rumored to be discussing building a gaming center in the Boston area, and Trump fell $1 5/8 to $25 today. In sympathy, MIRAGE RESORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MIR)") else Response.Write("(NYSE: MIR)") end if %> slipped $3/4 to $23, and ANCHOR GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SLOT)") else Response.Write("(NASDAQ: SLOT)") end if %> lost $4 1/16 to $55.
QUICK CUTS: The 1.85 million secondary offering from MEDICIS PHARMACEUTICAL (NADSAQ: MDRX) continues to have an impact on shares, dropping the stock $2 1/4 to $34 1/2. Shares have retreated 15% since news of 20% dilution hit the market... DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %>, the food company-turned-networker, slipped $1 7/8 to $20 5/8 today on skepticism about the prospects for the firm's DataNet switch... VIKING OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VKNG)") else Response.Write("(NASDAQ: VKNG)") end if %> shares were shredded $3 1/2 to $23 1/8 on news that although the company expects to meet first quarter estimates of $0.19 per share, it sees only $0.90 for fiscal 1997 (as opposed to expectations of $0.92) and blames lower paper prices for weak sales... NORWOOD PROMOTIONAL PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NPPI)") else Response.Write("(NASDAQ: NPPI)") end if %> warned of disappointing fourth quarter earnings without specifying the reason or the extent of its troubles, and was penalized with a $1 5/8 to $13 3/8 drop... NN BALL & ROLLER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NNBR)") else Response.Write("(NASDAQ: NNBR)") end if %> tumbled $2 3/4 to $16 on a McDonald downgrade from "aggressive buy" to "buy."
An Investment Opinion by MF Templar
FOOL ON THE HILL: Electronic Design Automation
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Will electronic design automation (EDA) be held hostage to the current downcycle in the semiconductor industry? The market seems to think so, pricing many of the companies in this cohort down 40% to 60% over the past few months. EDA companies produce software and hardware tools that allow electrical engineers to design semiconductors, printed circuit boards and other electronic components that go into all sorts of goods. Much like offices use word processors and spreadsheets to pump out information, electronics companies use EDA tools to design chips.
The dramatic decline in semiconductor revenues over the past eight months has led many to speculate that companies will begin to trim their operating budget, slashing capital spending, cutting back on previously-agreed-upon maintenance contracts with capital equipment providers, and even perhaps trimming their spending on new EDA tools. Up until its June peak of $44 7/8, for instance, it looked like CADENCE DESIGN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %>, the 800-lb. gorilla of the industry, could do nothing but go up. That is, until it bottomed at $21 3/8 in mid-July, standing at a mere $30 3/4 as of today's close. IKOS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IKOS)") else Response.Write("(NASDAQ: IKOS)") end if %> has had a similar run, topping out at $30 1/4 before hitting $13 7/8 in mid-July. The shares currently trade at $18 5/8 a stub.
Certainly companies like Cadence, IKOS, EPIC DESIGN TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EPIC)") else Response.Write("(NASDAQ: EPIC)") end if %>, MENTOR GRAPHICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MENT)") else Response.Write("(NASDAQ: MENT)") end if %>, QUICKTURN DESIGN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QKTN)") else Response.Write("(NASDAQ: QKTN)") end if %>, SYNOPSYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SNPS)") else Response.Write("(NASDAQ: SNPS)") end if %> and VIEWLOGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VIEW)") else Response.Write("(NASDAQ: VIEW)") end if %> were all pushing the boundaries of fair valuation with multiples almost double their high growth rates. The only company that has managed to gain in price over the same time period has been AVANT! <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AVNT)") else Response.Write("(NASDAQ: AVNT)") end if %>, as it has become clearer that its arch-rival Cadence Design would not put it out of business with a lawsuit alleging patent infringement. However, the pounding they got in June and July was without any regard for fundamentals and the recent recovery in the shares points to an emerging consensus that all is not lost.
I can only imagine that some institutional money is reluctant to get involved with these companies because of a misbegotten idea that they are captive to the semiconductor industry massive swings in demand. Although the DRAM glut has caused many fabs to retool and produce all manner of logic and video chips, causing massive price declines across the semiconductor chip universe, the need for leading edge tools to make leading edge chips has not diminished in the slightest. EDA companies are in an even better position than the companies that make leading edge capital equipment or fabrication automation devices. To cut back your investment in EDA is to resign yourself to trailing edge devices, hardly a smart move in this blisteringly-competitive industry.
Of course, the bargain-basement prices of mid-July have are now gone, unfortunately. Looking at these companies on any sort of reasonable valuation scale causes one to become seized by vertigo. The lowest price/sales ratio out of Avant!, Cadence, IKOS, Mentor and Synospys is Mentor with a 2.09. Avant! is in the stratosphere, sporting a 10.35 multiple of sales. PEGs are equally daunting, with AVANT! at 1.59, Cadence at 1.65, IKOS at 0.91, and Synopsys at 1.16. Mentor Graphics, in the midst of a turnaround, is the only company trading with a multiple below its forecast rate of growth. These are not numbers that would excite a value investor and even growth-at-a-reasonable price (GARP)-oriented people would have some head-spinning problems.
Looking out a few quarters, there is definitely some potential, however. If you take the forecast earnings for next year and the forecast rates of growth over the next five years, almost all of these companies trade at a slight discount to their future potential. Cadence and IKOS are both anomalies, as both are forecast to grow below the rate of growth for the industry as a whole. If you notch up their long-term growth rates to just an industry multiple, IKOS especially begins to look attractive, selling at 0.74 times its earnings rate of growth on forward estimates. Mentor is the out-and-out winner, however, with a YPEG of 0.54 and working capital backing up 25% of its current market capitalization.
Many managers are willing at times to pay a premium for the EDA companies for the same reason the GARTNER GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GART)") else Response.Write("(NASDAQ: GART)") end if %> can trade at a ridiculous multiple -- certitude of the future earnings stream. As all of these companies license their software, they have a pretty good idea of what they are making in a given year based solely on their existing contracts and historic rates of renewal. Only allowing their product to become completely outdated puts them in danger of extinction. As for susceptibility to the semiconductor cycle, most in the industry would say that the 1992-1993 drop in semiconductors did not even phase these companies and this downturn should prove no worse. Although the valuations are not compelling here, this is an area to keep an eye on, should the market decide to take another nose-dive in the near-future.
ANOTHER FOOLISH THING: The Foolish Portfolio Tracker!
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Randy Befumo (MF Templar), a Fool
Fool On the Hill
Selena Maranjian (MF Selena), another Fool
Heroes & Goats & Editing
(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.
Transmitted: 8/20/96 1:41 PM (en081996)
Randy Befumo (MF Templar),
a Fool
Fool On the Hill
Selena Maranjian (MF Selena),
a Fool
Heroes & Goats & Editing
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