Today's Lunchtime News featured a look at Nationsbank's acquisition of Boatmen's Bancshares. This weekend, we'll be mining some more Fool's Gold -- this week's haul includes the Weekend Research Center, Industry Updates, and a Sector Snapshot on the Gaming Industry. Fool's Gold, which appears each Saturday, is a top-notch resource for finding interesting stocks -- but remember to always do your homework before investing!
MF Merlin's Economic News today discusses the July reports on factory orders and personal income and outlays, the results of the Chicago purchasing managers' August survey, and the University of Michigan's final estimate of consumer sentiment in August. 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. Enjoy!
HEROES
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Banks were booming today, amid a flurry of acquisitions. NATIONSBANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> snapped up BOATMEN'S BANCSHARES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BOAT)") else Response.Write("(NASDAQ: BOAT)") end if %> in a $9.5 billion cash-and-stock deal, sending Boatmen's up $10 5/16 to $53 1/4, while Nationsbank shares withdrew $7 1/4 to $85 1/8 amid concerns about the premium paid for Boatmen's. Meanwhile, UST CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USTB)") else Response.Write("(NASDAQ: USTB)") end if %> agreed to acquire WALDEN BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WLDN)") else Response.Write("(NASDAQ: WLDN)") end if %> in a $161 million stock swap. Walden shares soared $7 3/4 to $28 1/4, while UST was relatively unchanged.
What's this? President Clinton moving the market? Well, he did vow to supercharge airport security systems last night in his acceptance speech. Was anyone listening? Apparently many investors were. Those up-again, down-again bomb detection stocks were... up again today. INVISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INVN)") else Response.Write("(NASDAQ: INVN)") end if %> surged $2 3/8 to $23, BARRINGER TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BARR)") else Response.Write("(NASDAQ: BARR)") end if %> advanced $1 3/8 to $9 7/16, MAGAL SECURITY SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MAGSF)") else Response.Write("(NASDAQ: MAGSF)") end if %> jumped $13/16 to $8 9/16, and AMERICAN SCIENCE & ENGINEERING <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ASE)") else Response.Write("(AMEX: ASE)") end if %> popped up $3/8 to $14. Not many people appear to have noticed that many airports are looking closely at simply adding more bomb-sniffing dogs, which cost $8,500 to raise and train, rather than the million-dollar technological alternatives.
Shares of VALUJET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VJET)") else Response.Write("(NASDAQ: VJET)") end if %> took off today, rising $1 1/2 to $12 1/2 after the airline was un-grounded by the FAA. The airline will start flying 15 planes, as opposed to the 51 it used to operate. The airline was shut down a few weeks after a tragic accident caused one of its planes to crash into the Florida Everglades, leaving no survivors. The FAA is still investigating the cause of this crash, swept from the headlines by the even more shocking explosion of a TWA flight over the Long Island Sound. In unrelated airline news, MIDWEST EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MEH)") else Response.Write("(NYSE: MEH)") end if %> taxied up $1 1/4 to $30 1/4 after its chief financial officer (CFO) left the company.
QUICK TAKES: Also boosted by Business Week was diamond company LAZARE KAPLAN INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: LKI)") else Response.Write("(AMEX: LKI)") end if %>, rising $1 1/2 to $16 on an analyst's opinion that it should be a $24 stock... Car seat-maker DOUGLAS & LOMASON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DOUG)") else Response.Write("(NASDAQ: DOUG)") end if %> shares raced $4 1/2 to $30 5/8 on news that MAGNA INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MAGSF)") else Response.Write("(NASDAQ: MAGSF)") end if %> would purchase it for $31 per share... CITRIX SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CTRX)") else Response.Write("(NASDAQ: CTRX)") end if %> resumed allowing downloads of some of its WinFrame software via the World Wide Web, rebounding $5 to $42 1/2 ... SODAK GAMING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SODK)") else Response.Write("(NASDAQ: SODK)") end if %> exploded up $5 to $52 based on the announcement of a two-for-one stock split.
GOATS
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If you passed by Las Vegas today and heard some mournful bleating, it might have been coming from AMERISTAR CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASCA)") else Response.Write("(NASDAQ: ASCA)") end if %>, which tumbled $1 3/4 to $6 today. The company, expected by analysts to earn $0.25 and $0.12 respectively for its third and fourth quarters, expects to earn half or less of the third quarter estimate, and to miss the fourth quarter by two to five cents. Blamed are relocation expenses and costs associated with the $60 million purchase of Gem Gaming, but many investors are also worrying about threats to revenues from competing casinos.
MONTEREY PASTA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PSTA)") else Response.Write("(NASDAQ: PSTA)") end if %> shares were left on the stove too long, falling $1 1/8 to $4 1/2 as the company warned that it would disappoint in the third quarter, due to lower-than-expected sales, higher-than-expected returns and allowances, and one-time increases to the cost of goods sold. Ned Dean, president and chief executive officer (CEO), explained, "As the company has pursued its new strategy of focusing on retail sales, the number of outlets in new markets has grown dramatically since January of this year... Although most of those markets are proving to be profitable, the unanticipated high rate of returns and allowances combined with low sales in particular markets is compelling the company to re-evaluate its strategy in those markets."
Shares of CRYOLIFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CRYL)") else Response.Write("(NASDAQ: CRYL)") end if %> looked a little lifeless today, retreating $1 3/4 to $12 1/2 after the company, which develops cryopreservation technologies for human tissue transplants, ended negotiations with BAYER AG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BAYZY)") else Response.Write("(NASDAQ: BAYZY)") end if %>. Bayer was negotiating to obtain the global license for FibRx, CryoLife's fibrin-based bioadhesive technology which is designed to help wounds heal. Steven G. Anderson, President and CEO of CryoLife, added that, "Although we were unable to reach agreement on the business terms with Bayer, we continue to be bullish about the commercial prospects for the FibRx adhesive. Now that our exclusive negotiation obligation has expired, we are free to discuss partnerships and license agreements for the FibRx technology with other interested parties."
QUICK CUTS: VAUGHN COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VGHN)") else Response.Write("(NASDAQ: VGHN)") end if %> tumbled $2 3/4 to $12 1/4 after the firm reported earnings of $0.17 EPS, two cents below the estimate of the one analyst that follows the company.
An Investment Opinion by MF Templar
FOOL ON THE HILL: The Power of Compounding
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Buy and hold the stocks of quality companies for long periods of time. This insight is certainly not a recent one, by any stretch of the imagination, but nevertheless, it is often ignored in favor of the current investing fashion. When growth advocate Philip Fisher penned the first investment book ever to hit the New York Times Bestseller list, Common Stocks and Uncommon Profits, this sage advice was foremost on his mind. In the early days of 1958, long before consensus estimates or beta were ever part of an investor's vocabulary, Fisher had the prescience to recognize that the real money to be made in stocks was over periods that could be measured with years -- or even decades.
"Finding the really outstanding companies and staying with them through all the fluctuations of a gyrating market proved far more profitable to far more people than did the more colorful practice of trying to buy them cheap and sell them dear." A testament to the value of his approach, in Chapter Six of his magnum opus Fisher described why MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> is a great firm. Unlike many vogue writers in the world of personal finance who counsel strategies like dividend capture or rolling stock, Fisher's advice was pretty simple -- buy and hold great firms and ignore the quote. Philip A. Fisher certainly did, as Motorola was his single largest holding, rising twenty-fold in the twenty-one years after the book he wrote pointing out its virtues was published in 1958.
I can say with some assurance that Philip Fisher was a Fool's Fool. The principle emphasis of Foolish investing is discovering and owning incredible companies. Although there is a lot said about various mathematical valuations, buying things that look cheap and selling things that look expensive, a unifying strain throughout Foolishness is that there are many companies that investors should take long-term positions in and watch the earnings growth compound over time. Sadly, many investors are gripped by a certain delusion that all of the best companies are too expensive and the only way to make the big bucks is to buy half-baked outfits hawking "ground-breaking" technology.
At various points in the career of BERKSHIRE HATHAWAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRK)") else Response.Write("(NYSE: BRK)") end if %> Chairman Warren Buffett's career, he has been ridiculed by the Wall Street establishment for saying "silly" things that suggest some businesses should be owned no matter what the price. Normally the kind of talk that makes people blather on about whether or not it is a sign of a "market top", the true wisdom of such a claim is never really examined. Purchasing COCA-COLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> at a 15% premium to the S&P 500 in 1988 was viewed by many investors as a stupid move, and more than one skeptical column graced the pages of the Wall Street Journal and Barron's. Buffett's Folly was Coke's sobriquet for the next few months after he placed his big bet, as the shares seemed to go absolutely nowhere. Buffett, as always, has had the last laugh, with Coca-Cola growing more than ten-fold in the past eight years.
The magic of Coca-Cola and Motorola that Fisher and Buffett happened upon was the amazing ability of the firm's to grow earnings at a faster rate than the market as a whole. A minute difference in average annual returns makes an incredible difference in long-term total return. Take for instance WALLY'S WARTHOGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WHOG)") else Response.Write("(NASDAQ: WHOG)") end if %>, which grows earnings every year at about 10%. Compare it to its arch rival ARMANDO'S ARMADILLO'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ARMD)") else Response.Write("(NASDAQ: ARMD)") end if %>, which grows at a 11%. Over the course of a year or two, this minute difference really would not matter all that much. If you held them for 20 years, however, the difference would get to be startling. Where Wally's would have grown earnings by a hefty 573%, Armando's would have generated earnings growth of 706%, a whopping 23% more. And that is just a percentage point ... imagine the difference if it is two percent, or three percent.
A quality company is one that can generate above market growth indefinitely. In the near-term, over five or even ten year periods, they can look expensive after you first buy them. But given human beings have only limited vision, the value of that compounding over periods of twenty, thirty or even fifty-year periods can never be measured adequately. Tom Gardner wrote a SmartMoney column a few months ago putting valuations on a number of branded, consumer companies out two decades. More than a few people have ridiculed him for this in posts, e-mails and articles in various second-tier investment magazines and newsletters that will go unmentioned. Just like Buffett was laughed at for Coke or Fisher, one of the best investors who ever lived, remains virtually unknown, the true value of Tom's point was missed by people who focus on arbitrary concepts like near-term performance or risk-adjusted returns.
The problem before us as investors is what is the best way to accumulate wealth? If you take the problem at face value, the answer becomes clear -- minimize transaction costs and maximize total return. The key to doing this is clearly buying the stocks of companies that can generate above-market returns over the long haul, because over the long haul earnings growth and stock price appreciation correlate almost exactly. This does not mean buy half-baked companies with big potential or be blind to great companies that are becoming not-so-great and keep on holding. However, just as the compounded return of Coca-Cola makes most of the returns possible in professionally managed money look ridiculous, so shall it continue to make it look ridiculous over the next twenty or thirty years.
Simply put, Coca-Cola can compound earnings growth faster than almost any other company on the planet, even if they start from a smaller base and can grow faster in the beginning. The 15% growth compounded, rain or shine, through economic cycles high and low, builds wealth. It may not win you awards every year for the biggest return, but it builds wealth -- the true purpose of investing. What makes men like Fisher and Buffett giants in the world of investing is that they were smart enough to recognize this simple truth, and have put it into practice while the ego-driven portfolio maneuvers of lesser men build substantially smaller amounts of wealth over the long term.
ANOTHER FOOLISH THING: DowMan's Foolish Fribbles!
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Are you tired of wading through the hundreds of Fribbles to find your one or two (or twenty) favorites by MF DowMan? Save your connection time and pick up a copy of DowMan's Foolish Fribbles, a collection of his first 22 Fribbles. Read about everything from using the Dow approach and Investing For Growth for retirement savings to margin investing, all from DowMan's perspective. (MF DowMan is the keeper of our extensive Dow Dividend Approach and Investing for Growth areas.) Other topics covered include taxes, market crashes, relative strength, luck, mortgages, and books on investing. AOL Fools can look the book over in FoolMart (keyword: FoolMart) and non AOL Fools can e-mail MF Attila at [email protected]. AOL 3.0 for Windows users can just click here.