HEROES
HFS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HFS)") else Response.Write("(NYSE: HFS)") end if %> advanced $3 3/4 to $78 3/8 after announcing the acquisition of time-share condo company Resort Condominiums. The large holding company owns over 5,000 hotel properties under the Days Inn, Howard Johnson, Ramada, and Super 8 names. The company also owns Avis car rentals and real-estate brokerages Century 21, ERA, and Coldwell Banker. For immediate consideration of $625 million and up to $200 million over the next five years, HFS will now own 70% of the market for time-share condominium services.
Moving up $2 1/4 to $18 1/2 today, digital signal processing (DSP) chipmaker ZORAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZRAN)") else Response.Write("(NASDAQ: ZRAN)") end if %> announced a pact in which Zoran will supply audio chips for Digital Versatile Disc (DVD) machines made by Toshiba, the Japanese electronics colossus. Toshiba will start selling its DVD machines in Japan by Nov. 1 at an approximate price point of $700. At the same time, Toshiba is also manufacturing DVD-ROMs and DVD decoder boards for PCs, both of which are destinations for Zoran's processors.
CYBERCASH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYCH)") else Response.Write("(NASDAQ: CYCH)") end if %> rose $7 to $40 1/2 as the internet transaction services company licensed its CyberCoin software to NETSCAPE<% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSCP)") else Response.Write("(NASDAQ: NSCP)") end if %>. The agreement is more than a technology step for CyberCash -- it is a distribution and marketing step. The Reston, Virginia company sees itself as a financial services provider -- a facilitator of transactions -- rather than a software company. However, the technology that CyberCash does bring to the table will allow merchants using Netscape's Secure Electronic Transactions protocols to provide services or goods at prices as low as $0.25 apiece (at which Cybercash makes 8 pennies on the transaction). At the $10.00 transaction level, CyberCash will make 3% per transaction, which gives it a structure like Visa or Mastercard.
QUICK TAKES: AMATI COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMTX)") else Response.Write("(NASDAQ: AMTX)") end if %> rose $3 1/4 to $24 3/4 today as investors cheered news of the decision of a Baby Bell consortium to go with DMT line-coding for an ADSL contract instead of CAP line-coding. Industry-standard DMT line-coding contracts create royalty revenues for Amati... AUGAT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AUG)") else Response.Write("(NYSE: AUG)") end if %> jumped $4 3/8 to $25 1/4 as THOMAS & BETTS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TNB)") else Response.Write("(NYSE: TNB)") end if %> announced it will exchange 0.68 of its shares (which closed at $37 7/8) in a merger agreement with Augat... SPECTRAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPTR)") else Response.Write("(NASDAQ: SPTR)") end if %> moved up $3 to $19 1/8 on winning a $35-million deal to supply LUCENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> with multimode fiber optic cable.
GOATS
KAISER ALUMINUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KLU)") else Response.Write("(NASDAQ: KLU)") end if %> was squashed today, losing $7/8 to finish at $10 5/8. The company reported that earnings will be negative in the coming quarter, which was expected by investors. The loss will be much higher than expected, though. The notion that higher commodity prices are bad, which is a thought propounded by prognosticators throughout the media, actually misses the mark in many ways. Net-net, when the earnings of the aluminum companies go down, as seen in the earnings warnings of ALCAN ALUMINUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AL)") else Response.Write("(NYSE: AL)") end if %> or Kaiser, the earnings of companies like bottlers, such as COCA COLA ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCE)") else Response.Write("(NYSE: CCE)") end if %>, stand a good chance of increasing.
Telecommunications equipment maker WESTELL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSTL.A)") else Response.Write("(NASDAQ: WSTL.A)") end if %> dropped $12 3/8 to $34 today as the "Gang of Four," the Joint Procurement Group made up of four Baby Bells, chose French equipment maker ALCATEL ALSTHOM (NYSE/ADR: ALA) to supply ADSL solutions in a $300-million contract lasting through the year 2001. The consortium did its job, bringing in a per-line price of $300, far below the average price per line that investors had been expecting at this point in the Digital Subscriber Line game.
ALPHARMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALO)") else Response.Write("(NYSE: ALO)") end if %> plummeted $3 1/8, or 21%, to $11 3/4 today after the company checked in with investors Friday. The company's update was not pretty: Sales volume and prices are dropping as trends in healthcare are favoring ever-larger customers and ever-smaller margins for suppliers. Just-in-time inventory shifts -- a trend in which companies try to push off inventories onto their suppliers -- are also hitting generic pharmaceuticals right now and will continue to squeeze earnings in the near-term. Like other companies in this group, such as IVAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IVX)") else Response.Write("(AMEX: IVX)") end if %>, 1996 has been a horrible year for stock performance at Alpharma.
QUICK CUTS: AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> fell $2 to $27 1/4 as "unnamed traders" fretted over the company's no-show at an Alex. Brown meeting. On the fundamental front, investors continue to wonder if flat-pricing is the best mix for company profitability and customer satisfaction... Dropping $5 1/4 to $11 3/4, RISCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RISC)") else Response.Write("(NASDAQ: RISC)") end if %> was hit with news from the Florida State Insurance Commission that the state will seek an 11.2% reduction in workers' compensation premium rates... Rural long-term care provider COMMUNITY CARE OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CCAI)") else Response.Write("(NASDAQ: CCAI)") end if %> dropped $2 23/32 to $4 17/32 as Wheat First Butcher and Smith Barney expressed doubts about the company's ability to get an acquisition deal done. Investors are also concerned about the effects of possible changes in Medicaid spending.
FOOL ON THE HILL
An Investment Opinion by MF Templar
Secondaries -- A Help or a Hurt?
Secondary offerings can be a dangerous undertaking. Just ask long-time shareholders of JABIL CIRCUITS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: JBIL)") else Response.Write("(NASDAQ: JBIL)") end if %>. When the company partnered up with underwriter Unterberg Harris to offer 3.5 million shares at $14.50 a pop back on October 24th, 1995, it had no idea that three months later disaster would strike. Institutional shareholders eagerly lapped up shares of the fast-growing contract manufacturer after due diligence during the deal turned up nothing of consequence that was listed in the deal's prospectus. Shares climbed as high as $23 in the weeks following the deal, as so-called "technology"-related stocks were surging on general hopes that prices had reached a permanently-high plateau.
The first major sign of trouble for the St. Petersburg, Florida-based concern was some estimate trimming by Unterberg Harris, which clocked the stock from $23 down to $12 in a matter of days. The market reacted violently when Unterberg analyst Jim Weil trimmed $0.10 EPS off of his fiscal 1995 estimates. About a month later, the company confirmed the reason -- QUANTUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QNTM)") else Response.Write("(NASDAQ: QNTM)") end if %>, ailing from collapsing business with APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AAPL)") else Response.Write("(NASDAQ: AAPL)") end if %>, was canceling $60 million worth of business. The stock got pounded again in late January, slipping from $9 to $5 and change in pretty hectic trading. But less than a year later, after one private placement of $50 in long-term debt at less than 7.0% and a few good quarters, the stock is back up to $18 and change. Quite a snazzy return for shareholders who picked up the stock in January.
Why was there so much volatility in Jabil Circuit? Two words -- secondary offering. When a company offers a significant amount of shares to the public in a secondary offering, this inventory is normally sold in large blocks to canny institutional investors who want to get involved with the company. Company management circles the country in what is called a "road show" to drum up interest in the stock. Carefully researched S-3 registration statements with the underwriter's seal of approval are sent out and analysts eagerly go through these, looking for telltale warning signs. If all looks kosher, portfolio managers are given the green light and large purchases of the stock begin. And usually, everything is hunky-dory and the stock moves higher.
Except if something bad happens soon after the offering that convinces these institutional shareholders that they were lied to.
When Jabil Circuit started to tell the market only two months after its major secondary offering that one of its largest customers was about to up and disappear, you can imagine the reaction of many portfolio managers. "Hold on... we just talked to them a few weeks ago and everything was okay. What is wrong here?" In situations like this, panic feeds on uncertainty and risk-averse professionals commence mass dumping, igniting a firestorm of selling that usually leaves the stock at some scorched-earth price days later. The stakes are high when a company does a secondary -- if everything does not go as planned and the Street believes it was sold a false bill of goods, it will sell first and ask questions later.
The irony here is that after completing an IPO or a secondary offering, even if a company is stricken by uncertain circumstances that cause the market to smash the stock, it is actually in a better situation than prior to the offering. Why? Because it has all of that cash. Cash in the bank is a wonderful thing, particularly when you have hit tough times. With cash in the bank, you can buy out competitors, spend money developing new products, improve your distribution system or buy some advertising spots. The fact that these companies have taken slugs of cash to enhance their constitution never dissuades institutional investors from selling. It can alert individual investors to potential bargains that trade at low multiples to cash and available working capital.
If they are careful, investors who look to buy "broken" stocks that get crushed after an IPO or a secondary could isolate some tremendously profitable situations. Certainly, after a company has disappointed the Street somehow, it will take a while for it to regain the confidence of institutional investors. As a result, these stocks tend to stay at abnormally low levels for a while, as everyone checks and rechecks their opinions, not wanting to make the wrong call. Individual investors have time to order the packet, do the research and then follow-up by buying the stock if they are absolutely dead-sure that this was an over-reaction driven by the institutional dumping. Thus, they have a much better chance to play off of a market inefficiency by evaluating the fundamental information in an emotionless context. For investors who are interested in this approach, other recent examples of broken IPOs or secondaries that come to mind are KENTEK INFO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KNTK)") else Response.Write("(NASDAQ: KNTK)") end if %> and IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %>. Keep in mind that the stakes are higher after a company disappoints. You need to be much more sure than you otherwise might be or you stand to lose a substantial chunk of your equity.
FOOLISH FEATURES
Today's Lunchtime News asks the age old question, "Just how efficient are the markets?"
CONFERENCE CALLS
None
Dale Wettlaufer (MF Raleigh),
a Fool
A Fool Named Horse
Selena Maranjian (MF Selena),
a Fool
Heroes & Goats & Editing