HEROES
PROXIM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PROX)") else Response.Write("(NASDAQ: PROX)") end if %> surged $2 13/16 to $21 1/2, having announced that it will merge with chip-maker DSP COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DSPC)") else Response.Write("(NASDAQ: DSPC)") end if %>. Proxim's multiples at the merger price were 9.16 times run-rate revenues and 70 times run-rate earnings. DSP valued the wireless and networking company at 53 times 1997 earnings, according to First Call estimates. Proxim has some very interesting products, including wireless LAN adapters, hubs, and bridges, all of which use -- not surprisingly -- DSPs (digital signal processors). At the multiples which DSP is attracting, it's a wonder it hasn't used its stock as currency to do more transactions of this type. Apparently, investors are a little skittish about the valuations, as DSP plunged $17 1/8 to $35 1/4 today and Proxim is down $6 1/2 from its morning high of $28.
AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> rose $1 1/4 to $25 7/8 as the company announced a shift in the way it does business. The greatest change taking place will be the institution of flat-rate pricing for its Internet and AOL gateways. If a customer wishes to come in via an ISP and not through an AOL dial-up, the customer can access all the AOL content they want for $9.95 a month. The supply-siders out there will say this is going to prime the pump for amount of services demanded, which would naturally be followed by increases in advertising. The demand-siders will argue that demand is not as flexible as AOL thinks and that total revenues will drop. If AOL can compete on price for almost anyone that doesn't mind being "[email protected]," then the ISP business model is probably feeling heat today.
MERCURY FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MFN)") else Response.Write("(NYSE: MFN)") end if %> vroomed ahead $1 1/2 to $11 5/8 after the special finance concern meet consensus estimates of $0.21 EPS last evening. Although this only inspired tepid buying this morning, a rally in the shares was sparked by the announcement of a nine million share buy-back, roughly six percent of the 179 million shares outstanding. Mercury is the country's largest publicly-traded financer of used cars, a tricky business that has had a number of high-profile casualties like OLYMPIC FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %>, TFC ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TFCE)") else Response.Write("(NASDAQ: TFCE)") end if %>, EAGLE FINANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EFCW)") else Response.Write("(NASDAQ: EFCW)") end if %> and GENERAL ACCEPTANCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GACC)") else Response.Write("(NASDAQ: GACC)") end if %>, to name a few. In a time of declining consumer credit quality, it is the speculative credit risks that often need to finance used cars at 20% rates who are the first to stop payment. Perhaps the buyers of Mercury are hedging their purchase by buying PAYCO AMERICAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PAYC)") else Response.Write("(NASDAQ: PAYC)") end if %>, a publicly-traded auto repossession concern?
QUICK TAKES: Telecommunications equipment company TSX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TSXX)") else Response.Write("(NASDAQ: TSXX)") end if %> rose $15/16 to $9 7/16 after announcing a 1-for-1 stock swap with fiber optics equipment firm ANTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ANTC)") else Response.Write("(NASDAQ: ANTC)") end if %>... PIXAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PIXR)") else Response.Write("(NASDAQ: PIXR)") end if %> was animated by $1 1/4 to $17 7/8 after reporting earnings per share of $0.21 on fat gross margins vs. single-digit EPS estimates and a $0.03-per-share loss in last year's Q3... Environmentally-sensitive telecommunications infrastructure-builder MASTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MASX)") else Response.Write("(NASDAQ: MASX)") end if %> bolted $5 higher to close at $45 after reporting significantly higher revenues and operating earnings in its third quarter... AMERICAN CLASSIC VOYAGES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMCV)") else Response.Write("(NASDAQ: AMCV)") end if %> steamed upward $1 1/4 to $10 after the company reported a 75% increase in Q3 net earnings per share... Drug company THERATECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: THRT)") else Response.Write("(NASDAQ: THRT)") end if %> rose $1 1/2 to $11 1/2, announcing its submission of a Supplemental New Drug Application to the FDA along with partner SMITHKLINE BEECHAM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBH)") else Response.Write("(NYSE: SBH)") end if %>... ELAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ELN)") else Response.Write("(NYSE: ELN)") end if %> rose $1 3/4 to $25 7/8, having reported a 70% increase in net sales and a 42% increase in operating income in its second quarter. The pharmaceutical and biotechnology firm reported flat earnings per American Depository Share, though.
GOATS
DONNA KARAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %> underwent a market cap re-design as its shares were cut $3 3/4 to $15 today after Dow Jones quoted the firm as saying, ''We expect the company to report about break-even results for the fourth quarter...." The culprit is its beauty line, which accounted for $30 million in sales in 1995 -- small peanuts compared to the company's core lines such as Donna Karan New York and DKNY(R) collections for women, which did $77 million and $271 million in sales, respectively, last year. Granted, the beauty division is growing quickly and it probably sucks up resources as any growing brand name can. Why, though, would the division's projected loss of $0.04 in Q4 bring earnings down to break-even? Maybe investors are pushing the shares to a new low because they can't reconcile the two either, as even analysts (who spend a lot of time talking with the company) had been estimating EPS of $0.24 for the fourth quarter. The company said that it is looking into strategic alternatives for the beauty business.
Feeling some of the chill of investors' concerns over the PC market, COMPUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> dropped $5 1/2 to close at $51 5/8. Salomon Brothers analyst David Childe is the second full-time watcher of the industry in as many days to sound a warning on PC pricing, noting that if the industry starts to let out its belt on pricing, promotional pricing "will ultimately have to be mirrored by CompUSA to some degree." Though the company doesn't break out inventories in its press release, gross margin erosion on markdowns would almost certainly hurt the company's bottom line. Meanwhile, Smith Barney analyst Maureen McGrath said that CompUSA is less vulnerable to price erosion since high-end products are in short supply and since corporate buying activity is strong. Either way, there is little denying that sales in this industry are cyclical and that inventory corrections can happen. Both of these factors lead some to worry as there is room to cut pricing in many areas of the PC industry where supply is not short.
Haggar the Horrible? The slacks may be wrinkle-free, but the stock certainly ain't. HAGGAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HGGR)") else Response.Write("(NASDAQ: HGGR)") end if %> has been one of the sob stories of the fast and furious world of clothing manufacturers, slipping from its all-time high perch of $40 in early 1994 to its current $14 5/8, down $1 1/4 today. Perennially restructuring, Haggar has been unable to compete with cheaper labor and raw materials overseas. The troubled maker of men's dress slacks and sports coats holds a dominant position with 20% of the market, but cannot seem to avoid disaster. A 1995 hurricane damaged its key distribution center while the company is now closing two factories and laying off workers in an effort to cut costs. With no earnings growth, a pitiful yield and a $40 million slug of debt, the future still needs to be ironed out.
QUICK CUTS: MINIMED INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MNMD)") else Response.Write("(NASDAQ: MNMD)") end if %> slid $3 3/8 to $25 1/8 after underwriter Smith Barney downgraded the maker of insulin delivery devices to "hold" from "outperform" based on valuation... PREMENOS TECHNOLOGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRMO)") else Response.Write("(NASDAQ: PRMO)") end if %> free-fell $9 to $7 5/8, reporting flat earnings per share (before acquisition charges) on record revenues and announcing that its President and CEO was leaving... Independent directors at SYSTEMIX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STMX)") else Response.Write("(NASDAQ: STMX)") end if %> rejected a $17 per share buy-out offer from Swiss drug maker Sandoz Ltd, dropping the biotech company's shares $1 3/4 to $14 1/4... RELIV INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RELV)") else Response.Write("(NASDAQ: RELV)") end if %> slipped $3 1/2 to $8 1/8 a day after announcing a host of new pharmaceutical products... Investors mulled over the earnings and charges contained in the quarterly release of AAMES FINANCIAL CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAM)") else Response.Write("(NYSE: AAM)") end if %> and dropped it for a $3 1/8 loss to $41 1/4... Disk drive head makers APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %> and READ-RITE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RDRT)") else Response.Write("(NASDAQ: RDRT)") end if %> both dropped today by more than 5% as PC market fears may have affected the companies.
MORE QUICK CUTS: Billboard advertising company UNIVERSAL OUTDOOR HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UOUT)") else Response.Write("(NASDAQ: UOUT)") end if %> broke down $4 1/2 to $26 1/4 as investors showed their displeasure over the company's third quarter results... BIOVAIL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BVF)") else Response.Write("(AMEX: BVF)") end if %> dropped $2 7/8 to $32 1/8 even as the pharmaceutical company announced earnings per share of $0.25 for its third quarter... Investors didn't like the earnings of IMNET SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IMNT)") else Response.Write("(NASDAQ: IMNT)") end if %> either, as they threw that company for a $2 1/4 to $11 1/2 loss today... Semiconductor company CREE RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CREE)") else Response.Write("(NASDAQ: CREE)") end if %> tumbled $2 to $11 1/4 as a class action suit was filed against the company, alleging that Cree misled investors regarding the production of the company's super-blue LED modules ... Telecommunications equipment company ANTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ANTC)") else Response.Write("(NASDAQ: ANTC)") end if %> fell $1 7/8 to $9 5/8 after announcing a 1-for-1 stock swap with fiber optics equipment firm TSX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TSXX)") else Response.Write("(NASDAQ: TSXX)") end if %>. TSX rose $15/16, or 11%, to $9 7/16 after being up as high as $10 3/8 today.
FOOL ON THE HILL
An Investment Opinion by MF Templar
Twilight of the Semiconductors
The salutary effect of INTEL CORP.'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> September 11th announcement that revenues would be higher than previously forecast seems to be wearing off of the semiconductor- and personal computer-related stocks. In the past few weeks, names as varied as MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>, MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>, TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %>, DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %> and GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GATE)") else Response.Write("(NASDAQ: GATE)") end if %> have all slipped as Wall Street has recalibrated its PC demand-o-meter in the face of all-time lows in the computer memory market.
Spot pricing of memory chips has ebbed in recent weeks, as Korean factories returned to their pre-holiday output levels and Taiwanese wafer fabrication plants (fabs) worked their way to full operational status, threatening to tip the delicately-balanced scales of supply and demand. A month ago, inventories were razor thin and a slight uptick in demand, as personal computer manufacturers went to fill the channel for Christmas sales, created a short-term trading rally in memory chips, leaving names like Micron sold out of some standard configurations. The uptick in pricing was met with heavy selling by many unhappy owners of DRAM chips, eventually turning the tide and sending the spot price back down to all-time lows.
Speculation only five weeks ago was that we had reached the bottom of the semiconductor inventory correction and that the future was bright with hope for better pricing. Over the past two weeks, the price performance seen from these companies has not held up, however. Micron has slipped from its late September crest in the $34 range back down to $26 and change, nearly 25% lower than it was only two to four weeks ago. Texas Instruments has shed nearly $10 over the same period, leaving the Texas-based semiconductor and electronic equipment manufacturer 20% below its recent highs. Motorola today closed in on a three-year low, within seven percent of the $42 the company hit in May of 1994.
A facet that Micron, Texas Instruments and Motorola have in common is that they are all hamstrung by the personal computer demand cycle. Texas Instruments has a booming laptop business and Motorola is looking to get into desktop PCs to provide a channel for its PowerPC chip, as well as minting quite a number of modems. Micron owns roughly 80% of MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MUEI)") else Response.Write("(NASDAQ: MUEI)") end if %> -- a PC and contract manufacturer well off of its recent $23 1/2 high at $12 7/8, and down $1 3/4 today. Micron Electronics has been especially battered as it recently filed to sell $325 million debt in order to buy more contract manufacturing assets, spooking many investors. Micron is hardly alone. Gateway 2000 has been mercilessly pounded since reporting blow-out earnings last week, slipping in tandem with Dell Computer as the consensus grows that these direct manufacturers have lost the competitive advantage of lower chip prices. They shouldn't feel too bad, however -- indirect retailer COMPAQ COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> may go through stores rather than by mail, but it has also been beaten up in the past two weeks.
So a few weeks ago it was a bottom to the inventory correction and a rally in chip prices, driven by rising memory average selling prices (ASPs). The celebratory e-mails in my mailbox gloating that the negative commentary on memory pricing as it related to Micron was ill-timed given the later performance of the stock were coming fast and furious. Now, with everyone gearing up to have a strong Christmas of 20 percent plus growth in personal computer sales but chip prices slipping again, these stocks are taking a dive. Certainly a contrarian investor would think that some of these names are starting to look cheap for the first time in a few weeks, but for some reason an overall mystification pervades my outlook. The mistaken perception that memory prices were rallying drove far too much indiscriminate buying. Now the belief that chip prices are headed lower in the near-term is driving an equal amount of indiscriminate selling.
FOOLISH FEATURES
Today's Lunchtime News discussed another angle on AOL's big day today.
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Dale Wettlaufer (MF Raleigh),
a Fool
Heroes & Goats