HEROES
COHERENT COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CCSC)") else Response.Write("(NASDAQ: CCSC)") end if %> rose $1 9/16 to $21 1/16 after Canadian telecommunications infrastructure builder NORTHERN TELECOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> that it will expand its relationship with the company. Looking at Nortel's sales growth in switches for wireline and wireless build-outs, this deal involving Coherent's echo cancellation products looks good. However, there are those who wonder if echo cancellation won't eventually just go straight into the switch rather than having Coherent build a subsystem, much like INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> wants to do by building graphics and sound functionality right into their CPUs.
Semiconductor capital equipment manufacturer KULICKE & SOFFA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KLIC)") else Response.Write("(NASDAQ: KLIC)") end if %> rose $3 3/8 to $20 1/2 after reporting a loss of $0.65 per share in its fiscal fourth quarter. The performance was ahead of consensus analysts estimates and was greeted with enthusiasm by Wall Street, with Montgomery analyst Brett Hodess upgrading the stock to a "buy." Bellwether APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %> climbed $1 1/2 to $32 in anticipation of this evening's earnings release. (Investors can listen into the company's conference call by calling the number listed in the Conference Call section of the News.) Is the market for capital equipment turning? Although many companies still anticipate two or more quarters of weakness, the perception of a bottom in the semiconductor market has transferred over to the capital equipment guys.
AMPEX CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AXC)") else Response.Write("(AMEX: AXC)") end if %> blasted ahead $2 5/8 to $9 3/4 hoping for a deal to be made involving the company's keepered media technology. With the odyssey the disk drive industry has been through with magneto resistive (MR) technology, investors know how short and sharp product cycles can be and try to calculate the returns that might accrue to them if that deal does happen. This is especially true at Ampex, which has been one of those storied firms that has invented everything under the sun, but has failed to make much, if anything, on its intellectual property in the last fifteen years.
Although the price of dynamic random access memory (DRAM) keeps falling through the floor, apparently static random access memory (SRAM) price have hit a bottom. Montgomery's chip analyst Jonathan Joseph predicted stronger pricing ahead and upgraded INTEGRATED DEVICE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IDTI)") else Response.Write("(NASDAQ: IDTI)") end if %> to "buy" from "hold," helping the stock gain $1 7/8 to close at $11 3/8. Joseph believes that Taiwanese suppliers have shifted output to other chips and the PC market has soaked up the excess demand. INTEGRATED SILICON SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ISSI)") else Response.Write("(NASDAQ: ISSI)") end if %> also saw a rally today, rising $1 7/16 to $10 3/8. Investors should keep in mind that if prices rise enough, gypsy Taiwanese factory capacity will come right back to churning out SRAM.
QUICK TAKES: Manufacturing process equipment company MILLIPORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MIL)") else Response.Write("(NYSE: MIL)") end if %> added $2 1/8 to $41 3/8 this morning after Morgan Stanley raised the firm to "strong buy" from "neutral"... HANDLEMAN CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HDL)") else Response.Write("(NYSE: HDL)") end if %> moved up $1 1/8 to $8 1/8 as the company reported a 100% increase in quarterly earnings, the result of strategic moves to trim expense levels and inventories at the media products distributor... DIGENE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DIGE)") else Response.Write("(NASDAQ: DIGE)") end if %> jumped $3 5/8, or 53%, to finish at $10 1/2 as investors continue to push up its shares and those of strategic partner CYTYC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYTC)") else Response.Write("(NASDAQ: CYTC)") end if %>, with which it is developing gynecological products. Cytyc was also up strongly, gaining $4 9/16 to $28... Chipmaker VLSI TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VLSI)") else Response.Write("(NASDAQ: VLSI)") end if %> ran up $4 1/2 to $25 as investors learned that the company will shut down or dispose of its San Jose wafer fabrication facility... NORTHERN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: NTI)") else Response.Write("(AMEX: NTI)") end if %> moved up $1 1/8 to $6 7/16 after the electronics instruments maker and corrosion products company reported a 70% increase in Q4 earnings... WESTERN PACIFIC AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WPAC)") else Response.Write("(NASDAQ: WPAC)") end if %> added $1 1/2 to $10 as the company announced that TWA <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %> executive Robert Peiser will join the company as Chief Executive Officer...
GOATS
Breaking up is hard to do -- ZEBRA TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZBRA)") else Response.Write("(NASDAQ: ZBRA)") end if %>, down $4 1/2 to $25 1/2, and ELTRON INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ELTN)") else Response.Write("(NASDAQ: ELTN)") end if %>, down $5 7/8 to $32 3/8, agreed to break up their merger plans little more than a month after their first date. The two bar coding equipment companies could not come to a mutually-satisfying agreement. Eltron covers the lower end of the market, while Zebra products are more functional and earn higher margins. Since that it the case, Zebra's officers wanted say in the combined company -- thus, no deal. Though it didn't move on the news, INTERNATIONAL IMAGING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IMAK)") else Response.Write("(NASDAQ: IMAK)") end if %> should probably breathe the biggest sigh of relief since that company would have faced price pressure, being a primary supplier to both for black-and-white ribbons and the exclusive supplier of thermal color ribbons.
FRIEDMAN'S INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FRDM)") else Response.Write("(NASDAQ: FRDM)") end if %> lost $3 3/8 to $13 7/8 after reporting estimate-beating earnings in its fourth quarter. The jewelry retailer said that sales didn't meet goals for the quarter due to reconfiguration of some of its newer stores, but that will not stop them from enjoying a strong holiday season. Though the company positions itself as a "fine jewelry store," it's hard to imagine how fine the stuff is when the mark-up is only two times "keystone," or wholesale, including overhead. Premium stores mark-up three times keystone, and stores like TIFFANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIF)") else Response.Write("(NYSE: TIF)") end if %> can do up to five times the wholesale price. When looking at such stores, investors should also note the reserve for bad debts, which is rather large relative to accounts receivable. While the large number is admirably conservative, it indicates that the company stretches to make sales and can take lumps when consumers are tapped out.
COMPUSERVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSRV)") else Response.Write("(NASDAQ: CSRV)") end if %> dropped $15/16 to $10 11/16 on announcing a loss of $0.57 per share in its latest quarter. That's net of a charge the company will take to dump its WOW! online service, which was cartoonish and lacking in content. Though one can say that the company missed estimates badly this quarter, those estimates really were guesses. The market had already discounted much of the news, as the stock came back by the end of the day. Some investors are looking at the company's plans to get back to its core business, technical, and professional markets. We would hate to tell them that we had told them so, because we didn't. Had they asked, well then, we might be able to say something different.
QUICK CUTS: Semiconductor process equipment company ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ETEC)") else Response.Write("(NASDAQ: ETEC)") end if %> lost $3 5/8 to $26 7/8 even though it reported above-long-term trend earnings last night. The company followed-up that news with an announcement that it will increase its shares outstanding by more than 20% in a secondary offering in which most of the proceeds will go to investors and not the company... BIO-PLEXUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BPLX)") else Response.Write("(NASDAQ: BPLX)") end if %> lost $3 to $4 1/8 as the developmental hypodermic needle company revealed that it is in violation of Nasdaq listing requirements.
FOOL ON THE HILL
An Investment Opinion by MF
Templar
When in Doubt, Blame it On the Industry
OLSTEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %> tumbled $5 3/8 to $14 1/2 on more than fourteen times normal volume today after issuing a profit warning for its fiscal fourth quarter. News that the temporary services firm would not make its numbers also drove down the shares of its peer group, with ten to twenty percent declines across the board. Today's rout represents the first across the board decline for the temporary help providers in the past two years. Shares have climbed steadily as increased outsourcing caused revenues and earnings to explode, rising to levels that some more cautious voices have called unsustainable for many months.
Olsten's specific problem was earnings -- or lack thereof. The Melville, New York-based staffing firm anticipates earning a mere $0.20 earnings per share (EPS) for the fourth quarter, pretty dismal when compared to the $0.41 EPS that most analysts were expecting. The company earned $0.36 EPS in the year ago period, meaning the quarter is being universally viewed as an absolute disaster.
Olsten chairman and chief executive Frank N. Liguori blamed industry-wide factors, saying "the staffing services industry is experiencing margin pressure due to an increasing number of longer-term, higher-volume, lower-margin national account contracts and large regional partnerships with major companies." Liguori added that many of these accounts come with significantly higher up-front costs than the normal account carries, putting an additional burden on the firm from the get-go. A tight labor market has left many positions in high-margin specialty markets unfilled as well, leaving many staffing firms unable to fill high-paying positions because they just do not have the bodies.
Another industry-wide factor that was not specifically mentioned by Olsten was the continued decline of high-margin Medicare accounts. As the nation's leading provider of home healthcare services, Olsten is disproportionately exposed to shifts in how medical care is financed because of its Olsten HealthCare and Olsten Kimberly QualityCare units. Home healthcare services receive the double-whammy of losing business as more Medicare patients enter health maintenance organizations, even as Medicare cuts reimbursement rates on the patients it manages to continue to service. More than 15 percent of Olsten's revenues come from its home healthcare business.
Not all agreed that the difficulties were so widespread. Some voices in the market called Olsten's problems company-specific, explaining that the company has aggressively pursued national accounts by lower pricing. The consequent erosion of gross margins that resulted from this intense business acquisition program is why the numbers for this quarter will not add up. Assuming that this is the problem, it is not unfixable. Olsten can reprice its national account contracts so that they become profitable, taking into account the higher up-front costs that it is incurring as well.
Skepticism was rife today about the "single company" theory, with almost every single temporary help firm down in higher than average volume. The poorest performers were large staffing companies, many with significant home healthcare revenues as well. The worst performers were ACCUSTAFF <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASI)") else Response.Write("(NYSE: ASI)") end if %>, diving $2 1/4 to $21 1/4, CORESTAFF <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSTF)") else Response.Write("(NASDAQ: CSTF)") end if %>, dropping $2 1/4 to $25, INTERIM SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IS)") else Response.Write("(NYSE: IS)") end if %>, slipping $3 1/8 to $36, NORRELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NRL)") else Response.Write("(NYSE: NRL)") end if %>, falling $1 3/8 to $22 7/8, PERSONNEL GROUP OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PGA)") else Response.Write("(NYSE: PGA)") end if %>, slammed for $3 to $22 1/8, and ROBERT HALF <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHI)") else Response.Write("(NYSE: RHI)") end if %>, mauled for $2 3/8 to $35 7/8. MANPOWER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAN)") else Response.Write("(NYSE: MAN)") end if %> was the first staffing company to show weakness in late September when it guided analysts down because its French operations were not doing as well as previously thought.
Wall Street is a pretty paranoid place. When one company says it has company-specific problems, it normally gets a little twitchy. When a second company in the same industry group develops its own set of company-specific problems, there is an outbreak of skepticism. The reaction today was driven by the market's conclusion that all of the temporary staffing companies are hitting the wall after two years of incredible growth. Even if a widespread slowdown in growth is occurring across the board, all of these companies are currently being tarred with the same brush. Investors should entertain the possibility that there may be some pricing inefficiencies here and load up for the fat pitch.
FOOLISH FEATURES
Have you had the chance to check out the Fool's Sector Snapshot? It's a weekly feature that's part of Fool's Gold. The most recent snapshot looks at Books.
The Lunchtime News features a clarification of some of Templar's comments yesterday that led some poeple to believe that he was advocating a trading mentality. In reality, what he was talking about was analogous to waiting for a heater down the middle.
CONFERENCE CALLS
HEWLETT PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(303) 446-5399 (code: 2004539) -- replay (after 8:30 p.m. EST through 8p.m.
EST on 11/25)
11/20/96
BROOKS AUTOMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRKS)") else Response.Write("(NYSE: BRKS)") end if %>
(402) 220-5199 -- replay
11/21/96
SUNGLASS HUT<% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RAYS)") else Response.Write("(NASDAQ: RAYS)") end if %>
1-800-475-6701 (code 320742) -- replay (from 11AM on 11/21 thru midnight
11/27)
11/21/96
APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %>
after 5:30 p.m. EST
1-800-642-1687 (code: 108790) -- replay
11/22/96
COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
(re: Cheyenne Acquisition)
1-800-839-3013 (code: 7243) -- replay avail. until evening of 11/25
ANOTHER FOOLISH THING
Learn to value stocks painlessly! In the Industry Decathlon primer, MF Bogey takes readers by the hand and walks them through five stock valuation methods and ten financial ratios. While demystifying the Balance Sheet, Statement of Cash Flows, and Income Statement, Bogey demonstrates how to compare a bunch of companies in your industry of choice and find the most promising one. This is very useful stuff, folks! Check it out in FoolMart.
Randy Befumo (MF Templar),
a Fool
Fool On the Hill
Dale Wettlaufer (MF Raleigh), Call
me Golden Wheels
Heroes & Goats
Brian Bauer (MF Hoops), one more Fool
Editing
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