HEROES
WALT DISNEY COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> rose $2 3/4 to $76 1/4 today after reporting fourth quarter earnings per share (EPS) of $0.52 on a pro-forma basis, compared with pro-forma income of $0.32 per share last year. "Pro-forma" assumes the integration of operations for Disney and Capital Cities/ABC in last year's fourth quarter (though the two companies didn't close their merger until early 1996) so that investors can tell how well the combined company did this year compared with the hypothetical company last year. With that in mind, EPS increased anywhere from 53% to 62% during the quarter, thanks to very strong results from the Creative Content division, comprised of film studios, home video operations, and television syndication. While broadcasting revenue growth was kept down because of ABC's ratings, other properties such as ESPN held their own and contributed to a 36% increase in broadcasting operating income. Mickey is probably smiling today.
Other smiling investors today include the shareholders of ONEIDA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OCQ)") else Response.Write("(NYSE: OCQ)") end if %>, the shares of which rose $1 1/2 to $17 1/8. The company reported net income of $0.47 per share for the third quarter. Those results don't include the operations of its copper wire division, Camden Wire, since Oneida also announced today that it will sell that company. Oneida will receive more than $3 a share in cash, get rid of more than $1.25 a share in debt, and will be free to focus on its core operations. While the company is the world's largest producer of stainless steel and silver plated flatware, it has concentrated its efforts on acquisitions of china and tableware companies. Given that its dividend yield is more than 50% above that of the S&P 500 and its business model now makes more sense, Oneida stands a better chance of trading somewhere closer to market multiples going forward, and not at the large discount at which it normally trades.
TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> gained $4 1/4 to $60 3/4 today as the company will realize value from its intellectual properties which analysts and investors had not been expecting. TI announced that Korean industrial titan Samsung agreed to pay it over $1 billion in royalties over the next ten years, with payments being front-loaded into the first half of that term. In the coming quarter, TI will accrue $105 million in revenues from this agreement alone, which will add a very high margin boost to earnings since many of the costs associated with the development of these properties were incurred in years past. With this move today, Texas Instruments vaulted toward its 52 week high, confounding those who associate the worth of the company only with the spot market price of the DRAM chips it makes.
QUICK TAKES: Arizona-based CONTINENTAL HOMES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CON)") else Response.Write("(NYSE: CON)") end if %> rose $1 1/8 to $19 5/8 after Smith Barney upgraded its investment rating on the company to "buy" from "outperform."... GRUPO IUSACELL SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEL)") else Response.Write("(NYSE: CEL)") end if %> rang up a $1 7/8 gain to $8 7/8 on announcing that the company will turn over management control to BELL ATLANTIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %>, which already owns 42% of the company and which will inject cash into the leading Mexican wireless telephony operation via a convertible debt transaction... Days after staffing firms were crunched by comments from OLSTEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %>, PERSONNEL GROUP OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PGA)") else Response.Write("(NYSE: PGA)") end if %> bounced back $2 to $23... CYTOTHERAPEUTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CTII)") else Response.Write("(NASDAQ: CTII)") end if %> rose $1 1/4 to $9 3/8 after the biotech firm announced a joint development agreement with GENENTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNE)") else Response.Write("(NYSE: GNE)") end if %> to work on neurological disorders such as Parkinson's and Lou Gehrig's diseases... Embedded software solutions company INTEGRATED SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTS)") else Response.Write("(NASDAQ: INTS)") end if %> moved up $4 to $21 1/2 after the company said that it will speed up the financial integration of acquired company Diab Data...
MORE TAKES: PHILIPS ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %> rose $1 3/4 to $40 3/8 as Morgan Stanley upped its rating on the Dutch consumer electronics conglomerate to "strong buy," possibly due to the company's restructuring efforts... Recently-IPOed consumer plastics maker ZAG INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZAGIF)") else Response.Write("(NASDAQ: ZAGIF)") end if %> rose $2 13/16 to $16 5/16 after the company reported a 37.5% increase in third quarter EPS. Lehman Brothers also started the company at a "strong buy" rating... EDUCATIONAL DEVELOPMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EDUC)") else Response.Write("(NASDAQ: EDUC)") end if %> gained $1 1/4 to $8 1/8 as the company announced record October sales and said they are heading for record annual sales and earnings in fiscal 1997... Database company BORLAND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BORL)") else Response.Write("(NASDAQ: BORL)") end if %> continued to move, adding $1 3/8 to $8 3/8 a day after the company announced that APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AAPL)") else Response.Write("(NASDAQ: AAPL)") end if %> veteran Delbert Yocam will join Borland as Chairman and CEO... UNION ACCEPTANCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UACA)") else Response.Write("(NASDAQ: UACA)") end if %> rose $1 3/8 to $18 7/8 as Goldman Sachs rated the auto finance company a "trading buy"... After announcing that it expects to close on its WJA Realty acquisition by the end of the year, Jai-alai and poker operator FLORIDA GAMING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BETS)") else Response.Write("(NASDAQ: BETS)") end if %> jumped $1 to $7.
GOATS
San Diego-based CYMER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYMI)") else Response.Write("(NASDAQ: CYMI)") end if %> dropped $2 15/32 to $30 31/32 today after the company announced that it would expand its share count in a secondary offering. At $30 a share, the company is valued in the neighborhood of $400 million, which is a heady valuation for a company with annualized revenues of about $47 million. Cymer makes deep ultraviolet excimer lasers which are used in photolithography steppers, a component crucial to the manufacture of semiconductors with feature sizes of 0.25 microns and below. The companies that buy Cymer's lasers, such as Canon, ASM LITHOGRAPHY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASMLF)") else Response.Write("(NASDAQ: ASMLF)") end if %>, and SILICON VALLEY GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SVGI)") else Response.Write("(NASDAQ: SVGI)") end if %>, know how valuable these components are. Without these tools, the move toward 64 kbit and 256 kbit DRAM chips and other leading-edge chips would not be able to happen.
MECON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MECN)") else Response.Write("(NASDAQ: MECN)") end if %> was destroyed for a $8 1/8 loss to close at $6 7/8 on announcing a restructuring of its executive ranks. The healthcare information provider will promote its President to the role of Chief Executive Office (CEO) and remove the current CEO from his duties. The current CEO also happens to be the chairman of the company, a position that he will keep. Mecon also said that it will restructure its operations, consolidating certain units and stepping up R&D. Normally, these sorts of moves indicate that the CEO has not been an effective leader or strategist or that the entrepreneurial founder of the company couldn't handle the growth. However, the company did recently report a 53% increase in quarterly revenues and a net profit margin of 21.5%. Stockholders didn't wait to ponder these important questions, as the stock opened down almost 50% and never came back.
Software and telemarketing concern DATAWATCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DWCH)") else Response.Write("(NASDAQ: DWCH)") end if %> dropped $1 5/8 to $5 3/4 after reporting fourth quarter earnings yesterday. The company reported earnings of $0.04 per share, compared to a loss of $0.02 last year. The results were well below the $0.08 EPS that the company reported last quarter, and revenues of $7.6 million also fell below the third quarter level as well. With 8.55 million shares outstanding, Datawatch trades for $47.2 million net cash, approximately 1.5 times sales. The company develops and distributes software designed for personal computers, providing its own telemarketing. Products include Monarch, Virex and our personal favorite, netOctopus.
QUICK CUTS: Manufactured home and recreational vehicle maker FLEETWOOD ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLE)") else Response.Write("(NYSE: FLE)") end if %> was slammed for a $4 1/2 loss to finish at $31 3/4 as the company turned in better than expected earnings of $0.68 per share (estimates called for $0.62 a share) but warned that the current quarter's orders are coming in below last year's results... Former General Motors subsidiary DETROIT DIESEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DDC)") else Response.Write("(NYSE: DDC)") end if %> fell $1 5/8 to $20 1/8 as that company is exposed to the luxury motorhome market... VAUGHN COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VGHN)") else Response.Write("(NASDAQ: VGHN)") end if %> dropped $1 1/4 to $7 3/4 after the videotape duplication and gift services company turned in quarterly EPS of $0.09, half last year's results... Electronics maker OAK INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OAK)") else Response.Write("(NYSE: OAK)") end if %> fell $2 1/2 to $23 1/4 after brokerage Donaldson, Lufkin, Jenrette cut its fourth quarter and full year estimates but kept its "buy" rating on the company.
FOOL ON THE HILL
An Investment Opinion by MF
Templar
I Got Your Horse Right Here
I recently had the opportunity to visit the horsetrack for the first time in my adult life. Although I consider myself familiar with parimutuel betting conceptually, seeing the real thing in action was fascinating -- particularly as someone who views the situation from an investing context. Going to the track was an experience not only because it was interesting in and of itself, but because I actually came away with a richer understanding of investing. (Lemme take a minute to thank John Hartsel for being my guide at the track and answering all of my stupid questions the whole time.)
For anyone who is not familiar with the wild and woolly world of betting on the horses, some background is in order. When you arrive, you are confronted by a huge oval-shaped dirt track that encircles a slightly smaller grass track. The finish line sits squarely in front of the stands where people sit, with the center of the track being dominated by a huge electronic board pulsing with information. When a race is about to begin, the horses are lined up in an apparatus that contains multiple sections that is located on the track depending on how long the race is going to be (allowing the finish line to stay fixed). Some sort of loud noise signals the beginning of the race, the gates are opened in front of the horses and they charge forward, each jockey driving the horse in an attempt to beat the other contestants.
While the race itself might have some attraction to die-hard equestrian fans, what brings the people to the track is the fact that you can bet on which horses are going to win. For a few bucks at the door, you get a program that lists each race. In a column dense with information, you read about each horse that has been entered in the race, how they have done in past races over the last year or so, and all kinds of other statistics on each particular race. Some of the more useful ones include overall record, speed in each race relative to the record at the track, caliber of horse they have competed against and what kind of track they have been running on: dirt or grass. Clearly marked beside each horse are the suggested odds of that animal winning the race, expressed as a number. For example, 3-1 means that the horse has a three-to-one shot at winning, implying that if the race was run three times that horse would win at least once.
Now, these given odds are only the starting point. The odds of each horse winning are figured based on the amount of money that is bet on them, in an eerie parallel to the world of stocks. A horse that started off as 3-1 can change to 5-1 or 2-1 depending on how much money is bet on it relative to how much has been bet on other horses. This all functions because the betting is parimutuel -- those who bet on the winners will divide the total amount bet in proportion to their wagers, less a fixed percentage for the house. This means that if a 2-1 favorite wins the race, your payoff on a $2 bet is going to be $2 and some change. If a 99-1 long shot were to come in, however, you would walk away with nearly $200 on a $2 bet. It all depends on how much was bet on the other horses, making simple mathematical conversions difficult.
The interesting thing about horseracing is the various ways that you can bet. The most common bet, of course, is picking a horse to win a race. You can also try to pick which horses will place first and second, or, if you are really bold, try to pick which horses will place first, second and third. If you don't feel quite so lucky, you also can just bet that a horse will "place" (come in first or second) or "show" (come in first, second or third). You can also try to hit the "daily double," meaning you pick the winners of both the ninth and the tenth races of the day. You can also place multiple bets at the same time on the same race. Theoretically, if you were to bet every horse to win, you would get back your money less what the house gets, somewhere between 10 to 25 percent depending on the state and its specific laws.
How do you pick a horse? Well, about 30 to 40 percent of the information you need is in the program. You have all of the horses' historical performance information, which loosely correlates with having all of a company's SEC filings. (All companies have SEC filings available at www.sec.gov.) You know how they have done on grass or dirt, how close to the record they have come, whether or not they have been doing well lately, whether or not there are any special circumstances. When I was betting my measly $2 minimum just to experiment, I looked at the overall performance of the horse after letting the initial odds lead me to those that would be the most likely winners. If you are really a diehard, you can go look at the horses, speak to the trainers or talk it up with the jockeys -- the equivalent of using the product, visiting the company and talking to management. Although looking to see if the horse is skittish might help, you would really have to be an expert to know which were the better jockeys and trainers.
With this information, you are supposed to bet on one or more of the eight to twelve horses in a race, hopefully making money in the process. As you can see, most of the betting encourages people to try to pick the winner, looking for the big payoff. Being the contrarian that I am, I took a different strategy. Instead of trying to handicap the winner, which seemed like a mug's game, I decided that I could get a sense of which horses were likely to place or show and make multiple bets on each race. In order to be sure that I was not overbetting and guaranteeing a loss, I concentrated my real money on the two or three races where the exact odds looked the best. By best, I mean where the horse seemed to be really mispriced given the historical information. If it had run 80s and 90s (on a relative strength-type scale) in its past races but was only 5-1 because everyone else was betting on some horse that had never lost a race to win, for instance, I would place a bet for it to place, for the other horse to place and then find the most likely long shot to bet to show in order to attempt to hedge.
As you can see, rather than taking a conventional winner approach to horse track betting, my investing mindset had me immediately creating a portfolio of bets. Because horse-racing is zero-sum, meaning that no wealth is created but everyone is paid out of the set pool of money bet, a portfolio approach is not the clear winner it is in stocks. However, it seemed that picking the winner or even picking two winners in a row was a process so ridiculously fraught with potential pitfalls that the only reasonable thing to do was find the horses likely to place and show, and bet when the odds seemed to allow the most benefit. I am happy to say that my strategy worked, as I walked away from the track up a net $5 for $10 bet (although the admission, the program and the really bad pizza and beer ate up all of my take plus some.)
The real value of the horsetrack for me was seeing how much people are encouraged to pick winners to make a big hit, particularly long shot winners. The same behavior happens in stocks all of the time. People find a horse with incredible odds (read: no earnings or ultra-high P/E) and want to bet a lot of money on it. Although I will not name specific stocks (else I get buried with e-mails accusing me of being closed-minded), they have similar traits. Normally, the last few months or years have not been kind. They have something new with a lot of promise that could become a new standard. The odds are very high, the risk is very great and it is difficult to pick a clear winner based on facts alone. They often have cool names. (Probably the strongest link between horseracing and investing -- people go for the names.) And, for some reason, investors want to bet the farm on the long shot rather than picking companies likely to be in the top two or three spots.
In the end, the connection is not perfect -- but it is there. Investors who find themselves applying track strategies to investing stand to lose a substantial amount of money, even if they delude themselves into thinking that their horse is a "sure bet." Maybe the jockey told you the fix was in. Maybe you know the trainer is really great so you want to bet on the "clever barn." Maybe you understand so much about that particular horse and what it is capable of that you cannot conceive of how it could be beaten. Regardless, betting all of your money on one horse to win is not bright. Even betting on a bunch of long shots, trying to manage risk a little more, probably will not pay off consistently. The only way I can see people winning money is by focusing on picking horses likely to place in the top quartile and betting only on the races where the odds seem out of whack with reality. Rather than betting the winner in every race, betting place or show in two races might actually be a better use of the money -- even if the potential payoff is much smaller.
FOOL FEATURES
Today's Lunchtime News serves up a Fool Plate Special on how investors are slamming the brakes on Fleetwood Enterprises today. Fleetwood, which makes recreational vehicles and manufactured homes, reported flagging demand for the third quarter, and the stock was taken for a ride.
Looking for a "stock"ing stuffer? Why not consider DRIPs for Kids? DRIPs (Dividend ReInvestment Plans) are a great way to get a youngster interested in investing. DRIPs can be entered with a minimal initial investment, teach the value of saving for the long term, and are offered by many big-name companies that kids can understand.
CONFERENCE CALLS
11/26/96
NOVELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NOVL)") else Response.Write("(NASDAQ: NOVL)") end if %>
after 7:30 PM EST
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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), another
Fool
Heroes & Goats
Brian Bauer (MF Hoops), one more Fool
Editing
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