HEROES
Converted thrift institution KSB BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KSBK)") else Response.Write("(Nasdaq: KSBK)") end if %> roared $5
3/4 to $35 after the company announce a 3-for-1 stock split. The Maine savings
bank, which has grown earnings per share by 49% in the last four quarters
over the preceding year, still sells at 148% of book value and 11.25 times
trailing earnings after today's move up. That's more in line with where other
savings banks are trading, but possibly somewhat generous for this particular
institution given its deposit growth of only 5% year-over-year for fiscal
1996. While on its face, the stock split declared today doesn't do anything
for its capital position or the wealth of shareholders, it does add some
liquidity to an otherwise very tight float under 400,000 of shares.
Cable company and Madison Square Garden, New
York Knicks and Rangers owner CABLEVISION SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CVC)") else Response.Write("(AMEX: CVC)") end if %> gained
$4 1/8 to $53 1/8 as "people close to the talks" say a Fox-TCI joint venture
is close to buying 40% of the company's sports programming operations, including
the MSG properties and regional networks, for $850 million. Only days ago
Cablevision closed the purchase of a 40% stake in the property from ITT
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %> for $500 million. That brought Cablevision's ownership to
90% as well as a call option to buy the remaining 10.2% of MSG for $150 million.
Last week, Cablevision completed another deal with TELE-COMMUNICATIONS
INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %> under which it traded its stock for TCI's metro
New York City cable outfits.
PREMIER LASER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLSIA)") else Response.Write("(Nasdaq: PLSIA)") end if %> gained $1 5/16 to $11 6/19 after the dental laser company said it is ramping up production to meet demand. The company also identified a $2.4 million order, meaning that it's about 5% on the way to meeting the company's demand projections for this year and 1/5 of 1% of the way to meeting the company's demand projections for next year. We were just wondering how the company plans on meeting its goals for selling so many lasers to fix tooth decay when it faces competition from ENAMELON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENML)") else Response.Write("(Nasdaq: ENML)") end if %>, which plans on marketing a gum that's supposed to prevent and fix tooth decay.
QUICK TAKES: Casino operator BOOMTOWN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BMTN)") else Response.Write("(Nasdaq: BMTN)") end if %> gained $1 3/8 to $8 7/8 after receiving approval from Louisiana regulators to go ahead with its merger with HOLLYWOOD PARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HPRK)") else Response.Write("(Nasdaq: HPRK)") end if %>... Wireless gear manufacturer RF MONOLITHICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RFMI)") else Response.Write("(Nasdaq: RFMI)") end if %> gained another $3 to $22 after Wednesday's earnings release, in which the company announced an 82% increase in Q3 EPS... EAGLE USA AIRFREIGHT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EUSA)") else Response.Write("(Nasdaq: EUSA)") end if %> rose $3 5/8 to $26 7/8 after announcing the opening of four new freight terminals... Pre-paid phone card company SMARTALK TELESERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTK)") else Response.Write("(Nasdaq: SMTK)") end if %> picked up $1 7/8 to $14 1/2 after announcing an exclusive five-year marketing agreement with HFS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HFS)") else Response.Write("(NYSE: HFS)") end if %>, the world's largest franchiser of hotel properties... JACKSON HEWITT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JTAX)") else Response.Write("(Nasdaq: JTAX)") end if %> picked up $1 1/2 to $11 3/4 after the tax preparation company said it has a firm commitment to sell one million shares in an underwritten stock offering... Millimeter wave radio manufacturer P-COM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCMS)") else Response.Write("(Nasdaq: PCMS)") end if %> gained $3 15/16 to $34 7/16 on announcing a $2 million+ contract with a unit of BELLSOUTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLS)") else Response.Write("(NYSE: BLS)") end if %>... WHEELABRATOR TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WTI)") else Response.Write("(NYSE: WTI)") end if %> jumped $2 3/4 to $15 3/4 after WASTE MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %> offered to purchase the shares of the environmental products company it doesn't already own for $15 per share in cash... Construction management services company URS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: URS)") else Response.Write("(NYSE: URS)") end if %> gained $1 1/8 to $13 1/4 courtesy of Investor's Business Daily's "New America" column... BADGER METER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BMI)") else Response.Write("(AMEX: BMI)") end if %> rose $3 3/8 to $29 after being selected by the City of Philadelphia to work on a $100 million water meter contract... PAXSON COMMUNICATIONS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PXN)") else Response.Write("(AMEX: PXN)") end if %> added $1 5/16 to $12 3/8 after Montgomery Securities initiated coverage of the TV and radio broadcaster.
GOATS
Video conferencing equipment company PICTURETEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCTL)") else Response.Write("(Nasdaq: PCTL)") end if %>
slid $1 1/2 to $10 3/4 after the company said that Q2 revenues will come
in below estimates, but it still expects revenues to grow at least 5%. This
is the second time in three quarters that Picturetel has disappointed. The
company's quarterly revenues are still growing and staying above the pre-1997
quarterly revenue record of $121.3 million. Counting the low end of company
estimates for the second quarter, Picturetel is now selling at a
price-to-sales
ratio of 0.75. If the company could forecast sales a little bit better
and maintain the net margin of 7.2% it achieved last year, its trailing earnings
would be above the $1 per share mark. Its stock price would probably look
a little different, too.
Office equipment distributor IKON OFFICE SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IKN)") else Response.Write("(NYSE: IKN)") end if %> declined
$3 1/4 to $22 3/4 after announcing yesterday that it will record earnings
of $0.30 to $0.32 per share in the third quarter, well short of the $0.40
analysts were collectively estimating. Analysts expected operating EPS to
jump 30% sequentially from $0.30 last quarter, when the company booked
"transformation costs" of $61.2 million. That comes on top of another $14
million+ that IKON booked in the quarter before that. Investor skepticism
is now kicking in after consecutive quarters of taking accounting baths for
the transformation without seeing any growth in operating earnings.
PHILIP MORRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> lost $1 7/8 to $45 5/8 after tobacco investors
got a look at the price of a sweeping industry settlement reached with a
number of state attorneys general that will now go on to the President and
Congress. The deal calls for the tobacco industry to pay up to $360 billion
over 25 years, which will go into funds for healthcare and health education.
To avoid fines in the future, underage smoking will have to decline 67% over
the next ten years with smaller milestones. Class action lawsuits now in
progress will be settled by legislatures, but private individuals will still
have the right to sue the companies in the future. Vending machines will
also be outlawed, and vendors will have to get a license to sell smokes.
RJR NABISCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> lost $7/8 to $35 and UST INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UST)") else Response.Write("(NYSE: UST)") end if %> fell $1 to $29.
QUICK CUTS: Steam and metallurgical coal mining company PITTSTON MINERALS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PZM)") else Response.Write("(NYSE: PZM)") end if %> lost $2 to $11 7/8 after PaineWebber cut its rating on the company to "neutral" from "buy"... CONE MILLS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COE)") else Response.Write("(NYSE: COE)") end if %> fell $1 3/8 to $8 after the denim producer and fabrics printer said demand for its products has been softer than expected, which drew a J.P. Morgan rating downgrade to "market performer" from "long-term buy"... Disk drive lead wire manufacturer INNOVEX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INVX)") else Response.Write("(Nasdaq: INVX)") end if %> fell $1 1/2 to $25 1/4 after warning that it sees flat revenues and earnings growth in the third calendar quarter, which is normally a slower time for the industry... UNITED STATES FILTER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USF)") else Response.Write("(NYSE: USF)") end if %> slumped $2 5/8 to $29 after NatWest Securities said that spending programs meant to enhance long-term results may depress near-term profits... EDISTO RESOURCES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: EDT)") else Response.Write("(AMEX: EDT)") end if %> lost $1 3/4 to $9 1/4 after the natural gas distributor agreed to be acquired by gas exploration and production company FORCENERGY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FGAS)") else Response.Write("(Nasdaq: FGAS)") end if %> for total consideration of $9.95 per share... VIACOM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VIA)") else Response.Write("(AMEX: VIA)") end if %> was trimmed $1 5/8 to $31 1/16 after Montgomery Securities lowered its rating on the company to "hold" from "buy."
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
Little Ditty 'Bout Al and Betty
Most investors believe that the way to make money is to buy stocks that go
up. While stock selection certainly plays a large role, minimizing costs
is extraordinarily important as well. Whether you are talking fixed charges,
like commissions or variable expenses like "spreads" or tax consequences,
each little ding over time adds up to reduce the total return after taxes.
Understanding the way overlooked costs can serve to diminish returns can
turn even a bad investor at least mediocre.
Much has been written bemoaning the fact that the S&P 500 Index routinely
outperforms professionally managed money. The professional investment community
has proffered many explanations for this phenomenon. Bewailing the "tyranny"
of the index, managers complain that they cannot be 100% invested like the
index because of the need to keep some assets in cash for possible redemptions.
Then again, this apparently has not hurt the index funds, which normally
come quite close to the performance of the index. Lately, the media has helped
professional managers in their attempt to discredit the index by calling
its rise a "mania," fueled by irrational buying that can only end badly.
A more subtle explanation exists that could explain most, if not all, of
the index's outperformance. Although academics who support "passive" investing
such as putting money in the S&P 500 Index routinely discuss this fact,
apparently the business media does not seen this as a sensational enough
story to promote over poppycock that the S&P 500 is an out-of-control
train driven by large-cap crazed investors throwing money at the market.
The efficient market theorists call this factor "costs." By minimizing the
costs of investing, passively managed money has a lower hurdle to jump to
match the underlying index it is designed to mimic.
The way an index fund is run, stocks are bought once and held until the
underlying index changes. This means that trading costs are minimal and tax
consequences are only occasionally recognized. In a world where mutual funds
turn over their entire portfolio on average about once a year, S&P Index
funds only sell about 5% to 10% of their components each year to deal with
additions and deletions from the actual index. Since the index is market
capitalization weighted, it never has to sell stock to maintain a preset
balance, as the amount the shares appreciate changes the underlying composition
of the index.
It is obvious that less trading means less in commissions. However, large
investors like index funds only pay a few pennies a share in costs. A more
invisible cost called "the spread" does hurt even the largest institutional
investor. The spread is the difference between the price that an investor
can sell a stock and the price that another investor can buy the stock. It
is a toll fee that is imposed on securities in order to pay for keeping the
toll bridge, or the market, working. Although on listed exchanges like the
NYSE and the AMEX the spread is normally only an eighth of a point, on the
over-the-counter market it can get as high as 2% to 3%, even on actively
traded stocks. By paying a commission and the spread every time an investor
trades, investment returns diminish.
Although paying commissions and spreads eat away at wealth, an even more
insidious problem is the tax consequences. Because the taxes are not paid
immediately after the trade is made, most investors fail to consider how
much their real economic performance is hurt by making a taxable transaction.
This is the real edge that the passive money has over the actively managed
money -- because selling is infrequent at best, and often concentrated on
issues that have done poorly and are deleted from the index, money that otherwise
would be taken by the government remains in the investors hands, working
for them. Some have even gone as far as to call it an interest free loan
from the government.
Say Alfred is a real stock picker. The fellow buys a stock that rises 15%
in a year without fail. Each year on January 1st he finds a stock that will
give him a 15% return and buys it with the money he gets from selling the
stock he owned last year. Say Betty is not so lucky. She can only find one
stock that will return 10% a year each year. She never buys another stock
because she can never find one, and her boring, old stock gives her 10% a
year. After 20 years, you would think Alfred would be quite a bit wealthier
than Betty, as he is snagging such a bigger return.
Figuring Betty's return after 20 years is pretty easy. Take 1.1 (or a 10%
return) to the twentieth power. This takes 1.1 and multiplies it by itself
20 times, giving the Betty a 573% return. (The answer is 6.73, but since
you start with 100% of your investment, you need to subtract 1.0 from the
6.73. If you invest a dollar and have a dollar a year later, you have 100%
of your investment -- but your return is zero, or 100% minus 100%.) Alfred
is a little more difficult. For simplicity's sake, let's pretend Alfred held
his stocks a year and a day to get the 28% capital gains tax rate because
he is such a smart guy. So every year Alfred makes 15%, but pays 28% taxes
on it. This means that more than a quarter of the 15% return disappears,
or about 4.2%, every year. This means Alfred's after-tax return is only 10.8%,
or 678% over 20 years.
Although Alfred is a much better stock picker than Betty, he is actually
almost even with her return because he faces the tax man once a year. Subtract
another 0.5% to 1.0% from Alfred's annual returns for commissions and spreads,
and even though the guy is making 50% more per year in return that Betty,
she is actually about even with him -- or possibly doing better -- because
of how efficiently she is managing her costs. Every dollar not wasted in
trading costs and taxes is creating value for Betty. Alfred is simply making
his brokerage, the market makers, the specialists, and the government richer
for all of his efforts. This is the power of passively managed money, and
this is the real reason why over long periods of time it tends to beat actively
managed money. These are the costs investors need to include when they think
about how they invest, lest they be Alfreds when all of the smiling Bettys
are having fun doing other things.
CONFERENCE CALLS
ADOBE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %>
Through 6/21
(800) 633-8284 (reservation # 2805001)
BRODERBUND SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %>
(800) 642-1687 (ID#427430) -- replay available through 6/23
THIS WEEK'S CONFERENCE CALL SYNOPSES
ORACLE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> Q4
Call
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Randy Befumo (TMF Templr), a Fool
Fool Plate Special
Dale Wettlaufer (TMF Ralegh), another
Fool
Ups & Downs
Brian Bauer (TMF Hoops), and yet
another Fool
Editing