HEROES
Semiconductor wafer etch and deposition machinery manufacturer LAM
RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LRCX)") else Response.Write("(Nasdaq: LRCX)") end if %> gained $8 3/8 to $58 on a rating upgrade to "buy"
from "hold" issued by Cowen & Co. Merger partner ONTRAK SYSTEMS
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONTK)") else Response.Write("(Nasdaq: ONTK)") end if %>, a maker of chemical mechanical planarization machinery
for the semiconductor fabrication process, tagged along, picking up $6 3/4
to $47 5/8. In other semiconductor manufacturing equipment news, CERPROBE
CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRPB)") else Response.Write("(Nasdaq: CRPB)") end if %> rose $4 5/8 to $18 5/8 after the semiconductor test
equipment company reported Q2 EPS of $0.24, beating the mean estimate of
$0.18, on a 93% increase in quarterly revenues of $18.7 million.
Semiconductor dreadnought TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> jumped $12
to $109 1/2 after reporting strong Q2 operating EPS of $1.07, smashing the
mean First Call estimate of $0.87. Revenues of $2.56 billion rose 7%
year-over-year, "primarily because of strong semiconductor demand, particularly
for TI's digital signal processing solutions." Semiconductor sales were up
a very robust 17% year-over-year, and operating profits for the segment were
up more than fourfold over last year, though orders were flat sequentially
because of a drop in DRAM orders. With the sale of the company's defense
business and other units, the company said its revenues are now 80% represented
by its semiconductor businesses, which may result in some interesting valuation
dynamics in the future.
New York State utility NEW YORK STATE ELECTRIC
& GAS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NGE)") else Response.Write("(NYSE: NGE)") end if %> moved up $3 3/16 to $24 9/16 after CALENERGY
CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CE)") else Response.Write("(NYSE: CE)") end if %> said it is launching a $24.50 per share cash tender offer
to bring CalEnergy's stake in the company to just under 10%. CalEnergy intends
to eventually acquire all of NYSEG. The tender offer was launched in reaction
to NYSEG rebuffing an earlier $27.50 per share cash acquisition offer from
CalEnergy. New York State is an attractive state for utility deregulation
because of the number of households in the market, the longer winter months
in which demand for natural gas is greater, and the relative mess in which
competitor NIAGARA MOHAWK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NYM)") else Response.Write("(NYSE: NYM)") end if %> finds itself. It could also
be a nightmare if a world-class operation comes in and fixes NiMo, too. At
a bid of 3.7 times operating income for the unleveraged NYSEG, CalEnergy
might be thinking it can handle any eventuality.
QUICK TAKES: Programmable logic device company LATTICE SEMICONDUCTOR
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LSCC)") else Response.Write("(Nasdaq: LSCC)") end if %> rose $4 1/2 to $66 5/8 after turning in Q1 EPS of $0.60,
up 30% year-over-year on a 28% increase in revenues of $61.6 million...
Transaction printer manufacturer DH TECHNOLOGY
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DHTK)") else Response.Write("(Nasdaq: DHTK)") end if %> gained $7 1/8 to $23 after agreeing to merge with private
French company Axiohm S.A., which will commence a cash tender offer for $25
per share... Biopharmaceutical company AVIRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVIR)") else Response.Write("(Nasdaq: AVIR)") end if %> jumped
another $6 7/8 to $24 after yesterday announcing positive test results from
a study measuring the efficacy of an influenza vaccine delivered via a nasal
spray instead of by injection... TRANS-INDUSTRIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRNI)") else Response.Write("(Nasdaq: TRNI)") end if %>
jumped $1 5/8 to $8 1/4 after the maker of information systems and equipment
for transit vehicles reported Q2 EPS of $0.22, up 90% over last year... Digital
signal processor software and semiconductor company DSP GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSPG)") else Response.Write("(Nasdaq: DSPG)") end if %> was driven $3 3/4 higher to $21 3/8 after the company reported that
networking equipment company ORCKIT COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCTF)") else Response.Write("(Nasdaq: ORCTF)") end if %>
will implement a DSP asymmetric digital subscriber line (ADSL) algorithm...
Resort timeshare property developer VACATION BREAK USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VBRK)") else Response.Write("(Nasdaq: VBRK)") end if %>
gained $2 1/8 to $12 1/4 after the company said it is engaged in merger talks
with an unidentified party. The company earlier this year broke off merger
talks with Berkley Group.
Search engine company INFOSEEK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> rose $1 1/16 to
$6 7/16 on reporting a Q2 loss of $0.45 per share... IRIDIUM WORLD
COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IRIDF)") else Response.Write("(NYSE: IRIDF)") end if %> picked up $3 3/8 to $22 1/4 after Merrill
Lynch started coverage of the newly public satellite mobile phone company
with a "long-term buy" rating... INDEPENDENCE FEDERAL SAVINGS BANK
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFSB)") else Response.Write("(Nasdaq: IFSB)") end if %> climbed $1 3/4 to $11 3/4 on reporting Q2 EPS of $0.51...
METRIS COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTRS)") else Response.Write("(Nasdaq: MTRS)") end if %> surged $5 1/4 to $40 1/2 after the
consumer lending and specialty finance company reported Q2 EPS of $0.48,
smashing estimates of $0.40... Semiconductor design verification software
company QUICKTURN DESIGN SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QKTN)") else Response.Write("(Nasdaq: QKTN)") end if %> added $1 15/16 to
$16 1/8 on reporting Q2 EPS of $0.04 on flat revenues of approximately $26
million... Eldercare company ARV ASSISTED LIVING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARVI)") else Response.Write("(Nasdaq: ARVI)") end if %> picked
up $15/16 to $12 5/16 after a Lazard Freres affiliate, Prometheus Assisted
Living, agreed to invest $135 million (at $14 per share) in the company for
a 49.9% equity stake... Securities trading services company INVESTMENT
TECHNOLOGY GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITGI)") else Response.Write("(Nasdaq: ITGI)") end if %> rose $3 1/8 to $30 on reporting a 39%
increase in Q2 revenues and EPS of $0.42, beating estimates of $0.36... Software
and computer systems consulting and services company COMPUTER TASK GROUP
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSK)") else Response.Write("(NYSE: TSK)") end if %> gained $4 7/16 to $42 1/2 on reporting Q2 revenues of $100
million and EPS of $0.25, up 70% year-over-year and 14% better than
estimates.
COMPUTER ASSOCIATES INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> gained $5 5/8 to $65
5/8 as product and partnership agreements stream out of CA World '97, including
server deals with HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> and SUN MICROSYSTEMS
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>... TUCSON ELECTRIC POWER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEP)") else Response.Write("(NYSE: TEP)") end if %> moved up $1
5/16 to $16 7/8 after the company filed a request with state regulators to
reschedule debt... Oil and gas driller READING & BATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RB)") else Response.Write("(NYSE: RB)") end if %> added $2 11/16 to $35 on reporting higher rig utilization and Q2 operating
EPS of $0.53 (before write-offs of $0.25 per share), news which also boosted
merger partner FALCON DRILLING COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %>... Disk drive head
maker APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %> gained $2 3/16 to $31 3/16 on
reporting a 68% jump in Q3 revenues and EPS of $0.75, while Applied customer
WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> gained $2 3/4 to $40 5/16 in advance of
tomorrow's earnings report... Advertising sales company KATZ MEDIA GROUP
<% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KTZ)") else Response.Write("(AMEX: KTZ)") end if %> climbed $1 3/4 to $10 13/16 after announcing last night that
EVERGREEN MEDIA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EVGM)") else Response.Write("(Nasdaq: EVGM)") end if %>, CHANCELLOR BROADCASTING
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBCA)") else Response.Write("(Nasdaq: CBCA)") end if %>, and buyout firm Hicks, Muse, Tate & Furst will acquire
the company for $11 per share in cash... Specialty chemical manufacturer
CAMBREX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CBM)") else Response.Write("(AMEX: CBM)") end if %> rose $2 15/16 to $43 3/16 after reporting
a 17% increase in Q2 EPS of $0.74... VERTEX PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTX)") else Response.Write("(Nasdaq: VRTX)") end if %> regained $2 3/8 to $35 1/2 after a drop yesterday that was caused by
a cautious report from Hambrecht & Quist, according to Reuters.
GOATS
Okay! Fess up! Who broke the Brazilian stock market? That country's main
telecommunications firm, TELEBRAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBR)") else Response.Write("(NYSE: TBR)") end if %> tumbled $10 15/16 to
$135 5/16, while UNIBANCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UBB)") else Response.Write("(NYSE: UBB)") end if %> lost $3 11/16 to $38 7/8 after
Brazil's central bank said it would not devalue its currency as a solution
to its current account surplus and bear raids on the real. To equity investors,
that means higher interest rates, but Brazil's central bankers tried to smooth
things over by saying they can defend the currency with reserves of $57 billion,
according to Reuters. At its lowest point today, the main Brazilian
equity index was down 6%, but for the year the Bovespa is up 90%, ameliorating
any pain that might have been felt today.
SAVANNAH FOODS & INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFI)") else Response.Write("(NYSE: SFI)") end if %> announced a deal to merge with privately held raw sugar producer Florida
Crystals that apparently doesn't look too sweet to some investors. The combined
company will have over $1.5 billion in revenues and over $1 billion in assets,
but Savannah shareholders will have to give up a good deal of power to do
this deal. Whereas Savannah shareholders have had voting control over a business
with revenues greater than $1 billion, by giving up 83% of voting control
of the combined company, in some respects Savannah holders will have to give
up economic control of the equivalent of a business with $700 million in
sales. Savannah Foods, the second largest sugar refiner in the U.S., lost
$2 15/16 to $15 3/4.
QUICK CUTS: Interactive voice response systems designer PERIPHONICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PERI)") else Response.Write("(Nasdaq: PERI)") end if %> was slammed for a $5 3/8 loss to $15 1/2 despite reporting fourth quarter EPS of $0.30, $0.02 ahead of expectations... Ultrasound device maker ADVANCED TECHNOLOGY LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLI)") else Response.Write("(Nasdaq: ATLI)") end if %> lost $6 1/4 to $36 3/8 after forecasting a Q3 loss of $0.10 to $0.20 per share, below estimates of $0.30, due to product introductions... INTEVAC INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVAC)") else Response.Write("(Nasdaq: IVAC)") end if %> slid $1 1/2 to $10 3/4 after the maker of sputtering systems for thin film disks for disk drives reported Q2 EPS of $0.26, but said it expects to see revenues in the second half of the year to be flat with the first half, as well a sequential decline in revenues in the third quarter... TRICO BANCSHARES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCBK)") else Response.Write("(Nasdaq: TCBK)") end if %> was skewered for $2 3/4 to $24 1/4 after reporting Q2 EPS of $0.22, down from $0.37 last year... HAEMONETICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAE)") else Response.Write("(NYSE: HAE)") end if %>, a company that collects, processes, and surgically salvages blood, lost $3 to $18 1/16 after reporting earnings of $0.24 per share for its first quarter... Sporting goods retailer SPORTS AUTHORITY (NSYE: TSA) lost another $1 1/4 to $17 3/4 after yesterday reporting disappointing earnings... Process equipment manufacturer MILLIPORE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MIL)") else Response.Write("(NYSE: MIL)") end if %> dropped $2 7/16 to $42 1/8 on reporting Q2 EPS of $0.38, falling short of the $0.42 mean estimate.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
A Look at Magnification
Sunlight can be a wonderful thing. Warm and soothing against the skin, the
sun can make one feel energized and alive. People plan vacations around the
sun, chasing it from crowded piers to isolated beaches, from amusement parks
jammed with children to cruises through balmy southern exposures. Everyone
loves sunlight, right? Imagine that same sunlight focused through a magnifying
glass. Suddenly what was warm and pleasant becomes searing and painful. Skin
burns, smoke curls up from crinkled leaves, small insects curl and die under
the scorching rays. Unfocused it is warm, but the power of those rays increases
exponentially when magnified
The effect of magnification can work on stock prices as well. Take a company
generating nice, pleasant underlying growth in earnings per share. Nothing
out of the ordinary, say 10% or 15%. While definitely better the average,
the company is certainly no momentum stock tripling earnings year-over-year.
Say for some reason, however, that company is only valued at five or six
times trailing earnings. If the share price were to simply appreciate in
line with earnings, you would have a 10% to 15% gain. But should the PE multiple
on those earnings double or triple at the same time, suddenly you have a
20% to 45% gain -- definitely something to write home about.
The principle of magnification works equally well when a company has gained
control over its cost structure and is slowly squeezing costs out of the
manufacturing process. If revenues increase 10%, that is great. If the company
can cut the costs of manufacturing the product enough to raise gross margin,
even better. If a company cuts its operating overhead as a portion of revenues,
raising operating margins, cheers erupt. Finally, if a company is buying
back shares outstanding at a rate that reduces its overall share count, this
suddenly becomes wonderful. A 10% gain in sales can translate into a 35%
increase in earnings per share, magnified by the beneficial effect of cost
control and share repurchase.
Magnification is simply a variation of the near-magical tool that turns pennies
into dollars -- compounding. What are the key ingredients in finding a company
that will go up 10-fold in over the course of a few years? What is the recipe
for investment success?
INGREDIENTS FOR A GREAT STOCK:
-- A business where revenues are growing at a solid pace.
-- Management able to take costs out of the system, improving
gross margins as well as operating margins.
-- A board of directors intelligent enough to use excess cash
to systematically repurchase shares.
-- A low valuation relative to future earnings that can increase
should those earnings be realized.
A company that is poised to magnify decent sales growth into magnificent earnings per share increases -- driving the valuation of the company up at the same time -- is probably the most exciting special situation an investor can find. When you mix surging earnings per share with a dramatic rise in the valuation of the business, the potential for stock appreciation is enormous while the risks are substantially reduced. Examples of great magnification stories over the past year and a half include Dell Computer, Western Digital, and Jabil Circuits. All of these companies started from very low valuations due to panic over a near-term prospects and then proceeded to magnify earnings growth through margin increases and share repurchases, which then flowed through to the stock in the form of a PE multiple increase. When looking for stocks that can magnify, looking for rising margins is a great place to start.
CONFERENCE CALLS
HEILIG-MYERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %>
(Re: June sales and the purchase of Mattress Discounters)
(804) 254-3939 (option 1) -- replay
HARLEY-DAVIDSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HDI)") else Response.Write("(NYSE: HDI)") end if %>
(402) 222-9905 -- replay
ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
5:00 p.m. EDT
1-800-475-6701 (code: 348047) -- replay through 7/25
FREDDIE MAC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRE)") else Response.Write("(NYSE: FRE)") end if %>
5:00 p.m. EDT
1-800-475-6701 (access #348319) -- replay through 7/16
07/16/97 (Wednesday)
FORD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %>
8:00 a.m. EDT
(703) 736-7362 -- replays @ 12:00 p.m. EDT on 7/16 and 2:00 p.m. EDT on
7/17
07/16/97 (Wednesday)
360 COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XO)") else Response.Write("(NYSE: XO)") end if %>
8:30 a.m. EDT
(402) 220-3014 -- replay available through 7/23
07/16/97 (Wednesday)
APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>
5:00-6:30 p.m. EDT
(816) 650-0766 (Password: Apple Conference Call) -- replays on 7/16 @ 7:00
p.m. and 9:00 p.m. EDT, and on 7/17 @ 12:00 noon EDT
07/17/97 (Thursday)
SPRINT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>
1-800-659-4363 -- replay at 10:30 a.m. and 2:30 and 4:30 p.m. EDT
(816) 650-0613 -- replay number for international callers
07/17/97 (Thursday)
IOMEGA CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>
1-800-633-8284 (code: 2854533) -- replay through 7/21
07/17/97 (Thursday)
SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>
1-800-633-8284 (reservation # 2689889) -- replay through 7/20
(303) 248-1201 (reservation # 2689889) -- replay for international callers
07/17/97 (Thursday)
APPLIED DIGITAL ACCESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADAX)") else Response.Write("(Nasdaq: ADAX)") end if %>
(402) 220-6028 -- replay available for 7 days
07/17/97 (Thursday)
MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>
1-800-456-5304 (code: 1017) -- replay through 7/21
(402) 344-6835 (code: 1017) -- replay for international callers
THIS WEEK'S CONFERENCE CALL SYNOPSES
MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>
Call
SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> Call
WE
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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