HEROES
A glance at the NYSE percentage gainers today has investors asking, "What's
up with the Chinese ADR's?" On Wednesday, Hong Kong and Shanghai-listed Yizheng
Chemical Fibre announced that its mainland parent company had received approval
to merge with three other petrochemical companies: Yangtze Petrochemical,
Nanjing Chemical Industry, and JILIN CHEMICAL
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCC)") else Response.Write("(NYSE: JCC)") end if %>, up $6 5/8 to $33 3/8 today. This move has spread the takeover
fever to SHANGHAI PETROCHEMICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHI)") else Response.Write("(NYSE: SHI)") end if %>, up $4 5/8 to $38 3/8,
and BEIJING YANHUA PETROCHEMICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYH)") else Response.Write("(NYSE: BYH)") end if %>, up $3 3/8 to $19 7/8.
An unnamed "Boston fund manager" commented that the success of the acquisitions
will depend upon increasing the asset base of the chemical companies and
improving operational efficiencies through cutting costs. However, cost cutting
depends on worker layoffs, a definite no-no in China, especially with Jilin,
whose majority stakeholder -- the Chinese Government -- has repeatedly said
that layoffs are not acceptable.
Wireless testing equipment firm ORBIT/FR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORFR)") else Response.Write("(Nasdaq: ORFR)") end if %> orbited
$4 3/4 higher to $21 3/4 after a favorable write-up in today's Investor's
Business Daily. The company designs testing equipment for virtually all
products that incorporate wireless technology. Historically the company has
retained a significant number of clients in the aerospace/defense business,
but recently has been boosted by wireless telephony and foresees phenomenal
growth over the next decade in testing satellite equipment. Other markets
include consumer electronics "interference" testing and in-flight communications
testing. The company had its IPO in June at $8.25 and has tripled with today's
gains. Trading at 22x forward earnings with a
PEG of 0.53 based
on estimates six quarters out, the company clearly has room to surprise.
ASM LITHOGRAPHY HOLDING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> shot up $10 1/8 to $99 3/4
after the company announced that APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>
will use one of the company's deep UV wafer steppers in its 200 and 300
millimeter research and development facility. Also moving today was Applied
competitor LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LRCX)") else Response.Write("(Nasdaq: LRCX)") end if %>, which surged $8 1/2 to $66
5/16 on general industry bullishness. Perhaps an increase in investor awareness
of the needs of the semiconductor industry to move to fabrication using 300
millimeter wafers helped companies that will benefit from that move today.
Automation companies climbed higher, including ASYST AUTOMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASYT)") else Response.Write("(Nasdaq: ASYT)") end if %>, up $3 7/8 to $67 1/2, and BROOKS AUTOMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BRKS)") else Response.Write("(Nasdaq: BRKS)") end if %>,
which rose $2 11/16 to $32 1/2. Yield management equipment leader KLA-TENCOR
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> gained $6 5/16 to $75 5/8, while the smaller ADE CORP.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADEX)") else Response.Write("(Nasdaq: ADEX)") end if %> moved up $2 1/8 to $40 3/8.
QUICK TAKES: Displaying movies seems to be big business as CLEARVIEW CINEMA GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CLV)") else Response.Write("(AMEX: CLV)") end if %> continues its rise after yesterday's IPO, moving up $1 13/16 to $11 1/2 on its second screening... Regional securities broker/dealer MORGAN KEEGAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOR)") else Response.Write("(NYSE: MOR)") end if %> gained $1 3/4 to $23 3/8 on reporting fourth quarter EPS of $0.51, plowing through estimates of $0.42... Mobile home and recreational vehicle manufacturer SKYLINE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKY)") else Response.Write("(NYSE: SKY)") end if %> rose $3 7/16 to $29 3/4, but the company reported hat it knows of no reason for the unusual activity in its stock... BRYLANE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYL)") else Response.Write("(NYSE: BYL)") end if %> reported 2Q EPS of $0.55 versus estimates of $0.47, and the specialty catalog company's shares climbed $4 to $45 3/4... The Public Communication Networks Group of Siemens AG and NEWBRIDGE NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NN)") else Response.Write("(NYSE: NN)") end if %> today announced significant enhancements to the MainStreetXpress(TM) 36150 Access Switch, boosting Newbridge $3 7/16 to $48... Number one PC manufacturer COMPAQ COMPUTER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> added $4 1/4 to $65 after announcing that it had reduced U.S. prices on its Armada 7700 and LTE 5000 laptop computers. CS First Boston recommended BARRETT RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRR)") else Response.Write("(NYSE: BRR)") end if %> as an initial "buy" today, pumping the independent oil and gas exploration company higher $2 3/16 to $34 1/16... China successfully launched a Philippines telecommunications satellite made by LORAL SPACE & COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOR)") else Response.Write("(NYSE: LOR)") end if %>, boosting Loral shares $1 1/8 to $17 5/8... A late day move up $3 1/8 to $27 1/4 by ANDREA ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AND)") else Response.Write("(AMEX: AND)") end if %> was sparked by a "notice of allowance" on patent claims to certain Active Noise Cancellation (ANC) microphone technology... IDENTIX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IDX)") else Response.Write("(AMEX: IDX)") end if %>, a company involved in biometric imaging and identification systems, was boosted $3/4 to $9 7/8 after announcing that Identix/Fingerscan, its Sydney-based operation, has successfully concluded a six-month trial of its technology with Conavi Bank of Medellin, Colombia... AMERICAN RADIO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFM)") else Response.Write("(NYSE: AFM)") end if %> announced that it has retained Credit Suisse First Boston to assist the company in developing a plan to maximize shareholder value, which moved the stock $6 1/2 to $45 5/8... LIFECELL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LIFC)") else Response.Write("(Nasdaq: LIFC)") end if %> climbed $1 5/16 to $6 3/8 after the tissue graft company was upgraded to a "buy" this morning by Gruntal & Co. Posting second quarter EPS of $0.10, women's specialty retailer DEB SHOPS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DEBS)") else Response.Write("(Nasdaq: DEBS)") end if %> rose $1 to $5... LASERSCOPE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LSCP)") else Response.Write("(Nasdaq: LSCP)") end if %> blasted $1 3/16 higher to $6 1/2 as it gained approval for a therapy treatment for specific types of early- and late-stage lung cancer... Internet search engine company LYCOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> chugged $4 7/16 higher to $26 9/16 after announcing a deal with Internet bookseller wannabe BARNES & NOBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %>. CMG INFORMATION SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %>, majority shareholder in Lycos, also gained $2 9/16 to $19 5/16... ILOG SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ILOGY)") else Response.Write("(Nasdaq: ILOGY)") end if %>, a provider of advanced software components for optimization, announced that it had completed the acquisition of CPLEX Optimization, Inc., which was good for a $1 1/16 move to $7... After winning many PCS licenses in the lucrative New York market, wireless provider OMNIPOINT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OMPT)") else Response.Write("(Nasdaq: OMPT)") end if %> jumped $2 1/2 to $18 1/2 after announcing yesterday that it had finalized roaming agreements with Australian wireless operator Optus Communications. HARRIS SAVINGS BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HARS)") else Response.Write("(Nasdaq: HARS)") end if %> rose $4 1/4 to $31 1/2 after it said it received approval from the Federal Reserve Bank of Philadelphia to adopt a two-tiered holding company structure... Posting 3Q earnings of $0.39 per share, MICROAGE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MICA)") else Response.Write("(Nasdaq: MICA)") end if %> gained $3 1/2 to $26 1/16... Computer network products maker ACE*COMM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACEC)") else Response.Write("(Nasdaq: ACEC)") end if %> made a $2 1/4 charge to $16 7/8 on reporting 4Q EPS of $0.08, versus estimates of $0.11... CATALYST INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:CLYS)") else Response.Write("(Nasdaq:CLYS)") end if %>, a supplier of warehouse management software, gained $3/4 to $5 5/8 after being named a provider for Cracker Barrel... DSP COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSPC)") else Response.Write("(Nasdaq: DSPC)") end if %> added $2 1/2 to $19 1/8 after the digital signal processor company was was upgraded by UBS Securities to a "strong buy" from a "buy"... LANVISION SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LANV)") else Response.Write("(Nasdaq: LANV)") end if %> rose $3/4 to $5 7/8 on news that Via Christi Regional Medical Center had signed an agreement to purchase LanVision's AccountVision, VisionFlow, and OmniVision applications... Teen fashion powerhouse GADZOOKS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GADZ)") else Response.Write("(Nasdaq: GADZ)") end if %> rose $2 1/8 to $17 1/2 after reporting 2Q EPS of $0.02... Digital technology champion CNET INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNWK)") else Response.Write("(Nasdaq: CNWK)") end if %> was up $3 5/8 to $30 1/4 as it continues its deal making with high-profile content providers for its new online service, including the Motley Fool!
GOATS
JUST FOR FEET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FEET)") else Response.Write("(Nasdaq: FEET)") end if %> was tripped for a $2 7/8 loss to $12
1/2 after the
athletic
shoes retailer reported Q2 EPS of $0.16, falling short of estimates of
$0.20. Superstore same-store sales increased 4% for the quarter, below first
quarter performance. Alex. Brown cut its rating on the company to "neutral"
from "buy." This doesn't seem all that surprising, since most of the athletic
shoe retailers are scraping along the bottom right now. About the only athletic
shoe manufacturer in the world that has momentum at the moment is Adidas,
which most American investors won't be able to buy until the company launches
its planned American Depository Receipt in the next year.
CAPITAL ONE FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> lost $2 3/8 to $36 5/8 today after
the stock ran up $4 yesterday on buyout rumors and positive comments on industry
conditions from competitor BANC ONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %>. This morning, Donaldson,
Lufkin & Jenrette lowered its rating on the company to "market perform"
from "buy" because the stock hit DLJ's 12-month target price. While Banc
One may have commented that credit losses are diminishing, that's not the
story at Capital One. Capital One is growing its second-generation products,
which are secured credit cards that carry much less default risk (as far
as dollars per customer) than normal balance-transfer, or teaser rate, cards
do. Capital One is less a credit-loss story right now, so obviously the takeover
rumors were the thing popping the stock yesterday.
QUICK CUTS: CHECK TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTCQ)") else Response.Write("(Nasdaq: CTCQ)") end if %> lost $2 to $4 1/4 after the financial document production systems manufacturer said Liberty Check Printers will not buy a Check Technology system it has been testing... Manufactured home components maker PATRICK INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PATK)") else Response.Write("(Nasdaq: PATK)") end if %> fell $1 3/4 to $14 3/4 after the company said it is no longer considering a takeover offer announced in July... Diversified semiconductor company ANALOG DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ADI)") else Response.Write("(NYSE: ADI)") end if %> lost $1 5/16 to $34 15/16 after reporting Q3 EPS of $0.27, right in line with estimates.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
Pharmaceuticals Cured?
Battered for nearly two weeks following a high-profile downgrade by a Morgan
Stanley analyst, pharmaceutical companies squeezed out some impressive gains
today. Led by ELI LILLY & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LLY)") else Response.Write("(NYSE: LLY)") end if %>, names like MERCK
& CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %>, PFIZER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %>, and
WARNER-LAMBERT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> also enjoyed strong days after Eli Lilly
got a high-profile upgrade from the same firm that issued comments perceived
as negative on the drug stocks only two weeks before. Strong, consistent
earnings growth coupled with the newfound ability to effectively market their
products and create consumer brands has made the drug stocks suddenly attractive
again to portfolio managers that were dumping them only ten trading days
ago.
On August 11, Morgan Stanley analyst Paul Brooke cut drug stocks to an "average
weighting" from "overweighting." His concerns included rising sales expenses,
a strong dollar, the possibility of downward earnings revisions, and the
exit of the "momentum" investors from the group. Brooke's comments triggered
widespread selling among drug-related companies, with shares of the average
drug stock falling 3% to 6% after the downgrade after already having slipped
2% to 3% in the days leading up the move. Brooke stated that although he
believed the uptick in sales spending would reduce the potential for upside
earnings surprises, over the long term this spending would be beneficial
for the industry, as it would help to extend the long-term growth rate.
Why all of this sudden focus on sales spending at the major drug companies?
A change in how advertising is regulated is the culprit. On August 8, the
Food & Drug Administration loosened restrictions on television and radio
advertising for pharmaceutical companies, freeing the companies to market
their drugs as branded, consumer products. Prior to this rule change drug
companies were forced to include pages of technical information about potential
side effects if they even mentioned the drug's potential benefits, now the
companies can mention potential benefits as long as they cite the major risks
and tell consumers how to get more information either over the phone or the
Internet.
SCHERING-PLOUGH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %> became the first to take advantage of
the rule change, now finally able to tell America what the heck the Claritin
drug it has been advertising for months really does. As a company with a
large number of over-the-counter consumer products, it already extensively
advertises, so it makes sense that Schering would be one of the first companies
to really push this. Warner-Lambert and JOHNSON & JOHNSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> will also probably be among the first to air ads that stress the benefits
of their products. With the pharmaceutical industry one of the few multi-billion
dollar markets where products used by consumers are not advertised on television
and radio, the new spending could potentially be tremendous. Many radio analysts,
in fact, have justified raising estimates for radio broadcasting companies
on this news alone, perhaps explaining why Brooke is so concerned about increased
spending on sales.
Today investors apparently reconsidered, at least in the case of Eli Lilly,
when Brooke affirmed his previous long-term positive view by upgrading the
stock to "strong buy" from "outperform." Lilly rose $6 1/4 to $112 1/2 based
on Brooke's increased sales projections for the company's latest osteoporosis
drug, Evista. Many commentators took this as an opportunity to say that Brooke
was trying to save face after a negative call on the drug stocks only days
before, but if one actually reads the recommendation, Brooke's comments really
seem more reasonable than how they have been interpreted. Brooke also raised
his sales estimate for raloxifene, the osteoporosis drug, to $800 million
in fiscal 1998 from $500 million and pinned his 1998 earnings estimate down
at $3.90 EPS, which means Lilly is currently trading at 28 times those forward
numbers.
How can an analyst call 28 times forward estimates a "strong buy"? While
it is difficult to speculate, one answer is that the published estimate may
be the reasonable amount believed to be attainable, not the actual upside
potential the analyst might suggest to a buy-side client off the record.
Also, if the pharmaceutical companies really can establish a brand identity
for their drugs, the companies may get legs on their products beyond the
patent expiration date, taking the wind out of the generic drug-makers sales.
There is some incremental evidence that when a drug does establish a brand
identity, it can maintain a price premium above similar generics in the same
way that Coca-Cola can maintain a price premium over generic soda. Although
there has not been a really opportune time to purchase drug stocks since
the Health Care Scare of 1992 and 1993, investors have been bidding the shares
up because of the perception that they can provide consistent, long-term
double-digit returns in an era when the comparable returns on fixed income
are in the mid-single digits.
CONFERENCE CALLS
WOOLWORTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %>
(800) 953-6481 -- replay
DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>
(800) 839-3306 -- replay from 8:30 pm EDT through 8/20 @ 8:30 pm EDT
HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(800) 633-8284 (code: 2857062) -- replay through 8/22
HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
(402) 220-3005 -- replay through 8/22
ROSS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
(402) 222-9936 -- replay through 8/26
ACE CASH EXPRESS INC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq:AACE)") else Response.Write("(Nasdaq:AACE)") end if %>
(800) 642-1687 (give last name and confirmation #566078) -- replay through
8/27
THIS WEEK'S CONFERENCE CALL SYNOPSES
HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> Call
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Randy Befumo (TMF Templr), a Fool
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Heroes & Goats
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Heroes & Goats
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