HEROES
Rumors are flying and so are the stock prices of perennial acquisition candidates
NOVELL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVL)") else Response.Write("(Nasdaq: NOVL)") end if %>, up $31/32 to $9 31/32, and SYBASE INC.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYBS)") else Response.Write("(Nasdaq: SYBS)") end if %>, up $1 5/8 to $19 1/8. The word is that both companies
are being bought by INTERNATIONAL BUSINESS MACHINES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>...
again. A safe assumption would be that IBM is not buying both of these companies,
at least on the same day, so let's take a look at each in turn. Novell provides
network services software, with its "Netware" licensed to 55 million users
(80% installed base). Around $3.00 of its share price is available in cash.
It might be a good acquisition, but it could have been better (read: cheaper)
when the price was depressed and before it hired current CEO Eric Schmidt.
Sybase develops relational database management systems that would actually
be a better fit with a company like ORACLE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> in
terms of selling to an existing base -- but you didn't hear it here.
Turning its back on cattle operations and farm crops, TEJON RANCH CO.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TRC)") else Response.Write("(AMEX: TRC)") end if %> realized that the land its beef was grazing on could be utilized
a little more effectively. Just what is the value of 270,000 acres of land
located 60 miles north of Los Angeles? Kyle Krueger of investor partnership
Apollo Capitol in St. Petersburg, Fla., told Barron's that his
calculations figure in at least $100 million for Tejon's agricultural acreage,
$500 million for acreage zoned for residential developments, $250 for its
water rights, and at least $250 million for the lands alongside a nearby
highway. Our own Dale Wettlaufer (TMF Ralegh) engaged in a
similar analysis this morning.
Tejon said hasta la vista to its old stock price today, moving up
$6 11/16 to $39 3/8.
APPLIX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APLX)") else Response.Write("(Nasdaq: APLX)") end if %> rose $2 1/8 to $11 13/16 after announcing
that its "Applix Anyware Office" and "Applixware" software products are now
available on the "SCO OpenServer system," a system operated by SANTA CRUZ
OPERATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCOC)") else Response.Write("(Nasdaq: SCOC)") end if %>. Santa Cruz is a supplier of UNIX server operating
systems, as well as a provider of software that integrates Windows PCs and
other clients with UNIX servers from all major vendors, all for the purpose
of greater interoperability. The suite of software products that Applix offers
can run on networked desktop computers that operate in different client-server
environments. So someone running on Windows NT can access information, manipulate
it, and talk with someone operating in a UNIX environment (assuming the two
are connected via a network). The bottom line for
Applix is that its products now have
a larger addressable market.
QUICK TAKES: EPITOPE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EPTO)") else Response.Write("(Nasdaq: EPTO)") end if %> today announced that plaintiffs are dismissing the company from all lawsuits, including all class actions, relating to strawberries sold to the U.S. Department of Agriculture, which helped the stock gain $1 1/18 to $7... Educational software group LEARNING COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLC)") else Response.Write("(NYSE: TLC)") end if %> got some apples from investors today, moving up $1 1/4 to $12 3/4 as it announced that $150 million in preferred stock will be issued in exchange for the principal on the company's 5 1/2% Senior Convertible/Exchangeable Notes... FREDERICKS OF HOLLYWOOD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FOH.A and FOH.B)") else Response.Write("(NYSE: FOH.A and FOH.B)") end if %> said an investor group led by Knightsbridge Capital Corp. increased its bid for the company to $6.90 per share from $6.14, which moved the shares $3/4 to $6 7/8... CYTEC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CYT)") else Response.Write("(NYSE: CYT)") end if %> jumped $3 13/16 to $45 15/16 after Goldman Sachs upgraded the industrial specialty chemicals company to the firm's "recommended list" from a "market outperform" rating... SYMBOL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBL)") else Response.Write("(NYSE: SBL)") end if %> rose $2 3/8 to $34 1/2 after it said it expects a $218 million contract awarded to LOCKHEED MARTIN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %> by the U.S. Postal Service (USPS) to generate revenues to Symbol in excess of $100 million during 1997 and 1998... Stephens, Inc. upgraded temporary staffing services company NORRELL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NRL)") else Response.Write("(NYSE: NRL)") end if %> to a "strong buy" from "buy," boosting the stock $2 to $30 3/4. Standard & Poor's raised its corporate credit and senior debt ratings on GLOBAL MARINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLM)") else Response.Write("(NYSE: GLM)") end if %> to triple-'B'-minus from double-'B'-minus helping the stock gain $1 5/8 to $28 1/2. Also, the word is that George Soros is "buying"... AMERICAN EXPLORATION CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AX)") else Response.Write("(AMEX: AX)") end if %> gained $3/4 to $16 3/8 after announcing that it has discovered natural gas at its Jacobs Ranch 1 well in Lavaca County, Texas, in which it holds 65% working interest. LOUIS DREYFUS NATURAL GAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LD)") else Response.Write("(NYSE: LD)") end if %> rose $1 to $18 1/2 on the news because it holds the remaining 35% working interest... ANDREA ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AND)") else Response.Write("(AMEX: AND)") end if %> climbed $5 3/4 to $34 as the electronic audio systems maker announced a procurement agreement with INTERNATIONAL BUSINESS MACHINES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>... THERMO CARDIOSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TCA)") else Response.Write("(AMEX: TCA)") end if %> picked up the beat $3 5/16 to $24 3/8 after the artificial ventricle maker received a "strong buy" rating from Salomon Bros... Telecommunications systems company XETA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XETA)") else Response.Write("(Nasdaq: XETA)") end if %> rose $3 1/4 to $17 3/4 after reporting 3Q EPS of $0.25 versus estimates of $0.22... Steve Harmon, senior investment analyst at Internet.com, gave search engine company INFOSEEK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> some exposure today, and shares moved up $1 3/16 to $7 3/8. Reporting results after the bell yesterday, CMC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMCI)") else Response.Write("(Nasdaq: CMCI)") end if %> rose $1 1/4 to $9 3/8 despite reporting a loss of $0.08 per share for the fourth quarter and $0.22 per share for the year, both below estimates...WESTELL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WSTL)") else Response.Write("(Nasdaq: WSTL)") end if %> moved up $3 to $24 7/8 on positive comments from Cowen & Co.and SoundView Financial Group... After unveiling a computer chip that it says is the first that can both record and play back video in digital format, C-CUBE MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CUBE)") else Response.Write("(Nasdaq: CUBE)") end if %> rose $2 to $31... QWEST COMMUNICATIONS INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> climbed $3 27/32 to $39 31/32 after saying that it plans a major expansion of its fiber optic communications network in the Southeast U.S., California, and Texas... Creator of the trade acceptance draft (TAD), ACTRADE INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACRT)") else Response.Write("(Nasdaq: ACRT)") end if %> announced that it received a notice of allowance from the Patent and Trademark Office for a "Financing Method Incorporating New Use of Trade Acceptance Drafts," which moved the shares $1 3/8 higher to $16 7/8... UROLOGIX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ULGX)") else Response.Write("(Nasdaq: ULGX)") end if %> added $1 5/8 to $20 5/8 after announcing that it has received Food and Drug Administration (FDA) approval to market its new microwave system for the treatment of benign prostatic hyperplasia (BPH), commonly known as enlarged prostate disease... REPUBLIC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RII)") else Response.Write("(NYSE: RII)") end if %> and Toyota Motor Sales USA said late Monday that they have reached the framework of an agreement to settle their dispute, which helped Republic gain $1 3/4 to $25 3/16... DSP GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSPG)") else Response.Write("(Nasdaq: DSPG)") end if %> rose $2 27/32 to $29 7/32 as the company announced that Fujitsu Ltd. had licensed its technology.
GOATS
Real estate investment trust AMBASSADOR APARTMENTS INC. (NYSE AAH)
lost $1 7/8 to $20 3/4 after announcing that it doesn't expect funds from
operations (FFO) to reach analysts' expectations. It currently projects FFO
of $1.87 to $1.91 per share, up to 9% below expectations because analysts
were expecting the company to complete acquisitions at a faster pace than
in earlier years. Ambassador says a good reason for this is that the price
of rental properties has been too rich for its blood. Sales, general, and
administrative costs will also be higher than expected because of the growth
of the business. Ambassador capped off its announcement today by saying that
it has retained an investment banker to help it look at value enhancement
initiatives.
Sub-prime mortgage lender AAMES FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAM)") else Response.Write("(NYSE: AAM)") end if %> dropped
$1 1/4 to $20 1/8 after yesterday reporting less-than-stellar fourth quarter
earnings. Before recording a reduction to earnings for a mark-down in the
carrying cost of interest-only strips (a type of interest-bearing security
created by loan securitization) and a negative tax expense (an addition to
pre-tax earnings), the company earned in the neighborhood of $0.06 per share.
That was below expectations of $0.45 per share because of serious damage
to margins (before the one-time revaluation of securities) and probably would
have dropped the stock a lot farther today if the company hadn't announced
that it has hired Donaldson, Lufkin & Jenrette as an advisor to weigh
strategic alternatives.
QUICK CUTS: GARTNER GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GART)") else Response.Write("(Nasdaq: GART)") end if %> lost $2 to $5 1/2 despite the curriculum of the company's technology-based training unit receiving SAP's "preferred" curriculum designation... Decision support software company IQ SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IQSW)") else Response.Write("(Nasdaq: IQSW)") end if %> slipped $5/8 to $13 1/4 on reporting flat Q2 revenues and EPS of $0.11, missing estimates of $0.12... TETRA TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TTRA)") else Response.Write("(Nasdaq: TTRA)") end if %> fell $3 5/8 to $22 5/8 after the specialty chemicals company announced the acquisition of oil services firm Perfco... Movie theater company CLEARVIEW CINEMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLV)") else Response.Write("(NYSE: CLV)") end if %> dimmed for a $2 1/2 loss to $13 1/2 in its second week of trading after last week's $8 per share initial public offering... Mexican construction company EMPRESAS ICA SOCIEDAD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICA)") else Response.Write("(NYSE: ICA)") end if %> fell $1 3/16 to $17 3/16 as investors are sorting out the effects of the Mexican government plan to take over private-sector highway concessions... Offshore supply boat company TRICO MARINE SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMAR)") else Response.Write("(Nasdaq: TMAR)") end if %> lost $1 5/8 to $27 1/4 on a Raymond James downgrade to "buy" from "accumulate"... ACT MANUFACTURING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACTM)") else Response.Write("(Nasdaq: ACTM)") end if %> slid $4 5/8 to $42 after Raymond James initiated coverage of the circuit board manufacturer with a "hold" rating.
FOOL ON THE
HILL
An Investment Opinion by Randy
Befumo
The Social Proof
What is the key to investment success? The investor's ability to go against
the crowd may be the key ingredient that separates market returns from
market-beating returns. Although almost every investor believes in her heart
that she is a contrarian, the actual ability to develop and maintain a
counter-consensus opinion is a very rare attribute. From day one as human
beings, we are socialized to respect the consensus opinion and obey the norms
established by the body social. To believe that this switch can simply be
flicked off when analyzing investments would seem to deny reality.
"Our day-to-day lives don't prepare us in the least for going against the
crowd," writes Steve Wallman in
Of Permanent Value,
a biographical study of investor Warren Buffett. Wallman continues:
"In almost everything we do, success is a
function of how well we go along with
the crowd, not how well we go against the
crowd. As a result, going against the crowd,
and ignoring what psychologists call social
proof, is contrary to our nature. Little
wonder value investing is so tough, and so
little used. Most of us don't have the
psychological musculature to carry the
burden of negative opinion."
Despite the inherent difficulty of going against mass opinion, counter-consensus
thinking at pivotal points seems key to generating excess returns when investing.
When 3Com lay battered in the mid-$20s back in April, the consensus opinion
was that the company was Intel road-kill and its merger with U.S. Robotics
was borne of desperation. Despite 3Com's near $3 slide today, consensus opinion
about 3Com has improved to the point where the stock price has more than
doubled in little more than three or four months. The fickle consensus of
a quarter ago is undone, but despite the many claims of investing derring-do
in the message boards, very few investors found themselves buying the company
as the shares plummeted due to the overwhelming opinion that 3Com's days
of high-flying profitability were numbered.
The social proof is the basic idea that if something is believed by society
as a whole, it becomes a self-reflexive truth. Cultivating and maintaining
the variant perspective that denies the social proof literal sets up those
who practice this technique to be iconoclasts, ascetics, or eccentrics. Although
much has been made of billionaire investor Warren Buffett's folksy, common-sense
approach to investing, not too many writers eager to distill Buffett into
a few pat and easily duplicated axioms get at what really seems to be at
the heart of the matter -- Buffett's confidence in his own intellectual ability
and his resolve to buy when everyone else disagrees.
Although in retrospect investors have lionized Buffett for his intelligent
purchases of the Washington Post Company in 1973, GEICO in 1976, Coca-Cola
in 1988-89, Wells Fargo in 1991, and American Express (for the third time)
in 1994, each purchase was met with sharp skepticism. The Washington Post
Company was purchased in a declining market and did not show a profit until
1976. During that period, this was a company in turmoil managed by a recent
widow with no business experience that had its press rooms destroyed by
disgruntled union workers, enough to rock the confidence of even the most
stout believer in the company's semi-monopoly status.
Even if the Washington Post seems extreme, the other investments are no better
in terms of the intellectual climate at the time. GEICO was near bankruptcy
because of underpricing and its miscalculation of its claims. Coca-Cola was
lampooned as "Buffett's Folly" on Wall Street, purchased at 15 times earnings
when the market was trading for 11 times trailing earnings.
Wells Fargo was actively
shorted by the Feshback brothers, had tremendous exposure to California real
estate during a major decline, and was a bank at a time when the savings
and loan crisis was supposed to bring the economy to its knees (much like
the Year 2000 problem is advertised today). Even American Express, freshly
freed from its disastrous brokerage operations, was trading in the mid- to
high-teens with erosion of its cardholder base and a very competitive Visa
with which to contend. Time and time again, Buffett was purchasing when others
were skeptical.
You might think some of this is exaggerated a bit and that any reasonable
person might have seen the same opportunity. Was investing in Coca-Cola really
counter-consensus, even with people chirping about the valuation? Consider
for a moment how much the consensus thinking as changed when in 1986 Roger
Enrico and Jesse Kornbluth penned, The Other Guy Blinked: How Pepsi Won
the Cola Wars. While today Coca-Cola may have the love of the people
and the investing public, little more than a decade ago a significant portion
of the population was taking the Pepsi Challenge, ridiculing New Coke, and
laughing at Coca-Cola's disastrous investments in motion picture studios
and shrimp farms.
Buffett provides excellent stories that frame extreme counter-consensus moments.
Buffett also provides an extraordinarily eccentric individual who is sometimes
described by his family as distant and who has promoted and maintained
counter-consensus political ideas long before their gained widespread popularity,
including the idea of population control -- the principal charitable cause
to which the Buffett Foundation contributes. Being able to conceive and maintain
the variant perspective means being able to "think outside the box," to call
into question the conventional wisdom, to go against the grain in spite of
the social opprobrium accorded, and to be willing to sacrifice social acceptance
as the price of being right. This does not mean being some sort of Gen-X,
crazed trader who goes short Coca-Cola "for the rush" -- true counter-consensus
thinking has depth and purpose and is not joyriding.
Possibly the most dangerous example of the social proof within investing
space is the "rumor," a curious phenomenon based entirely on social belief
without any shred of fact. Witness the ups and downs of Novell, Sybase, and
Shiva today -- all moving because of acquisition rumors. Not only are these
rumors at times preposterous on their own merits, they are old, recycled
rumors conserved from the heady times in May of 1996 during the "growth stock
Summer of Love," where any company with a story could double in a few days.
Anyone plunging into companies at that point and calling themselves contrarians
may have been delusional, but they certainly were not moving against the
crowd.
While counter-consensus thinking is viewed as destructive and consensus thinking
is viewed as positive and constructive in the social realm, their roles are
curiously reversed within investing space. Consensus thinking, like the
rumor-mongering regarding Novell, Sybase, and Shiva, is destructive to the
market, destablizing rational valuations as irrational expectations creep
into prices and increase volatility, while those counter-consensus thinkers
villianized in social circles as malcontents and destructive to the majority
provide liquidity to the market by taking up the other side of the trade
and ensuring liquid and reasonable trading. Why investing would be one of
the few places where people who are wired backwards would emerge successful
is a curious fact, but one that at least allows those with the reverse wiring
to sleep a little better at night.
CONFERENCE CALLS
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) -- relay through
8/27
WE
DELIVER - Get The Evening News delivered
to your e-mailbox every evening!
ANOTHER FOOLISH
THING
DRIP Investing
DRIPs?? They're Dividend Reinvestment Plans, and the fact that more and more companies are offering them is good news for investors. Why? Because DRIPs allow you to buy shares of stock directly from companies, without having to pay a middleman. Why haven't you heard of DRIPs? The middleman might have something to do with it. Brokers, and Wall Street in general, stand to lose with the growing popularity of DRIPs. To learn more about DRIPs in Fooldom, check out the DRIP Investing message folder. It's hosted by Chuck Carlson, who has written several handy guides to DRIPs, available in FoolMart.
Randy Befumo (TMF Templr), a Fool
Fool On the Hill
Dale Wettlaufer (TMF Ralegh), another
Fool
Heroes & Goats
Brian Bauer (TMF Hoops), and yet
another Fool
Editing