California biotech company CELL GENESYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CEGE)") else Response.Write("(Nasdaq: CEGE)") end if %> rocketed $3 higher to $11 1/2 after reporting that it had genetically engineered immune system T cells to seek out and destroy HIV-infected cells. It was noted that these engineered cells kill infected cells as efficiently as naturally occurring HIV-specific T cells (which are lost during the early stages of HIV infection). Up until now, treatments have been confined to suppression of the virus, but this development offers hope that it can be eradicated. The company is currently conducting human trials for the procedure. Cell Genesys has grown its top line at a compound annual rate of 51% since 1993, however this line still hasn't quite caught up with its expenditures on R&D (22% more than revenues for the most recent quarter). Despite this, the company has a compelling pipeline and trades at 9x sales after this rise.
Coke bottler COCA-COLA ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCE)") else Response.Write("(NYSE: CCE)") end if %> rose $1 15/16 to $28 15/16 after it reported third quarter net income of $0.29 per share versus estimates of $0.12. The results were improved by a corporate tax rate reduction in Britain that helped EPS by $0.15 -- without the one-time gain the bottler earned $0.14 per share. The company noted strong year-over-year gross cash flow growth (earnings before interest, taxes, depreciation, and amortization) of 18%, which more than doubled earlier company estimates for the quarter in the range of 9-10%. In addition, case volumes in bottles and cans grew 15% in Europe and 7% in North America over the quarter, contributing to the strong results.
QUICK TAKES: Las Vegas-based RIO HOTEL & CASINO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHC)") else Response.Write("(NYSE: RHC)") end if %> gained $1 3/4 to $24 1/2 after posting 3Q EPS of $0.36, beating estimates of $0.31... Automation and control systems company HONEYWELL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HON)") else Response.Write("(NYSE: HON)") end if %> rose $4 3/16 to $72 11/16 after posting 3Q EPS of $0.93 versus estimates of $0.91... RC Cola and Snapple purveyor TRIARC COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRY)") else Response.Write("(NYSE: TRY)") end if %> climbed $1 1/16 to $19 5/8 after announcing yesterday that it would repurchase up to $20 million of class A common stock over the next twelve months, market conditions permitting... Shares of GUEST SUPPLY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GSY)") else Response.Write("(NYSE: GSY)") end if %> received a gratuity from investors today, rising $13/16 to $15 3/8 after it said it was approved to provide a host of housekeeping supplies to more than 900 Promus Hotel properties worldwide... PaineWebber analyst Gary Gordon raised his rating on THORNBURG MORTGAGE ASSET CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMA)") else Response.Write("(NYSE: TMA)") end if %> to "attractive" from "neutral," boosting shares $1 1/16 to $21 1/4.
Home nursing care HEALTHCOR HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HCOR)") else Response.Write("(Nasdaq: HCOR)") end if %> jumped $1 11/16 to $6 13/16 after reporting late yesterday that it expects its financial performance for the remainder of the year "to significantly exceed analyst expectations"... Analog integrated circuit company SIPEX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SIPX)") else Response.Write("(Nasdaq: SIPX)") end if %> rose $5 7/8 to $34 7/8 after reporting third quarter net income (which reflects a 2:1 stock split) of $0.17 per share... UNION BANKSHARES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UBSH)") else Response.Write("(Nasdaq: UBSH)") end if %> added $5 1/4 to $38 1/4 after Charles Wittmann of Wheat First Butcher Singer initiated coverage with a "buy"... APPLIED DIGITAL ACCESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADAX)") else Response.Write("(Nasdaq: ADAX)") end if %> jumped $1 3/8 to $11 5/8 after it was upgraded to "buy" from "hold" by Hambrecht & Quist... INTEVAC INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVAC)") else Response.Write("(Nasdaq: IVAC)") end if %> gained $1 5/8 to $14 5/8 after the equipment maker for the hard disk industry reported net income for the third quarter of $1.9 million, or $0.15 per share... Data warehousing giant RED BRICK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REDB)") else Response.Write("(Nasdaq: REDB)") end if %> added $27/32 to $8 7/32 after it posted 3Q EPS of $0.03... Hutchison Whampoa Ltd. said this morning that its subsidiary Hutchison Telecommunication Ltd. has agreed to buy a 5% stake in WESTERN WIRELESS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WWCA)") else Response.Write("(Nasdaq: WWCA)") end if %> for $74 million, boosting shares of Western $1 1/4 to $21 3/8... Commuter airline COMAIR HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMR)") else Response.Write("(Nasdaq: COMR)") end if %> ascended $2 to $30 after it reported 2Q EPS of $0.55.
Canadian hydrogen fuel cell company BALLARD POWER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BLDPF)") else Response.Write("(Nasdaq: BLDPF)") end if %> lost $18 3/8 to $51 as the company's management sought to temper enthusiasm for the stock by saying that it isn't aware of any reasons for the $20+ rise in the share price in the last three trading sessions. Why would Ballard's management talk down the stock, though? For one thing, responsible managements don't want their stock to trade past intrinsic value by ridiculous amounts because future returns for investors taking positions at the higher prices will not be as large as if the stock is trading close to intrinsic value. Also, a fast-growing applied technology company uses options to attract talented employees. No management wants their top employees to be awarded stock options that stay "out of the money" for long periods after a swift run-up.
Information technology services company COMPUTER TASK GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSK)") else Response.Write("(NYSE: TSK)") end if %> lost $3 to $38 3/8 on reporting Q3 EPS of $0.26, in line with estimates. Due to the fact that the veteran software and systems company is now seen as a year 2000 "play," meeting estimates might not have been good enough for some investors. Computer Task Group is now priced at less than two times annualized revenues and 30 times 1998 earnings estimates. ACCELER8 TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACLY)") else Response.Write("(Nasdaq: ACLY)") end if %> does some of the same sorts of things as Computer Task Group, but positions itself as a Year 2000 company, while CTG presses less aggressively on this marketing front. At 17 times revenues for Acceler8, giving them the huge benefit of the doubt of expanding revenues at a 50% sequential growth rate over the coming year, the differences in marketing and expectations become clear.
THE CHILDREN'S PLACE RETAIL STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLCE)") else Response.Write("(Nasdaq: PLCE)") end if %> swooned $5 27/32 to $7 17/32 after the children's apparel retailer said it expects a year-over-year decline in same-store sales for its third quarter because of unseasonably warm weather. Consequently, third quarter earnings will suffer and fourth quarter earnings will also be hurt because of "excess inventories," meaning the company may have to take a write-down of inventories next quarter depending on how well it can clear out its fall line. Not surprisingly, the company also said that new stores are performing below expectations and that's why this quarter will come in below what investors would like to see.
QUICK CUTS: VISIGENIC SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VSGN)") else Response.Write("(Nasdaq: VSGN)") end if %> slumped $1 1/4 to $5 1/2 on pre-announcing a Q2 loss of $0.24 to $0.26 per share, missing estimates of a loss $0.13 due to a transition to object request broker software from database access products... APPLIED CELLULAR TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACTC)") else Response.Write("(Nasdaq: ACTC)") end if %> fell $1 9/32 to $7 29/32 after the wireless telecom software and equipment company registered to sell 8.86 million shares of common stock on behalf of stockholders... Canadian publishing and networking software company HUMMINGBIRD COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HUMCF)") else Response.Write("(Nasdaq: HUMCF)") end if %> lost $7 to $44 3/4, giving back 70% of yesterday's $10 jump in advance of tomorrow's earnings report... Health plan company HEALTH RISK MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRMI)") else Response.Write("(Nasdaq: HRMI)") end if %> fell $1 3/4 to $14 1/8 after reporting Q4 EPS of $0.15 and saying costs associated with the expansion of service to a major HMO client will affect Q1 of fiscal 1998.
Utility software company MCAFEE ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCAF)") else Response.Write("(Nasdaq: MCAF)") end if %> fell $6 9/16 to $59 13/16 after announcing last night an agreement to merge with local area and wide area network management software company NETWORK GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NETG)") else Response.Write("(Nasdaq: NETG)") end if %> in a stock swap valuing Network General at $27.66 per share as of last night's close... Industrial products manufacturer MAGNETEK INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAG)") else Response.Write("(NYSE: MAG)") end if %> lost $2 3/4 to $20 after reporting a 1% decline in Q1 revenues and EPS of $0.25, missing the mean First Call estimate of $0.26... Steel producer holding company NS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSS)") else Response.Write("(NYSE: NSS)") end if %> slid $2 1/4 to $37 3/4 after Smith Barney cut its rating on the firm to "neutral" from "outperform" following a nice advance in the shares over the last fifteen trading days... DUPONT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> dropped $2 11/16 to $58 1/16 after PaineWebber lowered its rating on the chemicals and oil company to "unattractive" from "neutral."
FOOL ON THE HILL
An Investment Opinion by Jim Surowiecki
Big Three Get Bigger, Despite Worries About Exchange Rates and Inventory
Despite recurring concerns about growing overcapacity and their own saber rattling about the strong dollar, U.S. automakers continue to stay one step ahead of the naysayers. Last Friday, CHRYSLER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> beat consensus earnings estimates for the third quarter by five cents a share, though it did so while reporting a 35% earnings decline for the quarter. This morning GENERAL MOTORS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> reported earnings of $1.35 a share, well ahead of the First Call consensus of $1.21 per share. FORD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> will report quarterly results on Thursday, and analysts actually expect its numbers to be the brightest of the Big Three, primarily because of the continued success of its sports utility vehicles.
Like Chrysler, GM's earnings were down sharply from a year ago -- in this case 17.7% -- but its numbers suggested that the auto behemoth is reaping benefits from its efforts to cut costs and strengthen its North American operations. GM North America turned in a record performance in the quarter, with $423 million in income, up from $277 million before charges in 1996, while market share rose across the board. The company was upbeat about that division for 1998, suggesting that the introduction of a whole series of both passenger-car and light-truck models would make a real difference on the bottom line.
Although GM's numbers beat estimates, they did not come as much of a surprise, at least not to investors who sent the stock to a 52-week high this week in anticipation of a positive report. In fact, GM's shares were down slightly today, as essentially all of the good news had already been priced into the stock. Chrysler's numbers similarly provoked only a mild reaction.
The third quarter is traditionally the industry's worst, since it's the time when factories are retooled for new production lines. The third quarter of 1997, though, was particularly difficult for a number of different reasons. The strong dollar continued to hurt foreign sales. GM, for instance, saw international earnings drop 58% from a year ago. At the same time, fierce price competition at home increased spending on sales incentives, most notably at Chrysler, which raised its per-car incentive spending by two-thirds, to $1140 per vehicle. Finally, retooling at both Chrysler and GM went less smoothly than might have been anticipated, hurting Chrysler's production of its Concorde and Intrepid models, while GM's Delphi Automotive Systems parts division saw its earnings drop 75% due to problems in new-model transitions. Delphi was supposed to be spun off in an initial public offering sometime in early 1998, but that IPO has now been postponed indefinitely until a merger with GM's Delco Electronics unit is completed. The wait could be as long as two years.
Both Chrysler and GM offered upbeat forecasts for the fourth quarter in particular and for 1998 in general, and indications are good that the industry will be able to avoid the kind of major downturn some were predicting earlier this spring. All three automakers are sitting on large piles of cash -- Chrysler $5 billion, GM $14 billion, and Ford $7 billion -- and Chrysler and Ford in particular are running thoroughly streamlined production operations. At the same time, there are a number of looming concerns for the industry. There is no evidence that pricing pressures will disappear, which means that incentive spending will have to remain at historically high levels. GM, in fact, announced on Friday that it was cutting prices on both its Saturn and Chevrolet subcompact models in order to remain competitive with foreign models, most notably TOYOTA's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TOYOY)") else Response.Write("(Nasdaq: TOYOY)") end if %> recently redesigned Corolla. That announcement followed an earlier decision to cut Saturn production by 17% for the rest of 1997. In addition, the impact of the strong dollar will continue to eat away at foreign earnings, and General Motors, at least, is still dealing with a cost structure that may require long-term revamping.
Considering that the Big Three continue to trade at P/E ratios that are less than half of the S&P 500 as a whole, and that they offer still meaningful dividends, a case can definitely be made for them as value plays. But the market still sees these companies as cyclicals -- and might well be described as just waiting for the bust to come. As much as Chrysler would like to think otherwise, until investors see consistent year-over-year earnings growth, it will be hard to convince them that the auto companies' market caps should be as big as their annual sales.
INTEL CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>
(402) 220-0103 -- replay after 8:00 pm EDT through 10/17
HARLEY-DAVIDSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HDI)") else Response.Write("(NYSE: HDI)") end if %>
(402) 220-0107 -- replay
ECHLIN, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
(800) 683-1535 (code: refocus) -- replay through 10/17
ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
(800) 475-6701 (code: 358559) -- replay through 10/17
10/15/97 (Wednesday)
FORD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %>
(703) 736-7225 -- replay on 10/15 and 10/16 @ 2:00 p.m. EDT
10/15/97 (Wednesday)
CCA PRISON REALTY TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PZN)") else Response.Write("(NYSE: PZN)") end if %>
10:30 am EDT
(719) 448-2006 -- live
(402) 220-8775 -- replay through 10/17
10/15/97 (Wednesday)
SUMMIT PROPERTIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMT)") else Response.Write("(NYSE: SMT)") end if %>
1-800-633-8284 (code: 3148971) -- replay through 5:00 p.m. EDT on 10/17
10/15/97 (Wednesday)
FREDDIE MAC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRE)") else Response.Write("(NYSE: FRE)") end if %>
(800) 475-6701 (code: 358103) -- replay from 10/16 @ 8:00 am EDT through 10/17
10/15/97 (Wednesday)
360 COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XO)") else Response.Write("(NYSE: XO)") end if %>
(402) 220-3014 -- replay until 10/22
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Randy Befumo (TMF Templr), Fool
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Dale Wettlaufer (TMF Ralegh), Fool
Two
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Four
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