DJIA: 7401.32 -157.41 (-2.08%) S&P 500: 905.96 -17.82 (-1.93%) Nasdaq: 1541.72 -43.14 (-2.72%) Brazil Bovespa 7882.01 -888.83 (-10.20%) 30-Year Bond 100 11/32 +18/32 6.10% Yield
Clothing retailer Abercrombie & Fitch Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANF)") else Response.Write("(NYSE: ANF)") end if %> rose $3 5/8 to $30 1/8 after posting Q3 EPS of $0.20, crushing estimates of $0.14. Net sales for the quarter increased 69% to $148.5 million, and EPS represents 400% sequential growth. Comparable store sales were up an eye-popping 25% as well. Apparently the company's brand has made some inroads with the "back to school" crowd. In a conference call with analysts this morning, the company stated that it was "comfortable" with estimates of $0.51 per share for the fourth quarter. The stock currently sells at 33 times 1999 EPS estimates of $0.91, which is about as expensive as the company's clothing. Trading at about 118 times book value due to the company's enormous debt load (384% debt to equity), any downturn in sales could be ruinous with the company's interest expense coming in at 24% of operating earnings in the third quarter.
Garden Fresh Restaurant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LTUS)") else Response.Write("(Nasdaq: LTUS)") end if %>, operator of Souplantation
and Sweet Tomatoes restaurants, gained $1 1/8 to $13 5/8 after posting Q4
EPS of $0.29 versus estimates of $0.28. The company also beat 1997 I/B/E/S
estimates of $0.87 by a penny. The company's format allows customers to pay
a flat fee and then they can gorge themselves on salads, soups, bakery items,
pastas, and desserts in a self-serve format. Aside from being a good story,
the company trades at 13 times 1998 EPS estimates of $1.03 and a large discount
to its peers with a price-to-sales ration of 0.80. Garden Fresh has low capital
requirements in comparison with some of the bigger concepts out there, and
it should see strong return on invested capital (its intends to open 11 stores
in fiscal 1998) as the company takes advantage of low supply costs leveraged
over a growing number of units.
QUICK TAKES: Operator of 120 Vitamin World stores, NBTY Inc.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NBTY)") else Response.Write("(Nasdaq: NBTY)") end if %>, jumped $1 1/16 to $22 3/16 after announcing that fiscal year
1997 results would come in at $1.11 per share (before a one-time charges),
beating estimates of $1.10... Fax and electronic messaging company Xpedite
Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XPED)") else Response.Write("(Nasdaq: XPED)") end if %> added $2 11/16 to $30 1/16 after announcing that
it is considering a sweetened $34 per share stock-for-stock merger offer
from Premiere Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTEK)") else Response.Write("(Nasdaq: PTEK)") end if %>... Data communications hardware
and software provider Digi International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DGII)") else Response.Write("(Nasdaq: DGII)") end if %> rose $1 17/32
to $16 23/32 after reporting a Q4 loss of 0.29 per share, missing estimates.
The shares are up because the company expects fiscal 1998 first quarter earnings
to be "significantly" above analysts' expectations of $0.06 to $0.08 a
share.
Gartner Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GART)") else Response.Write("(Nasdaq: GART)") end if %>, a provider of a information technology
services, gained $2 1/4 to $29 1/4 after reporting Q4 EPS of $0.17 and fiscal
year 1997 EPS of $0.71 versus estimates of $0.16 and $0.71 respectively...
Air courier company AirNet Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANS)") else Response.Write("(NYSE: ANS)") end if %> announced Q3 earnings
of $0.29 per share, which beat estimates of $0.28 and raised the stock $1
5/16 to $20 13/16... Cable and wireless Internet access provider Hybrid
Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HYBR)") else Response.Write("(Nasdaq: HYBR)") end if %> had its IPO today, rising $1 15/16 to $15 15/16...
Retailer TJX Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TJX)") else Response.Write("(NYSE: TJX)") end if %> gained $1 13/16 to $33 5/8 after
reporting Q3 EPS of $0.61 versus estimates for $0.56.
Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> lost $7 1/16 to $116 3/8 and Chase Manhattan
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> sank $5 11/16 to $106 11/16 as several analysts downgraded
the companies based on credit quality fears from Hong Kong, East Asia, and
Latin America. Those who have feared this since Asian currencies started
falling part earlier this year have been seen as flaky, as after all, Citicorp,
Chase, and bank holding companies such as Hong Kong's HSBC have been so
profitable recently. Many banks have been so profitable because lots of new
business pumps up origination fees, because loan loss reserves have been
high enough that income statements have been made to look better by smaller
loan loss and credit loss provisions, and because funding has been cheap.
With higher short-term interest rates in Asia and Latin America, a more dubious
outlook on loan quality, overcapacity in office space outside Hong Kong,
and lower loan origination fees, investors have turned cautious. Problem
loans don't surface overnight, which adds to the uncertainty associated with
current international banking conditions. One would be hard pressed to come
up with a worse scenario for earnings growth.
Group health insurance and services company John Alden Financial Corp.
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JA)") else Response.Write("(NYSE: JA)") end if %> was scalped for $3 1/2 to $28 after reporting Q3 EPS from
continuing operations of $0.10, falling well short of the mean analyst estimate
of $0.34. The company's medical loss ratio declined in states where it is
continuing operations, but group health premiums for the quarter declined
about 21%, adjusting for discontinued operations. John Alden also announced
that it has hired CS First Boston to look into a sale of the company or possible
business combinations (a merger with another company).
Specialty insurance company Frontier Insurance Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTR)") else Response.Write("(NYSE: FTR)") end if %> slid
$11 1/4 to $24 7/8 after reporting Q3 net income of $0.42 per share, missing
the analysts' mean estimate of $0.47 and drawing downgrades from Merrill
Lynch and Smith Barney. Reducing revenues was a higher-than-expected push-off
of insured risks to reinsurers. Depending upon the risk characteristics of
that ceded business, the positive results of that decision would be felt
in later quarters to one extent or another. Thinking long term in this case
hurt the company's valuation for the moment. Increased medical malpractice
premiums in Florida also hurt revenues in the professional liability part
of its business. That again is a decision that indicates a mature-thinking
management that doesn't push short-term profitability at the expense of taking
risks for which the company will be undercompensated. Unfortunately, the
short-term effects of long-term decision-making were not overcome by a combined
ratio (similar to a company's operating margin) that improved over last year.
QUICK CUTS: American Home Patient <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AHOM)") else Response.Write("(Nasdaq: AHOM)") end if %> fell $2 5/8 to $21
7/8 after yesterday reporting Q3 EPS of $0.35 (before charges), in line with
estimates. Prudential lowered its rating on the company to "hold" from "buy"
this morning... Lower-than-expected revenues from the launch of its
cholesterol-busting drug halved the value of Kos Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KOSP)") else Response.Write("(Nasdaq: KOSP)") end if %> today, whose shares lost $14 3/8 to $16 9/16. The company said that
it expects modest December quarter sales as its fills out inventories in
the retail channel... Veeco Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VECO)") else Response.Write("(Nasdaq: VECO)") end if %> fell $4 7/8
to $35 3/8 as the ion beam etching equipment manufacturer succumbed to the
negative outlook on the disk drive industry, which it supplies... Reporting
a 1/10 of 1% net profit margin and net income of $0.01 per share on revenues
of $223 million, staff leasing and workers compensation insurance company
Employee Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESOL)") else Response.Write("(Nasdaq: ESOL)") end if %> fell $1 3/32 to $5 27/32.
Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> lost $12 1/2 to $93 3/4 as investors
and traders piece together the plumpness of inventories in disk drives, modems,
and PCs to figure that memory pricing is probably doing poorly and that TI's
digital signal processor business won't be as robust this quarter either...
With negative perceptions in the memory business, which still accounts for
a good chunk of the total output of the semiconductor industry, Applied
Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> fell $2 1/4 to $28 7/8; KLA-Tencor <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> slid $6 3/8 to $36 5/8; chemical mechanical polishing equipment maker
Speedfam <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFAM)") else Response.Write("(Nasdaq: SFAM)") end if %> lost $5 1/2 to $28 1/2; and PRI
Automation <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRIA)") else Response.Write("(Nasdaq: PRIA)") end if %> descended $4 3/4 to $35 1/2... Brazilian telecom
giant Telebras <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBR)") else Response.Write("(NYSE: TBR)") end if %> fell $9 3/4 to $83 1/2, contributing to
a 10% decline in Brazil's Bovespa Index.
MasTec Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTZ)") else Response.Write("(NYSE: MTZ)") end if %> lost another $4 1/2 to $23 7/16 after the
telecom infrastructure construction firm reported Q3 EPS of $0.43, up 7.5%
over last year but well below revenue growth of 24% and the mean analyst
estimate of $0.54... Argentine supermarket company Disco SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DXO)") else Response.Write("(NYSE: DXO)") end if %> fell $4 3/4 to $31 1/4 on reporting Q3 net income of 6.45 million pesos
for the third quarter, apparently disappointing analysts... Electronics contract
manufacturer Solectron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> lost $2 9/16 to $34 1/2, paradoxically
so perhaps, as labor at its assembly facilities abroad becomes cheaper. Investors
may be more worried about perceived demand-side problems for electronics...
Semiconductor company Unitrode <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UTR)") else Response.Write("(NYSE: UTR)") end if %> declined $2 1/8 to $21
3/8 after reporting Q3 EPS of $0.35, beating the Zacks mean estimate of $0.34
and rising 67% year-over-year.
FOOL
ON THE HILL
An Investment Opinion by Randy
Befumo
When NOT to Invest
Unfortunately, many investors who are seduced by the lure of easy money try
to become "active" investors before they have the skills, the resources,
or the appropriate intellectual framework to do so. This is not to say that
investing in stocks is extraordinarily difficult -- it is not. However, beating
the market on a regular basis is far from easy and requires that an investor
bring to the investing process a singular discipline, knowledge, or passion
that will allow him to rise above the herd. Like any other competition, not
everyone can win. In fact, net of new cash in-flows into the market, for
every dollar that outperforms a market index, somebody else's dollar is not
doing quite so well.
How can you tell if you are ready to become an "active" investor? Not an
investor who buys and sells stocks on a regular basis, but active in the
way the academics mean it -- someone who selects their own stocks. It is
not like there is a licensing process or anything. In fact, there is not
even a formal course of instruction. Much like parenting, you tend to only
find out if you are cut out to be an investor only after you have made a
pretty substantial commitment. Today, I wanted to try to give some pointers
based on some recent e-mail I have received in an attempt to give some guidance
as to when you should start buying your own stocks.
In my opinion, you should NOT be investing in stocks...
...if you need the money within two to three years at the least, five years
as an intermediate time, and ten years if you are really risk averse.
...if you don't like to do math.
...if you use the word "play," "gamble," "flyer," or any similar
speculation-oriented word when you describe your investments.
...if you think indexes matter more than what companies you own.
...if you are unprepared for volatility. A lot of people look at the returns
for the stock market only to turn pale at the first loss. If you cannot stand
to lose money, you should not own stocks. Period.
...if you think you will only ever buy stocks that go up. News flash -- you
are not perfect. No system is perfect. No provider of advice is perfect.
You can -- and will -- lose money at some point during your investment career.
You can minimize this loss if you do your homework and are careful about
valuation, but money lost is money lost.
...if you believe that the share price alone or share price movements alone
tell you anything about the underlying quality of the company or its business.
All too often people buy low-priced shares with the idea that they are cheap,
only to find out that they are low-priced because the underlying business
sucks.
...if you couldn't write down a list of why you bought and what might make
you sell. If you don't know why you bought a stock in the first place, how
can you know when to sell it? Bad scene. Avoid it.
...if you cannot tell the difference between a balance sheet and an income
statement. Especially if you don't even know where to find a copy of
either.
...if you don't know how to get the phone number for Investor Relations at
the company in case you have question.
...if you cannot make a rudimentary assessment of the underlying quality
of a company.
...if you cannot define any of the following words: gross margin, operating
margin, profit margin, earnings per share, costs of goods sold, dilution,
share buyback, revenues, receivables, inventories, cash flow, estimates,
depreciation, amortization, capital expenditure, GAAP, market capitalization
or valuation, shareholder's equity, assets, liabilities, return on equity.
...if you only have one source of information about the company. I don't
care whether it is your best friend, a message board, or some content provider.
If you cannot independently verify the facts, you are bound to get
unintentionally bamboozled. No one likes to admit they are wrong. If you
depend on one source of information, odds are when it finally coughs up the
conclusion that it made a bad call it will be too late.
...if you cannot name the major products a company makes or the company's
major competitors.
...if you only use one technique to value a company. That is like using one
tool to build a house. The house will look like crap and be unlivable. Sales,
earnings, cash flow, assets, historical returns, management, underlying
quality... are just a few of the ways you can value a company. Don't use
only one tool.
...if you don't understand that the earnings estimates you get lag. Someone
recently wrote to FoolNews commenting that a disk drive-related company looked
cheap at five times expected earnings. Unfortunately for that investor, in
the past week the estimate had dropped by more than 50%. As estimates are
only published once a week for individual investors, if something suddenly
changes, the estimates can be very "stale." If that investor had not been
following news in the drive industry, he might have made a potentially disastrous
investment.
...if you don't follow up on a company at least four times a year. Preferably
once a month. These are big investments you are making relative to your
savings... put some sweat equity into them.
...if you don't use the Internet. Seriously folks, come on. Almost all of
the disadvantage of being an individual investor from the information side
was erased by the Internet. If you aren't on it, you are at a major disadvantage
to all of the other players. It is like trying to wrestle with no limbs.
...if you buy a stock simply to sell options. Although some might try to
convince you this is a conservative, income-oriented approach, the reality
is that if you are getting decent premiums for selling the options, you are
taking on a lot of risk owning the equity.
...if you refer to management by their first name. This may seem churlish,
but nine times out of ten when management is known by their first names the
investor has lost all objectivity about the investment.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
WE
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Randy Befumo (TMF Templr), a Fool
One
Dale Wettlaufer (TMF Ralegh),
Fool Two
Alex Schay (TMF Nexus6), Fool
Three
Contributing Writers
Brian Bauer (TMF Hoops), Fool Four
Editor