DJIA: 7978.79 -70.87 (-0.88%) S&P 500: 969.79 -5.99 (-0.61%) Nasdaq: 1596.61 -23.94 (-1.48%) Finland Hex ndx 331.57 -3.24 (-0.97%) 30-Year Bond 100 23/32 +19/32 6.07% Yield
Enron Ventures Corp., a wholly owned subsidiary of Enron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ENE)") else Response.Write("(NYSE: ENE)") end if %>, will purchase a 15% interest in the Catalytica Combustion Systems unit
of Catalytica Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTAL)") else Response.Write("(Nasdaq: CTAL)") end if %> for $30 million in cash. Catalytica
was up $3/4 to $11 1/2 on the news. Enron also received a three-year option
to purchase 5% more of Catalytica for $14.4 million in cash, which values
the Combustion Systems unit from $190 to $200 million, or about 41% of the
market capitalization of the entire company. The price of Catalytica's shares
has been stagnant for some people buying over the last year, particularly
those who bought after the company's announcements of significant deals such
as an agreement from General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> to market Catalytica's
pollution control systems for gas turbines and an agreement to purchase a
1.8 million square foot pharmaceuticals production facility from Glaxo
Wellcome <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %>. Despite the stagnation in the price of Catalytica
shares (due to heavy share issuance in past year), this is a creative management
team and a company with excellent potential.
Every independent brokerage still considered an acquisition target except
Hambrecht & Quist <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HQ)") else Response.Write("(NYSE: HQ)") end if %> had a good day today. Donaldson,
Lufkin & Jenrette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLJ)") else Response.Write("(NYSE: DLJ)") end if %> powered ahead $4 1/8 to $87 5/8 on
rumors that Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> might be interested in purchasing
the firm. As one of major shareholder Equitable Companies' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EQ)") else Response.Write("(NYSE: EQ)") end if %> major profit centers, many consider a DLJ acquisition unlikely. Memphis-based
Morgan Keenan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOR)") else Response.Write("(NYSE: MOR)") end if %> powered ahead $1 11/16 to $25 1/4 and Los
Angeles-based Jefferies Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JEF)") else Response.Write("(NYSE: JEF)") end if %> crept ahead $3 9/16 to $83
1/4. Another factor that may be driving these shares is the excellent third
quarter results many of these companies have posted that show momentum in
the trading business still continues to grow, confounding expectations of
an eventual slowdown in growth.
Although large temporary employment agencies have been getting killed over
the past two years, shares of Labor Ready <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LBOR)") else Response.Write("(NYSE: LBOR)") end if %> have definitely
bucked the trend. Up $2 3/4 to $21 today, the stock has come off of its 52-week
low of $4 3/8 in April with a vengeance. Today the firm announced it would
continue to buy its own stock on the open market as part of its repurchase
program and that it was "comfortable" with estimates of $0.34 EPS for calendar
1997, saying it would meet or beat these numbers. Chief Executive Glenn Welstead
also said that 1998's $0.56 EPS estimates would be a cinch as well. This
is remarkable because unlike many companies in the industry, Labor Ready
relies completely on organic growth and not on acquisitions to increase revenues
and earnings. As the company does bread and butter "light industry labor,"
the most commoditized chunk of the temporary service universe, these good
results could be considered a sign of strength in the temporary help market
beset by overcapacity for the last two years. However, investors should keep
in mind that only a month ago Kelly Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KELYA)") else Response.Write("(NYSE: KELYA)") end if %> announced
it would produce disappointing results over the next two years.
Montana Power <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTP)") else Response.Write("(NYSE: MTP)") end if %> jumped $15/16 to $28 after announcing that
it would sell its Montana electric-power generating facilities. The company
will completely focus on marketing and distribution of electric power and
natural gas, exiting the power generation business entirely. By selling 13
dams and 4 coal-fired plants, Montana Power sidesteps a number of complicated
regulatory issues that make it difficult for a utility to generate power
in a region where it also distributes and markets power. The company will
put more emphasis on selling power in California and expanding its "Touch
America" long-distance service. It is more than likely that a company with
the resources of Montana Power will be more successful in the power selling
business than a small fringe company like Keystone Energy Services
(OTC: KESE), which has received attention from online investors lately.
QUICK TAKES: Multilevel marketer Avon Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVP)") else Response.Write("(NYSE: AVP)") end if %>
rose $1 5/8 to $62 1/8 after the company was put on the Goldman Sachs
"recommended list"... Toymaker Hasbro <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAS)") else Response.Write("(NYSE: HAS)") end if %> jumped $2 7/16 to
$33 11/16 after Bear Stearns put a "buy" rating on it with a price target
of $46, prompted by yesterday's decision to downsize 20% of its workforce...
Positive comments by UBS Securities analyst Joe Dougherty drove biotech
LeukoSite <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LKST)") else Response.Write("(NYSE: LKST)") end if %> up $1 to $11... Appliance manufacturer Sunbeam
Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOC)") else Response.Write("(NYSE: SOC)") end if %> recovered $1 7/16 to $40 7/16 after CIBC Oppenheimer
reiterated a "buy"... Retailer Williams Sonoma <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WSGC)") else Response.Write("(NYSE: WSGC)") end if %> climbed
$1 5/8 to $38 1/8 after BT Alex. Brown analyst Marcia Aaron went to "strong
buy."
General Re <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRN)") else Response.Write("(NYSE: GRN)") end if %> rose $3 3/16 to $217 after the board voted
to authorize the repurchase of three-quarters of a billion dollars worth
of common stock, or 4.4% -- roughly what the reinsurance giant repurchased
in 1995 and 1996... Contract manufacturer and venture capital firm EA
Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EA)") else Response.Write("(NYSE: EA)") end if %> added $1/2 to $6 1/2 when its contract manufacturing
division announced $22 million in new orders. Now if it would only make some
money... Box Hill Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BXH)") else Response.Write("(NYSE: BXH)") end if %> jumped $9/16 to $11 3/8 after
it got a "1-strong buy" rating from relative unknown Barber & Bronson...
Stone Energy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGY)") else Response.Write("(NYSE: SGY)") end if %> jumped $2 1/16 to $34 1/16 after Mark
E. Fischer of CS First Boston put a "strong buy" on the company's stock...
Contract manufacturer Plexus <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLXS)") else Response.Write("(Nasdaq: PLXS)") end if %> jumped $3 3/8 to $23 after
the company was reiterated a "buy" by Schroder & Co.
Recent PepsiCo spin-off Tricon Global Restaurants <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: YUM)") else Response.Write("(NYSE: YUM)") end if %>, which
operates Pizza Hut, KFC, and Taco Bell, dropped $1 15/16 to $32 1/4 after
the company reported that it will take a fourth quarter after-tax charge
(largely non-cash) of roughly $2.79 per share to "refocus" its business.
The charge will be used to close its less profitable locations and write
down the value of those it plans to sell to franchisees. About 600 restaurants
will be closed domestically and 143 will be closed in international markets;
667 stores (roughly split between U.S. and overseas locations) will be sold
to franchisees. The company that takes its name from a combination of "three"
and "icon" decided to rid itself of a lot of Pizza Hut locations due to the
sheer number of marginally productive stores and the competitive pizza
environment -- further evidenced by the
recent
shortfall pre-announcement by NPC International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NPCI)") else Response.Write("(Nasdaq: NPCI)") end if %>. For
the period ended Oct. 21, Tricon reported a 4% decrease in same-store sales
at its Pizza Huts units. Tricon hopes that this move will help the company
put its best foot (read: stores) forward in 1998.
Shares of Vivus Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %> dropped $6 5/16 to $13 13/16 after
the male impotence products company said that it expects a 25% decline in
sequential revenue from its third quarter results of $39.1 million. The company
attributed the problems to production delays at its new Lakewood, New Jersey
facility stemming from personnel and equipment transfer issues between it
and the company's old facility in the same city. These delays will also affect
the company's ability to open its second facility, which will be pushed back
"several months" due to the fact that it needs to get U.S. and European
regulatory approval. Impotence
obsessed
short-seller Asensio & Co. weighed in on the whole affair, asserting
that the expected drop is a result of "poor product performance and early
non-recurring sales to undisclosed sources." The combined delays also will
cut shipments of the company's products for the first two quarters of 1998.
Vivus will be pressured by Pfizer's 1998 release of Viagra as well as Zonagen's
Vasomax (still pre-NDA); both are orally administered impotency drugs.
Fastenal <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FAST)") else Response.Write("(Nasdaq: FAST)") end if %> dove $9 1/4 to $41 today after the company
announced that it would not make fourth quarter earnings estimates.
Lower-than-expected margins on industrial maintenance supplies and tool
sharpening, lower-than-expected revenues during Thanksgiving week, and higher
operating expenses from hiring 1,000 new bodies are all to blame. The company
will earn $0.26 to $0.27 per share versus $0.21 per share a year ago. The
disappointment is hardly shocking, as it will be the seventh estimate miss
in the last eight quarters. Large shareholders like Janus Funds have been
selling shares throughout the year as concerns about shrinking margins increased.
September marked the first significant sales by the firm's Chief Executive
Officer (CEO) since before the stock crashed in 1994. Fastenal sells nuts,
bolts, and other stuff to businesses with an emphasis on service and cost
control, often delivering hard-to-find fasteners within hours if need be.
Fastenal has increased its share price by 47% per year since its 1987 initial
public offering.
Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> continued to get hosed today, dropping $2
3/8 to $25 3/16. Yesterday a downgrade from the Donaldson, Lufkin and Jenrette
analyst after a company visit spooked most investors. The skinny is that
Bay is seeing product transition issues and will be unable to turn routers
into a growth area, which it previously had believed was possible. As the
stock valuation hinged on the company executing a credible turnaround from
years of underperformance and mismanagement, it is no wonder the shares are
compressing today. Estimates for fiscal 1998 and 1999 will probably be revised
downward in light of the bad news on routers, and analysts are again seeing
router-king Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> prove its resiliency. Since
December of 1993, Bay has delivered a whopping 9.0% average annual return
to investors while the S&P 500 would have netted investors 23.0% over
the same period.
QUICK CUTS: Freeport-McMoRan Copper & Gold <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCX)") else Response.Write("(NYSE: FCX)") end if %>
announced that it has reduced its regular cash dividend on its Class A and
Class B common shares to $0.20 per share annually from the current annual
dividend of $0.90 per share. The stock fell $2 7/8 to $16 3/4... The fifth
largest long-distance company in the U.S., Excel Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %>, dropped $2 9/16 to $16 11/16 after it announced last night that earnings
will fall below analysts' expectations for the fourth quarter. The company
expects to earn between $0.17 and $0.22 per share versus estimates of $0.33...
Multiple computer vendors and retailers were down significantly today, including
Compaq Computer Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, which dropped $3 3/8 to $60; Dell
Computer Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DELL)") else Response.Write("(NYSE: DELL)") end if %>, which fell $2 13/16 to $91 1/8; and CompUSA
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %>, which slid $3 13/16 to $31 7/8. Most reports cited Oracle's
weakness and the continuing crisis in South Korea as reasons for the decline.
Salomon Smith Barney lowered its rating on shares of healthcare provider
Humana Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUM)") else Response.Write("(NYSE: HUM)") end if %> to "outperform" from "buy," which slashed the
share price $2 3/8 to $21 3/8... Vimpel-Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VIP)") else Response.Write("(NYSE: VIP)") end if %>
sank $3 9/16 to $33 9/16 as the Russian cellular telecommunications posted
Q3 earnings of $0.74 per share versus $1.02 in the prior year quarter...
The Wall Street Journal's Heard on the Street column this morning
stated that takeover talks between Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> and
investment banker Hambrecht & Quist <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HQ)") else Response.Write("(NYSE: HQ)") end if %> had been put on
hold because of "the sharp rise in Hambrecht's stock price," which helped
cut H&Q shares $3 13/16 to $38 3/4... Green Tree Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNT)") else Response.Write("(NYSE: GNT)") end if %> dropped $2 1/8 to $27 today as the company filed a registration statement
for $500 million in lease-backed notes.
Robertson Stephens analyst Tony Robertson cut his rating on Finnish telecom
equipment maker Nokia Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOK.A)") else Response.Write("(NYSE: NOK.A)") end if %> to "market underperformer"
from "market performer," which hit shares for $5 3/8 to $71 7/8... Forest
products company Willamette Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLL)") else Response.Write("(NYSE: WLL)") end if %> slipped $2 1/8
to $30 1/8 on announcing that fourth quarter earnings will not meet analysts'
estimates of $0.28 a share... Global manufacturing company Tenneco
<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEN)") else Response.Write("(NYSE: TEN)") end if %> lost $2 7/8 to $41 7/16 after saying that it expects to post
fourth quarter earnings from continuing operations between $0.40 and $0.45
cents a share, well below estimates of $0.62 per share... Computer products
distributor MicroAge Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MICA)") else Response.Write("(Nasdaq: MICA)") end if %> dropped $4 15/16 to $16 3/4
after posting Q4 EPS of $0.40 versus estimates of $0.43.
InterVoice, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTV)") else Response.Write("(Nasdaq: INTV)") end if %>, a provider of call processing equipment
for inbound and outbound call-centers, fell $1 5/8 to $8 after the company
stated that Q3 earnings would fall between $0.01 and $0.04 per share, below
expectations of $0.11 per share... Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %>
continued its recent slide today, dropping another $2 15/16 to $17 1/8 after
the company said it will post a fourth quarter loss of $120 million as well
as a loss for the year. State regulators ordered Oxford to boost its reserves
for doctor's bills by $164 million... Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> helped Newbridge Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NN)") else Response.Write("(NYSE: NN)") end if %> lose $3 to $36 5/8 today
after releasing its new B-STDX Multiservice Frame Relay 8000/9000 WAN switches
that compete directly with Newbridge's products... British biotech company
Cortecs International Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DLVRY)") else Response.Write("(Nasdaq: DLVRY)") end if %> added $1 3/4 to $14 3/4
after it said that trial data showed its oral capsule form of insulin was
effective in Type II diabetic patients.
Commonwealth Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMIN)") else Response.Write("(Nasdaq: CMIN)") end if %> was cut $1 1/8 to $16 1/4 after
the aluminum sheet maker was reduced to "near-term neutral" from "near-term
accumulate" by Merrill Lynch... Corning Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLW)") else Response.Write("(NYSE: GLW)") end if %> dipped $2
3/8 to $39 15/16 after its was revealed that the glass materials company
dropped plans to sell its customer housewares unit for $825 million...
Information processing concern DST Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DST)") else Response.Write("(NYSE: DST)") end if %> fell $1 15/16
to $42 5/8 after a downgrade from AG Edwards to "maintain position" from
"accumulate"... Satellite cellular company Iridium World Communications
<% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IRIDF)") else Response.Write("(Nasdaq: IRIDF)") end if %> fell $1 7/8 to $37 1/8 after new coverage from CIBC Oppenheimer
was initiated with a "hold"... Foundation Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FHS)") else Response.Write("(NYSE: FHS)") end if %> dropped
$1 7/16 to $25 3/8 after a downgrade from SBC Warburg Dillon Read to "neutral"
from "outperform."
Corrections and Clarifications: In yesterday's Quick Cuts, the item on Protein Design Labs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PDLI)") else Response.Write("(Nasdaq: PDLI)") end if %> should have read: "Protein Design added that this will open new partnering activities and will not affect near-tern financial results..."
In Thursday's (12/4) Quick Takes, we wrote that InVision Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INVN)") else Response.Write("(Nasdaq: INVN)") end if %> received an $11 million contract from the federal government to develop landmine detection equipment. This contract was actually for $4.5 million, which brings the company's total R&D contracts to approximately $11 million.
FOOL
ON THE HILL
An Investment Opinion by Louis
Corrigan
Penny Stocks and Root Canals
Norman is my dental hygienist. He cleans my teeth. But last week, before
he got down to the business of scraping off the plaque and adding a revivifying
sheen, we talked shop. Some vague mention six months ago about a possible
root canal had given me intimations of mortality and thus inspired me to
start flossing daily. But in checking my gums, Norman noticed some trauma.
In my vigorous effort to ensure my teeth a brighter future, I was actually
tearing into my gum line, worsening some receding that it was my goal to
prevent. Somehow, it had never exactly occurred to me that I might not know
what I was doing. How complicated can flossing be, right?
Happily, I found I could return the favor. Norman's about 30 years old, with
a wife and two children. He works six days a week cleaning teeth. He has
also started his own modest used car business, fixing up European imports.
He's a likeable guy who clearly enjoys working, but he's started to think
about ensuring his family a brighter financial future and himself some more
leisure. He pulled out the local stock pages and told me he wanted to start
investing. His first question was about how to decipher those abbreviated
company names printed in the paper. The second question was about penny stocks.
Some of his buddies seemed to think you could make huge profits on these
things.
As one of the writers of the Fool's Daily Double/Trouble, I frequently receive
e-mails from readers suggesting I look into some terrific growth story, say
EZ Environment, a small company with a cure for America's waste disposal
problems. I check the quote on AOL and see that it trades for $1.25 per share
on the "OTC," which means the Over-the-Counter Bulletin Board quote system
run through Nasdaq's computer systems. From there, I look for a recent filing
with the Securities and Exchange Commission (SEC). Nada. At that point, I
write the reader back asking how he can feel comfortable investing in a penny
stock that provides no basic information to the public about its business.
I ask if he realizes how easy it is to manipulate these stocks. I ask whether
he'd really rather be a speculator than a Fool and whether he's prepared
to lose all his money. I'm tough.
Educating people about how to invest, as the Fool attempts to do, is no doubt
the best way to prevent Norman, his buddies, my correspondents, and the widow
next door from recklessly or naively throwing away their money. But it's
not enough. Just as I expect my dental hygienist to keep me from screwing
up my gums if he wants my business, so too should individual investors expect
the stock exchanges to prevent the neophyte flossers of the investment world
from tearing into the root of their financial future. Sometimes we all need
to be saved from ourselves. And sometimes that's simply good business for
everyone involved.
Safeguarding investors from seriously dubious companies is indeed good for
the exchanges and good for American business. It ensures that companies that
can meet at least some basic quality requirements and that are in need of
capital won't find that that capital has been squandered by investors on
crappy outfits being promoted by suspect brokers using cold-calling hype.
As a result, good companies will be around longer, paying fees to the exchanges
and attracting new investors. That in turn will attract more companies to
the markets, which will generate more listing fees. Thankfully, Nasdaq has
finally come to understand this virtuous circle.
According to a report Tuesday in The Wall Street Journal, this would-be
"market for the next 100 years" may cut its ties to some 3,400 of the 6,800
microcap companies that now trade on the OTC Bulletin Board. This is excellent
news. Though associated with Nasdaq, the Bulletin Board (BB) is really just
an electronic link allowing professional dealers to share quotes and trading
data on microcap stocks. These are not "Nasdaq stocks."
Both the Nasdaq National Market System, home to the likes of Intel
and Microsoft, and the Nasdaq SmallCap market have newly beefed up
listing
requirements that include stronger
minimum price,
capitalization, and net tangible asset standards, as well as some basic corporate
governance strictures. Companies listed on these two Nasdaq markets are not
necessarily good investments, but for the most part, they do meet some bare
bones standards that every investor should demand. For example, they all
file regular quarterly and annual reports with the SEC, which are available
online through the SEC's Edgar database
or one of the commercial Edgar vendors.
By contrast, Bulletin Board issues currently don't need to meet any
significant requirements. Indeed, the firms that might be ousted don't make
regular filings with the SEC, meaning an investor may not be able to find
out diddley about the business. As might be expected, the Bulletin Board
is the cesspool of American finance, rife with scams and charlatans, as a
recent Business Week
cover story
reminds us. That's why the Fool will not open message boards for BB companies.
To put it bluntly, these firms are so small and so risky that one could make
a strong case for why they should not be permitted to trade publicly at all.
At the minimum, it's proper to make it difficult for investors to find and
invest in these companies, to educate investors about the risks involved,
and to ensure that the brokers who deal in these securities have some integrity.
According to the Journal, that's what's in the works. Led by chair
Frank Zarb, the board of Nasdaq's parent, the National Association of Securities
Dealer (NASD), is reportedly planning on Thursday to approve a proposal that
would require companies to file regular financial statements with the SEC
in order to remain on the BB. Companies that don't meet this new standard
would not stop trading, but they would no longer do so over Nasdaq's computer
systems. These stocks would become significantly less accessible to investors
as all trades would be handled through phone calls with brokers, with prices
reported in the so-called "Pink Sheets" owned by the National Quotation
Bureau.
The proposal would also place some new burdens on broker-dealers. First,
brokerage firms couldn't quote a price on a security unless they had reliable
financial information on the company. Second, brokers who recommended BB
stocks to clients would be required to review the financial statements before
doing so, something that might make it easier for swindled customers to come
back later and sue their brokers. Third, brokers would have to send investors
a detailed statement disclosing differences between the Bulletin Board and
other markets. Though it's safe to say the latter will stop short of saying
the obvious -- that BB companies are high-risk rubbish that investors should
avoid -- at least it's a start.
Since the Justice Department brought its collusion case against Nasdaq's
market makers two years ago, the NASD and Nasdaq have made a number of moves
to scrape off the plaque and present a respectable face to the world. These
moves are necessary for Nasdaq to remain competitive, particularly with the
New York Stock Exchange, which has successfully stolen away some prize Nasdaq
jewels in the last year or so. One could still argue that companies that
can't make the Nasdaq SmallCap market's minimum requirements (as most BB
companies cannot) don't even deserve the exposure afforded them by the OTC
Bulletin Board. Nonetheless, itv is smart for Nasdaq to clean up its ties
to these speculative microcaps. And any step that makes it tougher for novice
investors like Norman to inadvertently screw up their financial dentin should
be applauded.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
WE
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Alex Schay (TMF Nexus6), Fool
Three
Louis Corrigan (TMF Seymor), Fool
Four
Contributing Writers
Brian Bauer (TMF Hoops), Fool
Five
Editor