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In the market-moving rumors column today, Business Week juiced up the shares of consumer finance company The Money Store <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MON)") else Response.Write("(NYSE: MON)") end if %> as they finished up $1 5/16 at $19 5/16. The weekly news magazine, which reverts to totally unsubstantiated gossip in its "Inside Wall Street" column, reported that an unnamed money manager and a New York investment banker say an unnamed savings & loan is looking to take over the company for $35 per share. The same unnamed money manager says that an earlier rumor that Household International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HI)") else Response.Write("(NYSE: HI)") end if %> was looking at Money Store is bunk. Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %> jumped $3 1/16 to $17 1/2 as rumors swirled that Aetna <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AET)") else Response.Write("(NYSE: AET)") end if %> and its U.S. Healthcare unit are looking at the beaten-down health maintenance organization. Given the problems that Aetna has had with the U.S. Healthcare acquisition and the problems with U.S. Healthcare's inflexibility in working with large corporate accounts, some insurance industry followers think this rumor is pretty misguided.
Disk drive manufacturers were boosted today by an earnings report from Western Digital Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> and an analyst upgrade of disk drive deathstar Seagate <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %>. Western Digital rose $1 5/8 to $18 7/8 on reporting Q2 EPS of $0.03 before charges, within the range of expectations from analysts. The company's management says this may not be the bottom, though. While the company's inventory turnover was very good at 14 times annualized (meaning its inventory comes in the door as raw materials and goes out the door as disk drives in a little less than 3.7 weeks), Western Digital was still very cautious in its outlook. That was the subject of today's Fool Plate Special. Seagate, the largest independent disk drive maker, was upgraded by BA Robertson Stephens to "buy" from "long-term attractive" today, sending that stock up $2 5/8 to $23 1/4. Even given the lack of cause for ringing the town bells and lifting curfew in disk drive land, Quantum <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> jumped into the celebration, gaining $3 1/8 to $24 3/8.
Food services company ProSource <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSDS)") else Response.Write("(Nasdaq: PSDS)") end if %> rose more than 100% this morning, jumping $7 5/16 to $14 1/4 after agreeing to be acquired by AmeriServe Food Distribution, a division of Holberg Industries, for $342 million or $15 per share in cash. The combined company will service more than 38,000 restaurants in North America. On the subject of food service companies, remember Fine Host <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FINE)") else Response.Write("(Nasdaq: FINE)") end if %>? That stock is still held, having been halted on December 22 last year. Still little word on when accounting problems might be resolved there.
QUICK TAKES: Shares of Administaff <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASF)") else Response.Write("(NYSE: ASF)") end if %> continue to soar, rising another $1 7/8 to $37 15/16 today. These shares are up 68% since Monday after the company announced an alliance with American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %>, which is buying 5% of the human resources company with an option to buy close to another 15%... Indus International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IINT)") else Response.Write("(Nasdaq: IINT)") end if %>, maker of asset management software for the utilities and energy industries, rose $1 1/8 to $9 1/4 after announcing Q4 revenues of $46.5 million and EPS of $0.13, topping estimates of $0.10. Five cents of EPS was from the reversal of a tax liability, not from operations, according to the company.
Award Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AWRD)") else Response.Write("(Nasdaq: AWRD)") end if %> climbed $2 to $9 7/8 after reporting Q4 EPS of $0.22 on revenue of $7.5 million. Estimates called for $0.25 per share, which makes the stock rise somewhat puzzling. An explanation for the positive investor reaction may be the announced share repurchase program, where the company can buy back up to 700,000 shares... Late yesterday afternoon, an FDA advisory panel recommended approval of Advanced Tissue Sciences' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATIS)") else Response.Write("(Nasdaq: ATIS)") end if %> DermaGraft treatment. The shares rose $7/16 to $13 3/4 today. DermaGraft is designed to treat diabetic foot ulcers, a very serious problem for many diabetes patients... In other skin-grafting news, Organogenesis <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ORG)") else Response.Write("(AMEX: ORG)") end if %> jumped $2 5/8 to $22 1/16 after getting a similar recommendation from an FDA advisory panel. The panel recommended an "unconditional approval" for AppliGraf, a treatment for venous leg ulcers.
Excimer laser company Cymer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYMI)") else Response.Write("(Nasdaq: CYMI)") end if %> forged ahead $1 5/16 to $16 9/16 on reporting Q4 revenue of $59 million and EPS of $0.24, topping estimates of $0.22. The company gave guidance that Q1 revenues would be 10-15% lower sequentially and also announced a $50 million stock buyback. Cymer was upgraded by Morgan Stanley DWD and Adams Harkness and downgraded by Donaldson, Lufkin & Jenrette... Supplemental medical insurance underwriter AFLAC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFL)") else Response.Write("(NYSE: AFL)") end if %> jumped $4 7/16 to $54 7/16 after reporting Q4 operating EPS of $0.68, down from last year but $0.01 per share above estimates.
EARNINGS MOVERS
Xylan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XYLN)") else Response.Write("(Nasdaq: XYLN)") end if %> up $2 1/4 to $18 1/2; Q4 EPS: $0.14; Estimate: $0.12
Veritas Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTS)") else Response.Write("(Nasdaq: VRTS)") end if %> up $2 5/8 to $49 1/8; Q4 EPS: $0.19; Estimate: $0.17
Gallium arsenide integrated circuit company Anadigics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANAD)") else Response.Write("(Nasdaq: ANAD)") end if %> was crushed for a $19 9/16 loss to $14 1/4 after reporting earnings and issuing guidance for the coming year. Q4 EPS of $0.30 beat estimates of $0.27, but the real story is in the forecast for 1998. The company said, "As we enter 1998, however, we are experiencing a substantial reduction in orders and forecasts for orders from our wireless customers, which will result in significantly lower sales in the first quarter and could result in a net loss for the period." Analysts were expecting the company's per-share earnings to be flat sequentially in the first quarter, but this came as an ugly surprise. Goldman Sachs dropped the stock from its "recommended list" and said wireless revenues will fall 50% sequentially. Anadigics cited customer delays in ramping up production of dual-band PCS/cellular phones, a decrease in demand for phones containing Anadigics chips, and the Asian slowdown as causes of the inventory backup that is hurting revenue visibility for the coming year.
After reporting Q4 operating EPS of $0.80 last night, Vesta Insurance <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VTA)") else Response.Write("(NYSE: VTA)") end if %> fell $7 3/8 to $56 1/2 today. The company missed estimates of $0.81, causing Merrill Lynch and Stephens Inc. to downgrade the shares to "accumulate." Vesta was a bit more optimistic, however, pointing to an increase in sales agents and great cross-promotional opportunities. Given these factors, investors may be at a loss to explain why gross written premium growth in the quarter slowed from the full-year growth rate of 13.2%. One possibly explanation is that pricing in the property & casualty insurance business, or at least for Vesta, was bad last quarter.
QUICK CUTS: Tool maker Snap-On Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNA)") else Response.Write("(NYSE: SNA)") end if %> slipped $1 7/16 to $39 3/16 on reporting Q4 revenue of $496 million and EPS of $0.68 versus estimates of $0.69... CyberMedia <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYBR)") else Response.Write("(Nasdaq: CYBR)") end if %> lost $2 11/16 to $7 1/16 after reporting weak numbers last night. EPS for Q4 were $0.01 versus estimates of $0.19. The company said that rising operating expenses offset a 21% increase in revenues and cited higher days sales outstanding as a concern going forward... Heartport Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HPRT)") else Response.Write("(Nasdaq: HPRT)") end if %> missed a beat today, dropping $3 3/4 to $13 1/4 after the company reported a fourth quarter loss of $0.48 per share on revenues of $8.4 million. This topped estimates for a loss of $0.49 per share... Quality control instruments maker X-Rite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XRIT)") else Response.Write("(Nasdaq: XRIT)") end if %> missed EPS estimates of $0.24 for the fourth quarter, causing the stock to drop $2 5/8 to $15 1/2. The company announced EPS of $0.21 on revenues of $25.1 million.
P&C insurance and reinsurance company TIG Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIG)") else Response.Write("(NYSE: TIG)") end if %> was slammed for a $5 13/16 loss to $26 13/16 after the company reported a Q4 operating loss of $1.18 per share as a result of beefing up insured loss reserves. The company also forecast lower reinsurance premiums for the coming year... Associated Estates Realty Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AEC)") else Response.Write("(NYSE: AEC)") end if %> dropped $1 9/16 to $22 5/8 after the real estate investment trust (REIT) announced a $306 million acquisition of MIG Realty Advisors, "[O]ne of the nation's preeminent multifamily asset managers and advisors to institutional real estate investors"... Reuters Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RTRSY)") else Response.Write("(Nasdaq: RTRSY)") end if %> fell $4 1/4 to $53 5/8 after its Reuters Analytics unit said that it is the subject of a grand jury investigation on whether it "...improperly obtained access to, and used information from, Bloomberg LP's [a privately held news competitor] product.
FOOL
ON THE HILL
An Investment Opinion
by
Randy Befumo
Swan Song
Over the last few weeks, I have made what in many ways was a pretty difficult decision. Due to a myriad of factors, I have decided to part company with the Motley Fool. In fact, this is the last formal column I am writing, although there is some stuff that is "in storage" that may appear over the coming months as the editors deem necessary.
My new job is as an entry-level, buy-side analyst for Legg Mason's mutual funds. Before you start booing, hissing, and throwing tomatoes, I think it is important to recognize that my stance on funds (see "Dear Dad") has been pretty consistent -- if you know of a mutual fund where management clearly communicates a rational strategy and has proven over multi-year periods that it can successfully and dutifully carry out that strategy, buying a mutual fund makes perfect sense. However, if you are simply choosing a fund based on last year's returns, you should have your head examined.
Legg Mason has about $8 billion under management in three main funds, which include Value Trust, Special Investment Trust, and Total Return Trust. These funds have racked up incredible returns over the past five and ten year periods under the august management of Bill Miller (Value and Special) and Nancy Dennin (Total Return). The Value Trust is both the oldest (16 years) and the standout in performance, as 1997 was the seventh consecutive year in a row in that it beat the S&P 500. Although in recent years Special has been spotty, Special itself is no slouch either, given that it had a four or five year run in the early 1990s when it beat the S&P consecutively. While not really managed with beating the S&P 500 in mind, even Total Return has had several good years, and it beat the S&P 500 last year in a year when few funds managed that.
There are several reasons I am doing this, and I will share the ones that really matter. The first and most important is simply that I am not a partner in the Motley Fool, I am a paid employee. Although employees do get minor equity stakes, on a percentage basis it is not really all that significant. As it became clear over time that I had peaked at the Fool regarding my investment knowledge and what I was going to be able to do as a manager, I decided that it was important to find a place where I could continue to achieve my own personal goals. As one of those goals is to expand my investment knowledge and there really is no formal course of study to do this, working with a very intelligent and experienced group of managers and analysts with a long-term track record of outperformance seemed like the most logical course of action. Fortunately, they saw it that way too.
My job will basically entail doing a lot of grunt work for the portfolio managers and analysts at Legg. I don't want to give anyone the wrong impression -- I stepped in soundly at the bottom of the totem pole there, which makes perfect sense to me. I am quite eager to expand my knowledge and this will truthfully take a while to do. Heck, as a condition of being hired I had to enroll in the Chartered Financial Analyst (CFA) program, which is the only real professional designation a money manager or analyst can achieve. Don't get me wrong -- I want to do the CFA. It just strikes me as emblematic of the commitment to gaining knowledge and not just being a performance-oriented stock monkey that I know exists at the Legg funds I will be working on. (Although Legg does have other funds, these are managed outside of the corporate HQ in Baltimore by firms that the acquisitive Chip Mason has bought over the years. With $40-some billion in assets under management, Legg is in the top 25 to 50 largest fund companies in the U.S.)
Unfortunately, this decision is not without consequences. For a variety of reasons that include a very strict code of compliance as well as a concern that the investment intelligence that is the primary product of the funds be kept internal, I can't just continue to write. Although currently I am kicking around writing a book on the development of investment thought in North America over the last century, other than that I am probably not going to write on a regular basis for some time. While there are probably more than a few people who have disagreed with me in the past who are celebrating at that last line, I understand that for many of you this is a disappointing bit of news. There really is simply no other option at this time.
For those of you who have been kind enough to write me over the years, thank you. Given that my nice e-mail to crackpot/crank ratio was 1-to-10 on most days, it was really appreciated. I also appreciate the fact that you have let me into your thinking with regards to investing over the past three years. I have learned a lot doing it, and I always attempted to do my writing with the utmost in conservatism and candor. While Jim Cramer still complains about my Novell column in late 1996 that he says lost him money, by and large I have really tried not to indulge in tipsheeting, but rather attempted to dissect what was really happening to a company or industry and examine the issues that really mattered with regards to investing.
Beyond the last six columns that I wrote on my information sources and the four dimensions of investing (Valuation, Quality, Depth of Knowledge, and Time), my only parting advice is to admonish you all to think for yourselves before doing anything. I don't care what the backtesting has been, who says that the company is a good one, or where you read that this or that can be ignored when you are investing. Investing is not a serious academic subject in the way that almost every other human endeavor is. In fact, investing is just as full of cranks, crackpots, and bad ideas as medicine was in the 19th century. Be careful what you listen to lest you apply leeches to someone to "cure" a fever. In the end, through intelligence, perseverance, courage, and hard work (most especially hard work, and lots of it), I think that you can beat the market. Nothing, however, is guaranteed.
For readers who are interested in learning more about the three funds mentioned in this article, (800) 577-8589 is the number to call.
With that, I bid you adieu.
--Randy Befumo
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Randy Befumo (TMF Templr), a Fool One
Dale Wettlaufer (TMF Ralegh), Fool Two
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