DJIA 9085.04 -6.73 (-0.07%) S&P 500 1154.66 -2.65 (-0.23%) Nasdaq 1908.11 -1.36 (-0.07%) Value Line ndx 959.58 -1.15 (-0.12%) 30-Year Bond 107 19/32 -11/32 5.59% Yield
United Airlines parent UAL Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %> took off today, rising $4 5/16 to $88 3/4 after the world's largest airline announced it expects second quarter earnings to be above expectations of $3.03 per share and full-year EPS to exceed analysts' mean estimate of $10.34. The boost in earnings comes on the back of strong business in the U.S. and Europe, as well as lower operating expenses. United's total scheduled revenue passenger miles (RPMs) increased 3.6% in June from the same year-ago period. Despite the effects of the Asian economic problems, United said its Pacific load factor rose 3.1 points over last June. One analyst told Reuters that the lower-than-expected costs, aside from fuel, is specific to United and that about two-thirds of the savings come from other factors than the price of oil.
TV and VCR technology company Gemstar International Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GMSTF)") else Response.Write("(Nasdaq: GMSTF)") end if %> gained $1 1/8 to $43 5/8 after satellite programming company and Prevue Channel operator United Video Satellite Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UVSGA)") else Response.Write("(Nasdaq: UVSGA)") end if %> made public its offer to acquire Gemstar for about $2.8 billion, or $45 per share, in cash. The unsolicited bid represented a roughly 50% premium to Gemstar's price when the offer was first made on March 13, though that figure had narrowed to 6% as of yesterday's close. A merger also would resolve pending litigation between the two companies. United Video -- 73% owned by Tele-Communications Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %>, which two weeks ago agreed to be acquired by AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> -- recently announced plans to acquire TV Guide from News Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> for $2 billion. By purchasing Gemstar, United Video would be able to offer a wide range of interactive TV programming services. Making the bid public may force Gemstar to play ball. According to United Video, Gemstar Chairman Thomas Lau, who is also the largest shareholder with a 24% stake, likes the offer, as does Viacom Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VIA)") else Response.Write("(AMEX: VIA)") end if %>, which owns a 6% stake in Gemstar directly and through its Spelling Entertainment Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SP)") else Response.Write("(NYSE: SP)") end if %>. Gemstar CEO Thomas Yuen apparently remains unconvinced, but it looks like United Video doesn't plan to go away anytime soon.
QUICK TAKES: Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> jumped $3 5/16 to $104 5/16 on news the investment bank and brokerage firm plans to sell $1 billion in 7- and 20-year bonds in a global debt offering this week... Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> crept up $1 7/16 to $55 in advance of reporting Q2 earnings. After the close, Motorola reported EPS of $0.01 before charges... McDonald's Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %> gained $5/8 to $74 1/8 after Morgan Stanley Dean Witter reiterated its "strong buy" rating on the fast-food giant with a price target of $83 to $85 a share. Morgan Stanley said it expects the company to disclose potential savings of about $0.10 a share from corporate overhead reductions as early as next week... Telecommunications company Tel-Save Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TALK)") else Response.Write("(Nasdaq: TALK)") end if %> rang up $2 11/16 to $17 1/2 on market rumors of an imminent takeover proposal.
Dutch flagship carrier KLM Royal Dutch Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KLM)") else Response.Write("(NYSE: KLM)") end if %> rose $3 5/8 to $45 3/4 after announcing plans to buy back $500-$600 million of shares from the government... N2K Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTKI)") else Response.Write("(Nasdaq: NTKI)") end if %> moved up $3/4 to $22 5/16 after announcing a long-term agreement that makes its online music store Music Boulevard (www.musicblvd.com) the exclusive music vendor for search engine and portal company Infoseek Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %>... Crown Books <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRWN)") else Response.Write("(Nasdaq: CRWN)") end if %> surged $2 9/16 to $4 13/16 on takeover speculation before trading was halted. The Washington Post reported that there is "industry speculation" that the bookstore chain will be sold to a New York-based liquidator, First Lincoln Holdings... Impotence treatment systems developer Vivus Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %> was lifted $3 1/8 to $10 after Paine Webber upgraded its rating on the company to a "buy" from "neutral."
Internet software developer Inktomi Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INKT)") else Response.Write("(Nasdaq: INKT)") end if %> climbed another $2 7/8 to $76 1/2 after yesterday's news that Goldman Sachs started coverage with a "market outperform" rating and Hambrecht & Quist assigned the firm a "buy" rating. Both brokerage firms were underwriters for Inktomi's June 10 initial public offering... Biotechnology company Miravant Medical Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRVT)") else Response.Write("(Nasdaq: MRVT)") end if %> shot up $6 1/8 to $27 1/8 after announcing that the Food and Drug Administration has granted fast-track status to its Purlytin drug, which is designed to be used in the PhotoPoint procedure for the treatment of age-related macular degeneration, the leading cause of vision loss in older adults... PC and computer products reseller Egghead.com Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGGS)") else Response.Write("(Nasdaq: EGGS)") end if %> was lifted another $11/16 to $15 1/2 after yesterday announcing that revenues from its Internet auction site rose more than 95% sequentially in the fiscal quarter ended June 27 to $13.7 million.
Utility software maker Symantec Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYMC)") else Response.Write("(Nasdaq: SYMC)") end if %> picked up $3 3/16 to $25 1/2 after announcing that its fiscal Q1 EPS will be $0.40 before one-time charges, in line with estimates. The company said revenues will be $153 million... FirstPlus Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FP)") else Response.Write("(NYSE: FP)") end if %> rose another $2 11/16 to $40 3/4 after the mortgage lender said it doesn't anticipate extraordinary losses from loan repayments in the second quarter... Broadband data services provider Advanced Radio Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARTT)") else Response.Write("(Nasdaq: ARTT)") end if %> rose $1 3/16 to $9 11/16 after announcing an agreement by which it will market Internet faxing company .comfax's domestic and global Internet fax services to businesses that use its Internet products.
Barringer Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BARR)") else Response.Write("(Nasdaq: BARR)") end if %> added $1 to $8 3/8 after the electronic-measuring instruments maker announced it will buy back up to 1 million shares, or about 12.7% of outstanding shares... Auditing company Profit Recovery Group International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRGX)") else Response.Write("(Nasdaq: PRGX)") end if %> jumped $4 5/16 to $32 5/8 after announcing that it has agreed to buy Loder, Drew & Associates Inc. for $70 million cash and 803,535 shares of unregistered, restricted stock... Surge protectors manufacturer TII Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TIII)") else Response.Write("(Nasdaq: TIII)") end if %> surged $2 11/16 to $7 1/16 after announcing it has received a patent for a device that allows multiple telecommunications services to be delivered over one coaxial-cable network with high bandwidth.
Foot Locker stores operator Venator Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %> fell $2 3/4 to $18 1/4 after warning that slow overall footwear sales will result in fiscal Q2 EPS between $0.05 and $0.10, which is short of the First Call mean estimate of $0.21. The company formerly known as Woolworth said results for the full year could also miss expectations. Meanwhile, Venator acquisition target The Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> slid $2 1/16 to $14 1/2 after saying its fiscal Q2 EPS will be $0.11 to $0.13 below the $0.25 expected by the Street. The poor results (and their subsequent effect on Venator's share price) cast some doubt over the firm's all-stock offer for Sports Authority. While the two companies have a merger "agreement," there is an escape clause that could be exercised if Venator's share non-performance keeps up. Moreover, each incremental loss in Venator's stock price presumably makes rival Gart Sports Co.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRTS)") else Response.Write("(Nasdaq: GRTS)") end if %> $20 per share cash bid for 70% of Sports Authority's shares all the more appealing to that company's shareholders. Gart fell $7/8 to $13 1/4 today.
The American depositary shares of enterprise software maker Smallworldwide PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWLDY)") else Response.Write("(Nasdaq: SWLDY)") end if %> sank $14 5/8 to $14 3/4 after the firm said its fiscal Q4 EPS will come in between $0.01 and $0.05, missing the Street's estimate of $0.32. The company blamed the shortfall on the delayed launch of its PowerOn power outage management product, which it will start shipping later this month. The delay will take a roughly $2 million bite out of Smallworldwide's revenues in the period, reducing its totals to between $17 million and $17.5 million. The firm said it is also "cautious" about the outlook for fiscal 1999 due to the Asian financial crisis. However, it expects year-end earnings for fiscal 1998 to come in between $0.50 and $0.54 per share, or more than double the $0.20 per share earned last year.
QUICK CUTS: Several Internet-related stocks gave back some of the ground they gained yesterday following news of a two-for-one stock split by portal company Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %>. Lycos fell $14 9/16 to $85, Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> slid $8 1/4 to $191, Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> slipped $17 3/8 to $122 1/8, USWeb <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USWB)") else Response.Write("(Nasdaq: USWB)") end if %> sank $2 15/16 to $26 5/16, and Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> slumped $10 3/4 to $96 1/4... Radio station operator Chancellor Media Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMFM)") else Response.Write("(Nasdaq: AMFM)") end if %> fell $3 1/16 to $50 3/4 after agreeing to buy TV station operator LIN Television Corp. from investment firm Hicks, Muse, Tate & Furst in exchange for 17.7 million Chancellor shares and the assumption of $769 million in net debt... Chase Manhattan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> dropped $2 to $75 after being downgraded to "buy" from "strong buy" at Credit Suisse First Boston.
Shares of several oil drillers declined today after crude oil prices trended downward for the second straight day on concerns that oil exporting countries will not abide by agreements to cut production. R&B Falcon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> fell $1 11/16 to $20 1/8, Diamond Offshore <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DO)") else Response.Write("(NYSE: DO)") end if %> slid $1 3/4 to $37 5/8, and Cliffs Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDG)") else Response.Write("(NYSE: CDG)") end if %> lost $2 1/16 to $29 5/8... Zapata Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZAP)") else Response.Write("(NYSE: ZAP)") end if %> gave back $4 to $17 1/2 after more than doubling yesterday on news that it would split its food processing and Internet operations into two separate companies. Today, Deutsche Bank Securities lowered its rating on the firm to "accumulate" from "buy"... Ski and outdoor clothing maker The North Face <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNFI)") else Response.Write("(Nasdaq: TNFI)") end if %> fell $4 to $20 1/8 after J.P. Morgan downgraded the stock to "market perform" from "buy."
Customer service and call center software developer Vantive Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VNTV)") else Response.Write("(Nasdaq: VNTV)") end if %> dropped $2 1/4 to $13 1/4 after saying fiscal Q2 EPS (before charges) will come in between $0.02 and $0.04, missing the $0.17 expected by the Street... Radiant Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RADS)") else Response.Write("(Nasdaq: RADS)") end if %>, which makes software systems for retailers, fell $7 to $7 after saying delays in customer orders, higher operating expenses, and continued investment in its food service product line will result in a fiscal Q2 loss of $0.08 to $0.10 per share. The IBES mean estimate had called for earnings of $0.08 per share... Restaurant operator Cracker Barrel Old Country Store <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBRL)") else Response.Write("(Nasdaq: CBRL)") end if %> lost $2 7/16 to $27 7/8 after NationsBanc Montgomery Securities downgraded the company to "hold" from "buy."
Forage and turf seed developer AgriBioTech <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABTX)") else Response.Write("(Nasdaq: ABTX)") end if %> was trimmed for a $1 5/8 loss to $23 1/2 after privately held rival Research Seeds agreed to develop genetically engineered alfalfa with DeKalb Genetics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DKB)") else Response.Write("(NYSE: DKB)") end if %>, which is merging with Monsanto Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %>. The agreement means AgriBioTech will need to get a license from Research Seeds in order to develop alfalfa seeds resistant to Monsanto's popular Roundup herbicide... SkyWest Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SKYW)") else Response.Write("(Nasdaq: SKYW)") end if %> dropped $3 5/8 to $30 3/8 after Robinson-Humphrey lowered its short-term rating to "market perform" from "buy" due to the regional airline's valuation level... Transaction processing services firm National Processing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NAP)") else Response.Write("(NYSE: NAP)") end if %> fell $1 1/16 to $9 5/16 after saying its fiscal 1998 EPS will come in as much as $0.05 below the First Call mean estimate of $0.45.
Paper and reconstituted tobacco products manufacturer Schweitzer-Maudit International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWM)") else Response.Write("(Nasdaq: SWM)") end if %> was smoked for a $1 11/16 loss to $27 after saying it expects fiscal Q2 EPS between $0.73 and $0.78 compared to the $0.78 earned a year ago... Electronic commerce software developer Harbinger Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRBC)") else Response.Write("(Nasdaq: HRBC)") end if %> fell $6 1/8 to $14 3/4 after saying delays in software shipments will result in fiscal Q2 EPS of $0.10, or about 15% less than the First Call mean estimate... Electronics manufacturing systems developer Electro Scientific Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESIO)") else Response.Write("(Nasdaq: ESIO)") end if %> dropped $2 5/16 to $28 7/8 after reporting fiscal Q4 EPS of $0.54, missing the Street estimate of $0.65. Salomon Smith Barney downgraded the company to "outperform" from "buy"... Healthcare information systems developer Quality Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QSII)") else Response.Write("(Nasdaq: QSII)") end if %> slid $2 9/16 to $6 3/8 after warning that its fiscal Q1 earnings will fall short of the $0.06 per share expected by the Street.
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
Revenge of the Dollar Machine
Yesterday, I wrote about Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %>, which has been a source of endless fascination for me. The valuation challenges it presents have obviously bamboozled the short-sellers for the last hundred points or so, partly because it's hard to price companies that are in their hypergrowth phase. It's much less of a challenge to price something that is returning 15% on equity with no leverage than it is to price something that is generating losses but that is growing revenues 30% sequentially. Once again, though, there is a touchstone that investors should return to. It's called intrinsic value. No matter what the situation is now, whether it's a steel manufacturer, aerospace company, electronics manufacturer, or insurance company, it has an intrinsic value.
The term "intrinsic value" has gotten more than a few people hung up worse than a golf ball in heather and gorse. It might be helpful to review what intrinsic value means. Randy Befumo wrote about this last year in great three-part series (Part 1, Part 2, Part 3) entitled "The Dollar Machine." Imagine if you had a machine that you knew would spit out dollars. If you knew that it would spit out a dollar per year for ten years each year on New Year's Day, and it cost nothing to maintain that dollar machine, coming up with a price to pay for the dollar machine wouldn't be very hard. If it were guaranteed to spit out those dollars, it would probably be priced to yield the same return on investment as a 10-year federal government bond (assuming someone wouldn't bid the price higher, and thus the yield lower, because a dollar machine is so cool to have). If the current interest rate on a new 10-year bond is 5.41%, then you'd be willing to pay $5.90 for the dollar machine. That's because your $5.90 will turn into $10 at the end of year 10 if you reinvest your interest income at a rate of 5.41% until the end of year 10. The intrinsic value of the thing is $5.90. No more, no less. Unless you had a religious or Freudian hangup about the dollar machine.
What someone else bid for it doesn't change the intrinsic value of it. The new bid changes the market price of the thing, but not the intrinsic value of it. If there were a change in interest rates, then intrinsic value would change. That's because an investor's required rate of return from the dollar machine would change. Assuming that there's no premium paid for owning something so cool and assuming there's no discount that would have to be ceded by the seller because the buyer thinks the machine is the work of the devil, the investor will require the same rate of return from the dollar machine as a government bond would yield.
Imagine the dollar machine as a convertible preferred stock, a factory, a venture capital investment, or a blue-chip common stock. All of these have different expectations of rate of return because of the uncertainty of the return of dollars to the buyer. If there was no uncertainty and you had an absolute guarantee of the return, then none of these different asset classes would carry a different yield than the government bond. Venture capital investments yield more than government bonds because people are pretty sure the U.S. government will be around and paying off the principal in ten years. Lots of venture capital investments blow up and die, some muddle along, some do well, and some make people spectacularly rich. It's the uncertainty of the returns to shareholders that creates a higher-risk, higher-return asset class. It's not anything else. If you know for sure how many dollars this machine is going to spit back at you, then it's not going to be priced any differently than a government bond.
If you and everyone else knew for sure in 1986 that Microsoft were to be around and worth a certain dollar amount per share, then there wouldn't have been a venture capital-like rate of return to Microsoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> shareholders over the last 12 years. Rather than coming public at a split-adjusted $0.29 per share, if the company were priced at its intrinsic value, it should have been priced around $27.70, or 56.6 times its IPO price, assuming a bond with 12 years to maturity at that point was yielding 12%. Dividing the current market price of Microsoft, $107 15/16, by the intrinsic value IPO price of $27.70 yields a product of 3.89666. The 12th root of that number is 12, or 12%.
This is all provided that you know for sure what will happen in the future. The reason market prices vary is because there is uncertainty. No one knows what will happen. Some people have excellent insights, and some people thought that ZZZZ-Best and Centennial Technologies (one a criminal stock scheme, the other a seemy situation at best -- I'll let readers figure out which is which) were the next great things. It's because of excellent insight that Bill Gates didn't sell all his stock in 1986 or 1996, even. It's because of excellent insights and conviction in those insights that any number of great investors have exceeded the performance of the market at large.
Speaking of excellent investors, Warren Buffett said all of this more succinctly in a talk with Bill Gates at the University of Washington earlier this year. That talk is transcribed in this week's Fortune magazine. Here's Buffett's thought on the matter:
"I think that there's no magic to evaluating any financial asset. A financial asset means, by definition, that you lay out money now to get money back in the future. If every financial asset were valued properly, they would all sell at a price that reflected all of the cash that would be received from them forever until Judgment Day, discounted back to the present at the same interest rate. There wouldn't be any risk premium, because you'd know what coupons were printed on this 'bond' between now and eternity. That method of valuation is exactly what should be used whether you're in 1974 or you're in 1998."
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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Contributing Writers Yi-Hsin Chang (TMF Puck), a Fool Brian Graney (TMF Panic), Fool Two Alex Schay (TMF Nexus6), Fool, too Dale Wettlaufer (TMF Ralegh), Final Fool
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