DJIA 8574.85 -23.17 (-0.27%) S&P 500 1083.14 -6.31 (-0.58%) Nasdaq 1839.21 -7.56 (-0.41%) Value Line ndx 872.27 -8.36 (-0.95%) 30-Year Bond 107 6/32 +5/32 5.62% Yield
"Did somebody say McDonald's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %>?" The world's largest fast-food restaurant operator served up a $2 5/16 gain to $63 7/16 after announcing that it is "on track to meet our stated objective of increasing earnings per share 10 to 15 percent in each of the next five years, excluding the effect of foreign currency translation." In constant currency terms, that means the company likely will meet analysts' mean estimate of $2.51 per share for 1998 and $2.83 for 1999. Investors should know that McDonald's, already a large real-estate owner, now plans to focus more on getting its franchisees to own their own facilities rather than leasing them from McDonald's, which will unlock parent corporation assets that were fixed. One reason why the company's return on equity and margins are so high is because a big chunk of its real estate is reflected at decades-old cost on the balance sheet, reflecting historical cost and not the current value of that asset. Unlocking those assets will in turn feed the company's goal of nearly doubling its international restaurants within the next five years. In addition, the company is allocating 50% of media spending to local markets, up from 25% last year -- a reaffirmation of the company's dedication to its local operators. One would be hard-pressed not to connect this renewed dedication with McDonald's financial performance and the performance of its stock of late.
Internet browser, portal, and enterprise software company Netscape Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> jumped $6 1/8 to $31 3/16 on optimism of a strong fiscal third quarter and that its new chief operating officer will increase sales in its enterprise software business as well as the number of strategic partnerships. Scheduled to report Q3 earnings next Tuesday (with no earnings warning in sight), Netscape yesterday named former Oracle <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> executive vice president Barry Ariko as its new COO and executive vice president. Ariko was in charge of global sales at database software developer Oracle and is credited with helping grow the company's Americas revenues to $4 billion in 1998 from $680 million in four years. In contrast, Netscape, a recent Daily Trouble, has seen its profits dwindle as Navigator loses browser market share to Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Internet Explorer and as the company's Netcenter website tries to catch up with portal rivals such as Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %>. For the second quarter ended March 31, Netscape barely broke even compared with $0.09 a share profit in the year-earlier period.
QUICK TAKES: Internet networking specialist Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> rose $2 5/16 to $99 3/16 after announcing it has countersued Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> for patent infringement. The patents cover ATM and LAN switching technologies... Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> gained $3 to $110 1/4 after Taiwan's Compal Electronics Inc., which makes about a third of Dell's laptop PCs, said July sales rose on increased demand... Online services giant America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> gained $7/8 to $112 3/4 after announcing an agreement with advertising management technology company AdForce Inc. that gives AOL's interactive marketing group the exclusive right to sell ads for websites that contract with AdForce, and gives AOL a worldwide license to AdForce's ad management service.
Other Internet stocks moved up on the coattails of Netscape today: Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> whipped up $2 3/8 to $94; Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> jumped $3 7/16 to $67 15/16; and Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> gained $5 5/8 to $121 5/8... Discount retailer Kmart Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> rang up $1 1/8 to $18 5/8 on optimism that the company will report strong Q2 earnings Thursday... Interconnect devices maker AMP Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMP)") else Response.Write("(NYSE: AMP)") end if %> was bid up $1 1/4 to $41 1/16 as technology and manufacturing company AlliedSignal <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALD)") else Response.Write("(NYSE: ALD)") end if %> began a previously announced cash tender offer for the company's 224 million shares at $44.50 a share... Internet service provider PSINet Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSIX)") else Response.Write("(Nasdaq: PSIX)") end if %> picked up $1 15/16 to $18 13/16 after appointing Robert Leahy, who has over 20 years experience in public, corporate, and government relations, to the position of senior vice president, corporate marketing and communication.
Software company Compuware Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPWR)") else Response.Write("(Nasdaq: CPWR)") end if %> was up $1 11/16 to $53 1/16 after announcing it has acquired a number of products from Centerline Software that will be added to Compuware's QACenter, its enterprise-wide testing solution... Major drug companies recovered some recently lost ground today: Merck & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> moved up $2 1/4 to $126 1/8, Warner-Lambert <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> added $2 to $73 5/8, and Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %> gained $1 9/16 to $94 9/16... Bandwidth management technologies company Adaptec <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADPT)") else Response.Write("(Nasdaq: ADPT)") end if %> rose $1 1/2 to $13 7/16 after Barron's reported that the company may be a good buy at current prices and that some analysts believe the recent management change at the company could signal a turnaround.
DNA sequencing instruments maker Molecular Dynamics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDYN)") else Response.Write("(Nasdaq: MDYN)") end if %> shot up $5 1/16 to $20 1/16 after announcing it has agreed to be acquired by Amersham Pharmacia Biotech Ltd., the joint venture between Nycomed Amersham PLC (55% stake) and Pharmacia & Upjohn <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNU)") else Response.Write("(NYSE: PNU)") end if %> (45%), for $20.50 a share -- a 37% premium to Molecular Dynamics' closing price Friday... Enterprise storage systems and software company EMC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> advanced $1 1/2 to $53 5/8 after announcing it has acquired privately held, Cambridge, Mass.-based software firm Conley Corp... Immunex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNX)") else Response.Write("(Nasdaq: IMNX)") end if %> climbed $4 1/16 to $68 1/2 after Lehman Brothers raised its rating on the biopharmaceutical company to "buy" from "outperform" on increased confidence that Immunex's rheumatoid arthritis drug treatment, Enbrel, will be recommended for approval by a FDA panel next month.
EchoStar Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DISH)") else Response.Write("(Nasdaq: DISH)") end if %> picked up $1 3/4 to $27 7/8 after Morgan Stanley Dean Witter upgraded its rating on the satellite dish and programming company to "strong buy" from "neutral"... Life insurance, commercial finance, and real estate services company Transamerica Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TA)") else Response.Write("(NYSE: TA)") end if %> added $4 1/16 to $118 15/16 on speculation that it may be bought for about 40% more than its stock market value... Ames Department Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMES)") else Response.Write("(Nasdaq: AMES)") end if %> gained $2 3/16 to $24 1/16 after announcing plans to buy back up to 1.5 million shares... Auto insurer Mercury General Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCY)") else Response.Write("(NYSE: MCY)") end if %> chugged ahead $1 to $43 13/16 after announcing plans to buy back up to $200 million in shares in the next year... Specialty retailer Genesis Direct <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GEND)") else Response.Write("(Nasdaq: GEND)") end if %> surged $1 3/16 to $7 5/16 after announcing it has acquired The Edge Company Catalog, which features gifts, tools, and collectibles.
Specialty insurance underwriter Executive Risk <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ER)") else Response.Write("(NYSE: ER)") end if %> added $3 3/16 to $47 5/8 after Salomon Smith Barney raised its rating on the company to "buy" from "outperform" based on its attractive valuation... Brokerage firm Scott & Stringfellow Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCOT)") else Response.Write("(Nasdaq: SCOT)") end if %> jumped $2 1/2 to $31 1/4 after announcing it has agreed to be acquired by North Carolina-based BB&T Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBK)") else Response.Write("(NYSE: BBK)") end if %> for $131 million based on BB&T's closing price Friday... Biopharmaceutical company Zonagen Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZONA)") else Response.Write("(Nasdaq: ZONA)") end if %> rose $1 3/8 to $18 5/8 after reporting a Q2 loss of $0.06 per share, compared with a loss of $0.65 per share last year and the analysts' estimate for a loss of $0.18 per share.
The ongoing U.S. banking consolidation trend finally made it to West Virginia today as City Holding Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHCO)") else Response.Write("(Nasdaq: CHCO)") end if %> agreed to buy Horizon Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HZWV)") else Response.Write("(Nasdaq: HZWV)") end if %> in a stock swap valued at $413 million. Horizon lost $3 to $41 3/4 on the news, as City Holding's bid of $45 per share offered virtually no premium to Horizon's closing price of $44 3/4 per share on Friday. However, the purchase price is 38.5% above Horizon's closing price of $32 1/2 on May 5 -- the day before the company put itself up for sale and hired Baxter Fentriss & Co. to broker a deal. According to a press release, the combined company will have more than $2.5 billion in assets, making it the third largest bank in West Virginia by that measure. City Holding finished up $1/4 to $41.
Several oil drillers and oil services firms sank today as the International Energy Association said the members of OPEC only cut their oil production in June by half of what had been earlier promised. More bad news also flowed from the U.S. Energy Department, which projected in a report that oil prices are not likely to rise from their currently depressed levels until sometime next year. Meanwhile, oil traders are trying to figure out what the Iraq-U.N. standoff means for oil prices after the U.N. decided to suspend its weapon inspection operations in the country. Driller Global Marine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLM)") else Response.Write("(NYSE: GLM)") end if %> fell $15/16 to $13 3/16, Transocean Offshore <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIG)") else Response.Write("(NYSE: RIG)") end if %> slid $2 3/16 to $33 1/4, Marine Drilling Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDCO)") else Response.Write("(Nasdaq: MDCO)") end if %> lost $1/2 to $11 7/8, and R&B Falcon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> dropped $1 1/4 to $15 5/16. On the services side, Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> slipped $2 1/16 to $56 1/4, Baker Hughes <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BHI)") else Response.Write("(NYSE: BHI)") end if %> fell $1 1/2 to $22 3/8, and Halliburton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> slumped $1 1/2 to $22 3/8.
QUICK CUTS: Managed care provider United HealthCare <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNH)") else Response.Write("(NYSE: UNH)") end if %> dropped $2 15/16 to $33 3/8 after the company and healthcare services firm Humana <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUM)") else Response.Write("(NYSE: HUM)") end if %> agreed to call off their proposed merger following United HealthCare's disclosure of a $900 million charge in its second quarter last week... Data services company Electronic Data Systems Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EDS)") else Response.Write("(NYSE: EDS)") end if %> moved down $13/16 to $41 after The Wall Street Journal reported that retiring chairman and CEO Lester Alberthal will receive $35 million in converted stock options and other benefits, which will lower the company's third quarter earnings by $0.05 per share... Carbonated beverage maker PepsiCo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> fizzled $1 11/16 to $35 13/16 despite saying it will record a $200 million tax benefit in its fiscal Q3 due to an IRS agreement regarding Pepsi's concentrate operations in Puerto Rico.
Eatertainment company Planet Hollywood International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHL)") else Response.Write("(NYSE: PHL)") end if %> fell $7/16 to $5 after reporting a fiscal Q2 loss of $0.01 per share and saying it expects breakeven results for the rest of fiscal 1998. First Call had listed expected Q2 EPS of $0.07 and EPS of $0.14 and $0.13 in Q3 and Q4, respectively... The American depositary shares of British Airways <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAB)") else Response.Write("(NYSE: BAB)") end if %> skidded $4 13/16 to $91 7/16 after a European Union official objected to a plan to sell 267 slots at London's Gatwick airport owned by BA and AMR's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %> American Airlines. The slots must be relinquished before the EU will approve the two carriers' proposed alliance. AMR lost $1 11/16 to $64 3/8... Dynamic random access memory (DRAM) chip maker Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> slipped $1 1/8 to $33 1/8 after an analyst from Dataquest told Barron's that DRAM prices "are not headed up" and overcapacity will hamper the industry into 2000.
3D graphics adapters and convergence products maker STB Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STBI)") else Response.Write("(Nasdaq: STBI)") end if %> dropped $13/16 to $6 3/4 after graphics chipsets maker 3Dlabs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDDDF)") else Response.Write("(Nasdaq: TDDDF)") end if %> sued the company for breach of contract, alleging STB owes $1.22 million for chipsets it ordered... Archive records management services company Pierce Leahy Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLH)") else Response.Write("(NYSE: PLH)") end if %> fell $1 3/8 to $22 1/8 after the company restated its fiscal Q2 earnings to a $4.5 million loss from a $700,000 profit in order to take into account the conversion of U.S. dollar denominated debt into Canadian currency at its Canadian unit... Oil and gas exploration firm Forcenergy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FEN)") else Response.Write("(NYSE: FEN)") end if %> leaked $11/16 to $9 5/16 after reporting a fiscal Q2 loss of $0.23 per share, missing the Street's estimate of a $0.19 per share loss.
Electronic equipment rental firm Electro Rent Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELRC)") else Response.Write("(Nasdaq: ELRC)") end if %> fell $3 7/16 to $17 13/16 after warning that its fiscal Q1 earnings will be below the $0.28 per share reported last year due to problems at the GE Capital Technology Management Services unit acquired from General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %> last year... Specialty cellulose products maker Buckeye Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKI)") else Response.Write("(NYSE: BKI)") end if %> slid $7/8 to $17 3/4 after Morgan Keegan lowered its rating to "market perform" from "market outperform."Securities with ties to Russia lost ground today as the Russian Trading System Index fell 9% from Friday's close... Cellular telecommunications firm Vimpel-Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VIP)") else Response.Write("(NYSE: VIP)") end if %> sank $3 9/16 to $32 5/8, Templeton Russia Fund <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRF)") else Response.Write("(NYSE: TRF)") end if %> slid $13/16 to $18 7/16, and Morgan Stanley Russia & New Europe Fund <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RNE)") else Response.Write("(NYSE: RNE)") end if %> slumped $1/2 to $14 5/8... Video network systems developer Objective Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OCOM)") else Response.Write("(Nasdaq: OCOM)") end if %> was knocked $7/8 lower to $5 1/4 after saying privately held reseller Vivid Resources returned 27 of its VidPhone systems.
FOOL
ON THE HILL
An Investment Opinion
by
Alex Schay
Credo... I Believe
First off, a big thanks goes out to Martin Kreczmer for catching an error in last Friday's Fool on the Hill column on Economic Value Added (EVA). The difference between the final NPV total and the discounted EVA total was not accounted for by rounding differences, but rather by an error in the calculations for the fourth year -- an 11% discount rate was used rather than 10%. The final results now differ by only $0.01, a slightly more understandable rounding error. This columnist either needs glasses or maybe just needs to use a calculator, rather than those antiquated present value tables. In any event, the corrected numbers have been inserted in the archived version of the column.
Now that the topic of fallibility has been broached, it provides an excellent opportunity to discuss non-linear models for looking at the stock market. Every day, The Motley Fool News team attempts to make attributions about price movements that take place in the marketplace. Starting from the position of viewing some given effects (stock prices), attempts are made to sort out possible causes based on available information. Without delving too deeply into Kantian categories or neuro-psychology, the entire endeavor serves to highlight the basic human desire to understand and order existence. It is a linear model that links cause with effect in logical chains in an attempt to gain kernels of insight. One serious problem with this approach, of course, is the fact that complex systems do not easily lend themselves to this kind of analysis. The myriad buy and sell orders that aggregate into a given effect oftentimes defy simple attribution.
Since this columnist already promised not to invoke the theories of any dead philosophers or economists, a living personage will have to do. George Soros, a self-proclaimed "failed philosopher" and certainly no economist (but a highly successful investor/speculator), has some interesting thoughts on the matter. Soros begins with the notion that natural science deals with events that occur independently of what anybody thinks about them, thereby it treats events as a succession of facts. When events have thinking participants, the chain of causation does not lead directly from one set of facts to the next, but from facts to perceptions (assuming the participant is actually thinking), from perceptions to decisions, and then from decisions to the next set of facts.
It is in this way that Soros asserts that the stock market can be a self-referential system, and it is his "Theory of Reflexivity" that is used to grapple with the implications. For Soros, the stock market can sometimes act as a self-referential circle "consisting of two connected linear, logical chains." The first cause/effect chain is deemed the "cognitive function." This is analogous to the statement that reality is reflected in people's thinking. Investors use all the (inherently imperfect) information that is available to them to assess the future performance of a business, and then they make decisions accordingly. In the aggregate then, investors' expectations determine the share price. This cognitive function is hardly the controversial element of the Soros formulation -- the second chain is, and it's called "the participating function."
At certain times investor expectations' can affect the fundamentals. For example, the high market price of an issue -- which is a reflection of expectations -- can make the company decide to return to the capital markets and issue more equity, or use the existing stock as currency for an acquisition, or some combination of the two. Now, taking these two chains and linking them results in the following: If investors can use available information to assess the fundamentals -- then these data in the aggregate determine investors' expectations and the share price of a company; if a company can take advantage of its price to affect its fundamentals -- then a company can change its fundamentals by performing these actions. This is an example of the Soros reflexive loop, and because the cognitive and participating functions can interfere with each other, they can introduce enough uncertainty into the participants' thinking and the actual state of affairs that opportunities are created.
Reflexivity acknowledges that investors are not objective observers of the system, but active participants whose expectations affect the very reality from which they infer those expectations. The point of this column today is not to stridently defend the concept of reflexivity, but to highlight the fact that how you invest is a mirror that reflects what you believe (yes, also beliefs about thorny questions like the nature of reality). It is the intrinsic value hounds who claim profound insight into the truth, a situation where they are the philosophers standing in the sun while everyone else languishes in the cave staring at shadows on the wall. That's partly why so many die-hard intrinsic value investors are such cantankerous, opinionated cranks. All around them people are telling them that they're wrong, or the market is doing the same by slaughtering their stocks. Yet they remain steadfast in their conviction that the market ultimately recognizes value. Examining your investing strategies, and others around you, can provide some remarkable insights into the belief systems to which they are attached.
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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