DJIA 8566.61 +32.96 (+0.39%) S&P 500 1088.14 +6.96 (+0.64%) Nasdaq 1790.82 -6.79 (-0.38%) Value Line ndx 848.77 -1.28 (-0.15%) 30-Year Bond 100 18/32 -13/32 5.46% Yield
Telecommunications network capacity company Ciena Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CIEN)") else Response.Write("(Nasdaq: CIEN)") end if %> regained $4 7/8 to $36 1/8 on optimism that Tellabs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> won't scrap its proposed acquisition of the company despite the nearly 60% drop in Ciena's share price in the last two weeks. Tellabs CEO Michael Birck told USA Today the deal still makes a lot of sense. "We've got to find a way to make it work," he said. "The question is at what price." Today, Tellabs lost $4 3/8 to $58 1/16. Ciena's stock dropped 45% Friday after Tellabs put off a shareholder vote on the merger due to Ciena's announcement that AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> has opted to stop evaluating the company's dense wavelength division multiplexing (DWDM) systems. In a conference call Friday, Ciena CEO Patrick Nettles stressed that AT&T's decision, though disappointing and "totally baffl[ing]," won't affect the company's revenues expectations for the rest of the year. Further, the company remains "reasonably comfortable" with fiscal 1999 consensus revenue estimates, he said. Paraphrasing Mark Twain, Nettles said, "The news of our demise has been grossly exaggerated," adding that new customers who still have not been announced are helping to boost business. Ciena had been expecting $50 million or less in revenues from AT&T in 1999 -- that's just 13% of 1997 revenues. In addition, Nettles said that with more customers "taking smaller bites," business is becoming more stable and less lumpy. To listen to a replay of the conference call, dial (800) 753-9756.
Life sciences company Monsanto Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTC)") else Response.Write("(NYSE: MTC)") end if %> jumped $4 1/16 to $61 9/16 after saying that its experimental painkilling drug, Celebra, has been fast-tracked for marketing approval by the Food and Drug Administration. This means that the drug could be approved (or denied approval) within six months rather than a year, and the drug could be on the market by early 1999. The fast review is especially important in this case because Monsanto is trying to beat Merck <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> in coming out with the first drug in a new class called Cox-2 inhibitors, which will primarily be used to treat arthritis -- a multi-billion dollar market. Monsanto's merger partner America Home Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> powered up $2 7/8 to $56 1/8, while Merck, which plans to file for FDA approval for its drug before year end, also climbed $2 3/8 to $131 3/8.
QUICK TAKES: Entertainment conglomerate Time Warner <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWX)") else Response.Write("(NYSE: TWX)") end if %> moved up $2 3/8 to $90 3/8 as its new movie "Blade" topped the charts by grossing an estimated $17 million in U.S. and Canadian theaters this weekend... PC maker and direct seller Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> gained $1 5/8 to $119 1/8 after its vice chairman, Morton Topfer, said the company expects higher sales from China to offset any slowdown in the rest of Asia... Photography giant Eastman Kodak <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> snapped up $7/8 to $85 5/8 after Barron's reported the company could hit $100 a share as the company cuts costs, concentrates on fast-growing product lines, and enters joint ventures and partnerships with companies such as Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> and America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>. Morgan Stanley raised its price target to $100 from $95.
Biotech firm Centocor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNTO)") else Response.Write("(Nasdaq: CNTO)") end if %> posted a $1 11/16 gain to $39 7/16 after announcing it has received FDA approval to sell its Remicade drug for Crohn's disease, a condition characterized by inflammation of the gastrointestinal tract... Grocery chain Albertson's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABS)") else Response.Write("(NYSE: ABS)") end if %> rang up $1 7/16 to $52 after reporting Q2 EPS of $0.52, up from $0.44 a year ago and in line with estimates... Media programming services company Tele-Communications International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TINTA)") else Response.Write("(Nasdaq: TINTA)") end if %> climbed $1 7/16 to $22 7/16 after announcing that its board of directors approved the proposed acquisition by Liberty Media Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LBTYA)") else Response.Write("(Nasdaq: LBTYA)") end if %>, the programming arm of cable operator Tele-Communications Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %>, of all TINTA shares not owned by TCI Ventures Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCIVA)") else Response.Write("(Nasdaq: TCIVA)") end if %>.
Books on tape seller Audio Book Club <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KLB)") else Response.Write("(NYSE: KLB)") end if %> jumped $7/8 to $9 after announcing an online marketing and sponsorship agreement with personal website building company GeoCities <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GCTY)") else Response.Write("(Nasdaq: GCTY)") end if %>... Biotechnology company SangStat <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANG)") else Response.Write("(Nasdaq: SANG)") end if %> was lifted $1 11/16 to $24 1/2 after announcing that the FDA has cleared for marketing the company's CycloTech Cyclosporine Oral Solution Dispenser, a delivery system to be used by transplant recipients... Specialty chemicals producer Albemarle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALB)") else Response.Write("(NYSE: ALB)") end if %> jumped $1 7/16 to $18 7/8 after announcing it will buy back as many as 5 million shares in a self-tender offer starting today and ending Sept. 22. The company plans to purchase shares for between $17 and $19.50.
Analytic application software developer Hyperion Software Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HYSW)") else Response.Write("(Nasdaq: HYSW)") end if %> rose $1 3/4 to $30 1/8 after the company and Arbor Software Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARSW)") else Response.Write("(Nasdaq: ARSW)") end if %> announced that shareholders of both companies have approved their merger. The combined company, Hyperion Solutions Corp., will start trading on Nasdaq under the ticker "HYSL" tomorrow... Insurance firm Cincinnati Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CINF)") else Response.Write("(Nasdaq: CINF)") end if %> advanced $1 1/2 to $35 3/8 after announcing plans to buy back up to 6 million more of its shares... Microwave-parts owner General Microwave Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GMW)") else Response.Write("(AMEX: GMW)") end if %> shot up $5 3/4, or 54.12%, to $16 3/8 after Herley Industries Inc., a maker of flight-instrumentation systems and microwave devices, announced it will acquire the company for about $23 million, or $18 a share in cash and three-year warrants.
Fiber optic hardware provider Metromedia Fiber Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MFNX)") else Response.Write("(Nasdaq: MFNX)") end if %> gained another $2 3/4 to $71 3/8 after announcing it will supply equipment for a national fiber optic telecommunications network in Germany... U.S. Xpress Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XPRSA)") else Response.Write("(Nasdaq: XPRSA)") end if %> picked up $1 1/4 to $11 3/4 after Stephens Inc. started coverage on the trucking company with a "buy'' rating with a 12-month price target of $17... Shuttle and mid-size touring buses manufacturer Metrotrans Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTRN)") else Response.Write("(Nasdaq: MTRN)") end if %> revved up $3 to $11 1/4 after announcing that The Mayflower Corp. of London will buy all shares owned by non-executive directors Earl Meck and Randy Stanley for $15 a share. The deal will give Mayflower a 40% stake in the company.
Industrial piping systems construction and maintenance firm The Shaw Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGR)") else Response.Write("(NYSE: SGR)") end if %> was flushed $5 3/8 to $10 after saying a postponed power project, delayed contracts in Venezuela, lower-than-expected results from its U.K. business, and late material deliveries will result in fiscal Q4 EPS between $0.40 and $0.50, missing the First Call mean estimate of $0.52. Additionally, Shaw said its fiscal 1999 results will be "significantly" impacted by its Venezuelan operations, as project delays suggest that country may see a slowdown in growth. On the bright side, the company said it recently won a 11 new contracts for power plants worth $10 million. In all, Shaw has garnered 32 contracts totaling $30 million in the past two months. To further dull the sting of today's earnings warning, Shaw said it will use a commercial credit line to buy back up to 10% of its outstanding shares.
Firewall software company CyberGuard <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYBG)") else Response.Write("(Nasdaq: CYBG)") end if %> was demolished for a $4 5/16 loss to $1 7/8 after the company announced that it will restate its third fiscal quarter results due to an overstatement of revenues. Oops. Moreover, it might have to go back and restate its first and second quarter results as well. The company blamed the restatement on its former auditor KPMG, whom CyberGuard is now considering suing because of the mess. CyberGuard may have learned something from President Clinton's recent mea culpa -- admit the problem and then point a finger elsewhere. With the suspension of the company's CEO and CFO and the resignation of the company's chief of international sales, it sure looks more like the problem is internal and likely is a result of CyberGuard's own questionable revenue recognition policies.
QUICK CUTS: Auto parts maker Lear Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LEA)") else Response.Write("(NYSE: LEA)") end if %> stalled $2 15/16 to $45 after saying the recent strikes at General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GM)") else Response.Write("(NYSE: GM)") end if %> will take a $0.21 per share chunk out of its fiscal Q3 earnings. While the company did not provide a specific EPS forecast for the period, the First Call mean estimate had called for earnings of $0.55 per share... Cable-based information services provider Source Media <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SRCM)") else Response.Write("(Nasdaq: SRCM)") end if %> slid $2 3/8 to $9 5/8 after a class action shareholder lawsuit was filed Friday against the company alleging accounting irregularities and other misdeeds... Aerospace and auto parts maker AlliedSignal <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALD)") else Response.Write("(NYSE: ALD)") end if %> fell $2 7/16 to $35 after AMP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMP)") else Response.Write("(NYSE: AMP)") end if %> sued the company in federal court to block AlliedSignal's unsolicited bid to gain control of the company.
Digital document embedded imaging systems supplier Peerless Systems Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRLS)") else Response.Write("(Nasdaq: PRLS)") end if %> slipped another $11/16 to $6 9/16 after saying on Friday that its quarterly results will probably be "below prior year results for the remainder of fiscal 1999 and into early fiscal 2000"... Fresh fruit and vegetable grower Dole Food Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DOL)") else Response.Write("(NYSE: DOL)") end if %> rotted $1 3/8 to $51 1/16 after being downgraded to "market perform" from "trading buy" by Goldman Sachs... Computer aided design (CAD) software firm Autodesk <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADSK)") else Response.Write("(Nasdaq: ADSK)") end if %> fell $3 5/16 to $24 1/8 after the company told analysts on Friday that the Asian financial crisis will result in fiscal Q3 EPS about $0.05 to $0.08 below the First Call mean estimate of $0.50. Merger partner Discreet Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSLGF)") else Response.Write("(Nasdaq: DSLGF)") end if %> dropped $1 1/4 to $11 3/4.
Varian Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VAR)") else Response.Write("(NYSE: VAR)") end if %> gave back $2 7/16 to $40 9/16 after rising 19% Friday on announcing it will split into three separate publicly traded firms specializing in health care systems, semiconductor equipment, and industrial and scientific instruments... Electrical wire, cable, and cord maker Belden <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BWC)") else Response.Write("(NYSE: BWC)") end if %> was zapped $6 5/16 to $18 5/16 after saying high customer inventories and lower demand for its products will result in fiscal 1998 second half earnings "slightly" below last year's results... Electronic design automation tools maker Quickturn Design Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QKTN)") else Response.Write("(Nasdaq: QKTN)") end if %> lost $1/2 to $10 3/4 after rejecting a $12.125 per share cash bid from semiconductor design software firm Mentor Graphics Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MENT)") else Response.Write("(Nasdaq: MENT)") end if %>, calling the offer "opportunistic" and "inadequate."
Calgon Carbon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCC)") else Response.Write("(NYSE: CCC)") end if %>, which makes liquid and gas separation and purification systems, was knocked down $2 7/16 to $6 3/4 after saying it is taking itself off the selling block and will reorganize instead to cut costs and boost profitability. The firm also said it will repurchase up to 2 million of its shares... Spanish commercial bank and financial services firm Banco Santander <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STD)") else Response.Write("(NYSE: STD)") end if %> dropped $1 1/2 to $20 3/8 following a Goldman Sachs downgrade to "market perform" from "market outperform"... Fiber-optic cable maker Cable Design Technologies Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDT)") else Response.Write("(NYSE: CDT)") end if %> was dragged down $2 3/16 to $16 11/16 after Merrill Lynch lowered its near-term rating to "neutral" from "accumulate."
Real estate finance and equipment leasing company Resource America <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REXI)") else Response.Write("(Nasdaq: REXI)") end if %> tumbled another $8 3/4 to $20 3/8 today. In a press release, the company said it knew of "no negative developments" to account for the unspecified "negative rumors" recently circulating about the firm in the market... The Learning Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLC)") else Response.Write("(NYSE: TLC)") end if %> dropped $3 5/8 to $19 3/8. In a recent publication, market researcher PC Data reportedly showed that the firm's share of the educational software market's revenues slipped during July. Merger partner Broderbund Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> fell $2 5/8 to $15 11/16 in sympathy... Photodynamic drug therapies developer Miravant Medical Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRVT)") else Response.Write("(Nasdaq: MRVT)") end if %> lost $3 1/8 to $7 1/8 as Donald McGhan resigned from the firm's board. Miravant said the resignation is "entirely personal and is not related to the business and direction" of the company.
FOOL
ON THE HILL
An Investment Opinion
by
Randy Befumo
Rats
[Ed Note: This Fool on the Hill was originally published on July 3, 1996.]
Do you have a favorite behavioral science experiment? I do. And no, it is not Stanley Milgram's pioneering work in 1937. You know, the experiments where volunteers were told by authoritative men in white lab coats to administer painful electric shocks to strangers -- and they did. Nope, that's number two. My favorite behavioral science experiment actually involves rats and explains a lot about why people use bizarre investment approaches.
The experiments center on how long it takes to extinguish a learned response. A rat was placed in a cage with a pellet dispenser. When the rat pressed down on a lever, a food pellet would shoot out. Scientists outside of the cage could control when the pellet could come out, however, adjusting it so that the pellet would come out when the rat hit the bar two times, three times, etc. They could even adjust it so that the pellet of food came out randomly, without any regard to how many times the rat pressed the lever.
Now, the first part of the experiment involved teaching the rat that pressing on the bar made food come out of the dispenser. The rat was left alone in the cage and would occasionally stumble into the level, causing a pellet of food to come down. A few run-ins with the bar and the rat would figure out the connection. This was one of the criteria for the experiment, as the rat had to have the learned response taught to it before it could be extinguished, or unlearned. After the response was learned, the real fun of the experiment began.
Now, the scientists had quite a few rats in these contraptions at their disposal. Once each learned the response, the lever-push and food delivery relationship was adjusted. Some rats got a pellet for every push, some got one for every three pushes, some got the pellet for many, many pushes, and then some were just randomly rewarded. They left the rats to keep pushing the bar for food for a significant period of time, each with his or her own particular push metric. Then one day, they stopped the pellets from coming altogether.
This was the crux of the experiment. How long would the rat keep pushing on the bar before it gave up and realized that no more food was coming? How long would it take for the response to be unlearned? Well, most of the experiment is pretty intuitive. The fewer times the rat had to push the bar to get food, the quicker it figured out no more food was coming. The rat who only had to push once gave up first, then the rat who had to push two times, then the rat who had to push three times, and so on.
The relevant part to the world of investing, however, comes in with the rat who was rewarded with the food pellet randomly. This rat just kept pressing and pressing and pressing. Because it never learned any set schedule for reward, it took the longest to figure out that no more food was coming. Consequently, the rat who was intermittently rewarded developed the learned response that took the most time to extinguish.
What does this have to do with investing? Its pretty straightforward. Behaviors that are intermittently rewarded are the most persistent -- thus the success of the myopic science of technical analysis. Completely ignorant of the actual business dynamics represented by the company behind the ticker, the technical analyst relies on charts of past price movement, which he swears foretell future stock appreciation. It's much like driving a car by looking in the rearview mirror. Nonetheless, occasionally, the technical analyst is right.
The problem is that they are right on an intermittent basis. Which means they develop a learned response that becomes darn near impossible to extinguish. All kinds of justifications, ranging from the sublime to the ridiculous, are given for why past price performance determines future stock appreciation -- in spite of the fact that Malkiel's tremendous book A Random Walk Down Wall Street clearly proved that no chart pattern had any predictive value above and beyond what was possible through pure chance. Even technical analysts will admit that their "science" is really more art than system, saying that experience informs the reading of charts.
Others might say that what is really going on is that they are still getting those pellets on an intermittent basis.
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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