DJIA 9217.99 +15.96 (+.17) S&P 500 1226.27 -2.27 (-.18%) Nasdaq 2163.03 -9.51 (-.44%) Value Line Idx 897.25 +1.54 (+.17%) 30-Year Bond 100.53 -.405 5.21% Yld
Perhaps empowered by the all-encompassing "Girl Power" of the omnipresent Spice Girls, teen apparel retailer dELiA's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DLIA)") else Response.Write("(Nasdaq: DLIA)") end if %> sang and danced its way to big gains today on news of two new online partnerships. dELiA's ended the day up $7 1/4, or 66.7%, at $18 1/8 as the big boost came from the opening of a "Best of dELiA's'' online retail store on Yahoo!'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> shopping channel. Many retailers, such as "Year In Review" subject American Eagle Outfitters <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AEOS)") else Response.Write("(Nasdaq: AEOS)") end if %>, are looking to expand their online offerings beyond commerce to content -- dELia's did that today, forming an alliance with movie maven website Film.com to provide a teen movie section at its dELiA's gURL.com website, which could easily be mistaken for an "e-zine" on which the retailer just happens to advertise.
Is there any kind of e-commerce news that won't give a stock a short-term boost? That remains to be seen, as technology development company CVF Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CNV)") else Response.Write("(AMEX: CNV)") end if %> popped up $1 13/16 to $6 today after it said its Elements subsidiary will launch an online commerce site to market nutritional and herbal supplements. CEO Jeffrey Dreben said, "the uniqueness of this site will be its emphasis on education." That's a pretty vague comment, but detail and substance aren't prerequisites for jump-starting stocks in the year of the e-tailing phenomenon. The site, in testing now, is expected to be fully operational in March, By then, hopefully, the supplement industry will have recovered from the ills the Fool's Warren Gump chronicled in two columns last month.
QUICK TAKES: Big blue IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> moved ahead $2 15/16 to $187 15/16 after a Salomon Smith Barney analyst boosted his 12- to 18-month price target to between $210 and $215 per share from $185... Hefner empire Playboy Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLA)") else Response.Write("(NYSE: PLA)") end if %> hopped up $2 to $21 5/8 after it said in a statement late yesterday that it has no present plans for a public stock offering of its Internet business. The company did say "various" divisions of the company are or have been involved in strategic discussions... In other online action, Web-based software retailer Egghead.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGGS)") else Response.Write("(Nasdaq: EGGS)") end if %> gathered 1 1/16 to $23 3/4, Internet service provider Internet America <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GEEK)") else Response.Write("(Nasdaq: GEEK)") end if %> ran up $13 to $44, and audio download company audiohighway.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AHWY)") else Response.Write("(Nasdaq: AHWY)") end if %> took on $4 1/8 to $13 1/8.
Pennsylvania cable company Adelphia Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADLAC)") else Response.Write("(Nasdaq: ADLAC)") end if %> clicked up $2 1/8 to $44 1/2 after it said it will buy privately held Verto Communications and merge it into a subsidiary. Adelphia will issue approximately 3 million shares of its class A stock -- worth about $127.1 million as of yesterday's close -- and assume approximately $32 million of Verto debt in the deal... Oil and gas exploration company Pogo Producing Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPP)") else Response.Write("(NYSE: PPP)") end if %> bounced up $1 9/16 to $13 7/16 on the news that the planned merger of independent energy exploration and development company Rutherford-Moran Oil Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMOC)") else Response.Write("(Nasdaq: RMOC)") end if %> and Chevron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHV)") else Response.Write("(NYSE: CHV)") end if %> is contingent in part on Chevron reaching agreements with Pogo on certain matters. Pogo CEP Paul Van Wagenen said Chevron contacted his company but would not speculate on the likelihood or terms of an agreement between the two.
Kevco <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KVCO)") else Response.Write("(Nasdaq: KVCO)") end if %>, a wholesaler of building products to the manufactured housing and recreational vehicle industries, added $1 3/8 to $8 3/8 after it said Wingate Partners II L.P., a Dallas-based private equity group, agreed to buy $40 million in company stock and warrants -- a 40% voting stake -- from Kevco and its chief shareholder. The news overshadowed the company's preannouncement of a Q4 loss of $0.03 per share, short of First Call's consensus break-even estimate... Computer, office, and industrial products direct marketer Global Directmail <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GML)") else Response.Write("(NYSE: GML)") end if %> gained $2 11/16 to $22 1/2 despite publishing a press release saying it doesn't know of any material developments affecting the company.
Auction mainstay Sotheby's Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BID)") else Response.Write("(NYSE: BID)") end if %> was bid up $4 1/2 to $38 on heavy volume as Merrill Lynch boosted its near-term rating on the stock to "accumulate" from "neutral"... DNA sequencing system and gene analysis kit maker Visible Genetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VGIN)") else Response.Write("(Nasdaq: VGIN)") end if %> improved $2 3/8 to $12 1/4 after it said the FDA allowed it to begin human clinical studies of its OpenGene HIV genotyping system... Truck accessories maker Lund International Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LUND)") else Response.Write("(Nasdaq: LUND)") end if %> locked up a gain of $7/8 to $6 after it completed the $66 million purchase of Ventshade Holdings, an auto and truck window shade and hoodcover maker... Kidney dialysis services provider Total Renal Care <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRL)") else Response.Write("(NYSE: TRL)") end if %> took on $1 5/16 to $26 1/8 after the comapny was raised to "strong buy" from "buy" at Hambrecht & Quist... Seattle-based biopharmaceutical company Immunex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNX)") else Response.Write("(Nasdaq: IMNX)") end if %> added $4 1/4 to $114 3/4 after it was rated "attractive" in new coverage by Leerink & Swann Co., which set a $127per share 12-month price target.
Capricious, whimsical, fickle... all are words that have been used to describe Zapata Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ZAP)") else Response.Write("(AMEX: ZAP)") end if %>, the crude oil to fish oil, to e-commerce, to no e-commerce, and then back to e-commerce again company. "Fraudulent" has been added to the list in recent months, as the firm has been hit with numerous lawsuits over its on-again-off-again Internet strategy. Yesterday, however, Zapata surged 98% to $14 1/4 after announcing that it is going ahead with its bid to become a Internet conglomerate -- a mere two months after the firm aborted its net strategy due to "volatile" market conditions. This fair weather friend of the Internet dropped $1 7/8 to $12 3/8 today as the hype surrounding its announcement began to subside. Meanwhile, the firm announced that it will open it's zap.com website in the "next few weeks." As long as investors scrutinize the press releases more closely than the financial results, Zapata will probably continue to move along with the ebb and flow of its public pronouncements.
Internet-related issues dominated the selling on the Nasdaq today as online auctioneer uBid Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UBID)") else Response.Write("(Nasdaq: UBID)") end if %> dropped $66 3/8 to $121 5/8 in the wake of the firm's 40% rise yesterday (and roughly 60% rise on each previous day of the week). Perhaps the realization that uBid's market capitalization was at $1.68 billion put a break on trading -- which would put the company's price at over twice the $611.6 million market capitalization of it's parent company Creative Computers <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MALL)") else Response.Write("(Nasdaq: MALL)") end if %>, which also dropped $19 5/8 to $40 1/16 today (virtually negating the drop in the spread between their market caps). iMAL Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMAL)") else Response.Write("(Nasdaq: IMAL)") end if %>, the Internet shopping company, gave back $4 1/8 to $18 1/4, and online community theglobe.com Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGLO)") else Response.Write("(Nasdaq: TGLO)") end if %> dropped $7 to $38 as well. Information resources firm EarthWeb Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EWBX)") else Response.Write("(Nasdaq: EWBX)") end if %> slid $8 7/32 to $46, and direct marketer Xoom.com Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XMCM)") else Response.Write("(Nasdaq: XMCM)") end if %> swooned $6 5/8 to $37 3/8. Compact disc purveyor CDnow Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDNW)") else Response.Write("(Nasdaq: CDNW)") end if %> skipped $3 1/16 to $23 3/16 and N2K Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTKI)") else Response.Write("(Nasdaq: NTKI)") end if %> dropped $2 1/2 to $15 3/4.
QUICK CUTS: Online broker Ameritrade Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMTD)") else Response.Write("(Nasdaq: AMTD)") end if %> dropped $3 1/8 to $29 after receiving a downgrade to "hold" form "buy" from Deutsche Bank Securities on concerns that the firm had hit its $30 price target... Enterprise storage systems designer and Year 2000 problem solver Zitel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZITL)") else Response.Write("(Nasdaq: ZITL)") end if %> lost $1 1/2 to $4 15/16 after last night's statement from CFO Larry Schlenoff that he had no explanation for recent volatility in its stock price or heavy trading in its options. Emerald Research also downgraded the company to long term neutral from speculative buy... Bank holding company Western Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WEBC)") else Response.Write("(Nasdaq: WEBC)") end if %> lost $3 3/16 to $29 1/8 after it said recent interest rate cuts by the Federal Reserve will likely pull its Q4 EPS about 5% below Wall Street's current $0.45 per share consensus estimate to about $0.42 and $0.43 per share... Ticketmaster Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMCS)") else Response.Write("(Nasdaq: TMCS)") end if %>, the online ticket event resource, sank $15 to $65 1/2 on no news.
FOOL
ON THE HILL
An Investment Opinion
by
Dale Wettlaufer
Holiday Rants
You'll be getting hit with a bunch of retrospectives in the coming days, so why don't I jump in on the action before it starts in earnest. I think I have to offset all my holiday season good cheer with a good old-fashioned old man curmudgeon rant on the topics that push my buttons. So here it goes.
1. Tulip-O-Mania
You know what I'm sick of hearing? This phrase. So sick of it. If the people who so readily use the term really read Extraordinary Popular Delusions and the Madness of Crowds, they would probably draw the parallel with the South Sea shares bubble.
2. Internet Stocks: The Mania
You get to hear how these things are a mania from all sorts of sages who have been oh so right over the years, such as Alan Abelson. The problem with these nabobs of negativity is that not all Internet companies are crap. Not all biotech companies were crap. Not all disk drive companies and not all PC companies were crap. Sure, you have huge booms when new industries are born and things get out of hand with equities prices, but these people offer the excuse of "looking out for the little guy" for their inability to analyze things properly and take risks with their own capital.
Take, for instance, Abelson's call on America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> earlier this year. What was that? So wrong. I'm wondering if Mr. Abelson still thinks the company is worth $2 split-adjusted or whatever it was. Do these people ever say, "I was wrong?" No, they'll continue to argue that you're screwed up in the head and they're the voice of reason. When the stock falls 70%, they'll claim a victory. But the funny thing is, the price to which it makes the 70% fall could be 500% above the price at which they started crying their intellectually childish cries of Tulip-O-Mania.
3. Bill Fleckenstein
Dude, you're wrong. OK? PC companies -- Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %>, Gateway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %>, Micron Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %>, and Compaq <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> are all still here and have had a great year. And even if you're ever right, you're way too early.
4. Fred Hickey
The poor man's Bill Fleckenstein. You're wrong too. You win points in a match, but very few games and certainly no matches.
5. Jonathan Cohen, Merrill Lynch
Psst. Just because you can't figure out Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> doesn't mean everyone else is incorrect. $50 price target? Right. That's about as good a call as your calls on America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> when you were with Smith Barney.
6. Value Freaks
Look, cash sells at 30.8 times earnings (that's a yield of 5% after 35% taxes. That's 1/(0.05*0.65). Quit with the "historical P/E on the S&P 500" yick-yack. Look, when a company like Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> makes equipment and software that facilitates the doubling in Internet traffic every 100 days, equating its fair P/E with its EPS growth rate over the next year is pretty much braindead. Cisco should sell for the same multiple as a money market fund when traffic over the Internet increases by a factor of more than 12 every year? I DON'T THINK SO.
Value freaks, stick to steel companies but don't talk to me about where Cisco should be valued, thanks. And by the way, I'm a value investor. That means I buy things beneath their intrinsic value, but it doesn't mean I have to scour around for just the worst dogs that never have a chance of making money but which happen to be selling at 60% of net working capital. Hardly anyone ever liquidates and distributes the net assets to shareholders these days anyway.
7. Y2K Zealots
This is a ridiculously complex question for people who work with the issue professionally. For those that don't, how can you have a strong opinion either way? You don't know the possible lollapaloozas that can come out of the smallest failure. On the flipside, it's pretty hard to say the world is going to turn upside down. Look, we're humans. There probably will be failures and we'll probably be able to deal with them. Doesn't mean my whole portfolio will be going into Zitel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZITL)") else Response.Write("(Nasdaq: ZITL)") end if %> and Data Dimensions <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DDIM)") else Response.Write("(Nasdaq: DDIM)") end if %>. I'm agnostic on this.
8. Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> Valuation Haters
Look, when a company generates a 50% cash-on-cash return on capital invested in its business and has a reasonable chance of increasing that invested capital at a good rate and achieving those economics on new invested capital, it most certainly is worth 40 times earnings. So if Coke grows EPS 10% this year, it's only worth 10 times earnings? Sorry. It's worth a whole lot more than that when you can stop growing the business today and spit out $0.50 for every dollar invested in the business. When you add in the growth that is almost assured with this company in new markets, its real value -- the value that the private market would pay for it -- is quite large. Forty times earnings is not out of line.
9. Coca-Cola's Investor Relations
Hey, you're providing access to your management to a select group of people (analysts) and to people that might not even own the stock and might even be short the stock. At the same time, you're denying access to your owners and providing very scanty information. You're world-class company. Set a world-class standard in investor relations. Try treating your owners like real owners of a company. They're not as dumb as you think.
10. Will Small Cap Stocks Come Back?
What has Modern Portfolio Theory done to us? This is irrelevant. Make investments in companies based on their economics, management, products, and other observable traits, not the capitalization decile its stock falls into. Just because it's a small cap stock doesn't mean it will do such and such. If its economics stink, its status as a small cap stock won't save it.
11. Valuation of Big Cap Stocks
In the last six years, return on invested capital for the big S&P 500 companies has increased, and that's adding back the GAAP-mandated write-offs to capital, too. No big baths allowed. Smaller companies haven't followed this trend. Thus, the valuation disparities between the cream of the crop and smaller companies. When a company shows good returns or reasonable prospects to achieve those returns, then it will deserve a big company-like valuation. Not before.
12. Margins
If there's one perception I can change, it's that margins on their own don't matter nearly as much as everyone thinks. It's how you manage capital as well as your margins that determine the economics of a business. A company that turns its assets once a year and manages a net margin of 40% is not worth as much as a company with a 20% net margin that can turn its assets 4 times a year, all else being equal.
13. Concentration of Assets
If you know what you're doing, you shouldn't have a big problem with owning just a few companies. If you don't know what you're doing, you could probably use the diversity of an S&P 500 index fund. This doesn't mean you should go out and throw 100% of your assets into a good-looking little software company if you don't know a good deal about it, but this whole idea of diversification in your portfolio, where you take 3% positions across the portfolio, is ridiculous. Your good ideas won't effect your results all that much. Besides, where else in your life are you diversified? You have one or two houses and one spouse or significant other. Your salary comes from one or two places, and a big portion of your net worth could be tied up in your stock options or the private business you own outright. When your wealth turns into publicly traded securities, there should be no urgency to split that among 35 companies in your portfolio.
With that, I bid you happy holidays. I feel much better now.
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), another Fool David Marino-Nachison (TMF Braden), a new Fool
Editing |