DJIA 9643.32 +105.56 (+1.11%) S&P 500 1275.09 +5.36 (+0.42%) Nasdaq 2344.41 +18.32 (+0.79%) Value Line Index 953.04 +4.93 (+0.52%) 30-Year Bond 99 21/32 -23/32 5.27% Yield
Semiconductor foundry services provider Taiwan Semiconductor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSM)") else Response.Write("(NYSE: TSM)") end if %> moved up $2 1/8 to $18 3/16 after posting a 14.3% year-on-year increase in 1998 sales. While net profits slid 14.6% during the year, December bookings came in at record levels, leading the company to forecast better results in 1999. Two additional nuggets of scuttlebutt also bolstered the firm's share price today. Numerous reports surfaced that number-one DRAM manufacturer Samsung is not accepting any more orders for 64 Meg chips, brightening the near-term outlook for Taiwan Semiconductor's DRAM business a bit. Also, the strong PC unit sales figures that helped carry various Internet stocks higher today (see this afternoon's Fool Plate Special) also bode well for the company, which derives 40% to 45% of its business from the PC-related sector.
Streaming media aggregator Broadcast.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BCST)") else Response.Write("(Nasdaq: BCST)") end if %> skyrocketed to a new 52-week high of $230 per share today before Nasdaq halted trading in the stock around noon to allow the company to explain the price rise to investors, if it so desired. The company politely said "no comment" to the request for more information, so Nasdaq reopened trading around 1:30 p.m. Eastern time. They promptly dropped back to finish at $197 1/2, which was still up a tidy $65 1/2 from yesterday's close. Company executives reportedly spoke yesterday at a Morgan Stanley Dean Witter investor conference and held a closed-door discussion with certain investors today, but it was not immediately clear whether their comments were behind today's Space Shuttle-style launch. Elsewhere in the streaming media world, RealNetworks <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RNWK)") else Response.Write("(Nasdaq: RNWK)") end if %> picked up $9 1/2 to $50 today.
QUICK TAKES: Online discount broker E*Trade Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EGRP)") else Response.Write("(Nasdaq: EGRP)") end if %> traded up $3 9/16 to $67 5/8 after joining Goldman Sachs in taking a 25% stake in Nasdaq electronic communication network (ECN) operator Archipelago for undisclosed terms. Archipelago is one of nine ECNs sanctioned by the Nasdaq to electronically match buyers and sellers outside the exchange trading system... Number two U.S. automaker Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> revved $3 3/16 higher to $65 after sharing its 1999 financial targets with the rest of the world yesterday. The company plans to achieve net margins in North America autos of 5% or greater and chop $1 billion in total costs from its operations this year... Biotechnology company Biogen <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BGEN)") else Response.Write("(Nasdaq: BGEN)") end if %> added $3 5/16 to $82 1/2 after Merrill Lynch raised its near-term rating to "buy" from "accumulate."
Christian website operator Didax Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMEN)") else Response.Write("(Nasdaq: AMEN)") end if %> rose $4 3/4 to $13 7/8 after a money manager told Business Week's iffy "Inside Wall Street" column that the company's share price may rise on speculation that strategic alliances with America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> and Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> are in the offing... Financial information and transaction processor First Data Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDC)") else Response.Write("(NYSE: FDC)") end if %> gained $3 13/16 to $35 3/4 after Morgan Stanley Dean Witter raised its rating to "strong buy" from "neutral"... Set-top box maker Scientific-Atlanta <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFA)") else Response.Write("(NYSE: SFA)") end if %> picked up $2 1/8 to $29 3/8 after saying it anticipates fiscal second quarter earnings will "significantly exceed" the First Call mean estimate of $0.06 per share thanks to better-than-expected domestic sales of its Explorer 2000 interactive digital set-tops and network transmission products.
Telecom giant AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> rang up $2 13/16 to $85 1/16 after announcing a $4 billion share buyback and intentions to split its stock three-for-two following the completion of its merger with Tele-Communications Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %>... General Instrument <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GIC)") else Response.Write("(NYSE: GIC)") end if %> advanced $2 7/16 to $39 3/8 following yesterday's news that router maker Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> will form a voice, video, and data networking arrangement with the set-top box maker and AT&T aimed at the consumer market. Cisco added another $3 1/16 to $106 11/16... Web portal Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> jumped $20 1/4 to $91 3/4, adding to yesterday's 8% rise on news that IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> will offer a personalized Lycos Web page as the Internet start page for its Aptiva line of PCs.
Low-fare airline operator Southwest Airlines Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUV)") else Response.Write("(NYSE: LUV)") end if %> took off today, rising $3 1/16 to $28 9/16 after Morgan Stanley Dean Witter raised its rating to "strong buy" from "outperform" and boosted the firm's fiscal 1999 earnings estimate by a nickel to $1.35 per share... Aluminum heavyweight Alcoa <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AA)") else Response.Write("(NYSE: AA)") end if %> leapt $7 7/8 to $85 1/8 after posting Q4 EPS of $1.19 per share, which was $0.13 ahead of the First Call mean estimate. The firm also set a two-for-one stock split, increased its quarterly dividend 50% to $0.375 per share, and announced plans to repurchase 10 million (pre-split) shares... Discount retailer Dollar General Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DG)") else Response.Write("(NYSE: DG)") end if %> climbed $1 5/8 to $26 7/8 thanks to a Morgan Stanley Dean Witter upgrade to "outperform" from "neutral."
Several paper products makers rose today, continuing this week's rally on news of product price increases and declining customer inventories. International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IP)") else Response.Write("(NYSE: IP)") end if %> gained $2 15/16 to $45 1/2, Georgia-Pacific <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GP)") else Response.Write("(NYSE: GP)") end if %> added $2 3/4 to $69 1/4, Weyerhaeuser <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WY)") else Response.Write("(NYSE: WY)") end if %> picked up $4 7/16 to $55 3/8, and Smurfit-Stone Container Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSCC)") else Response.Write("(Nasdaq: SSCC)") end if %> rose $1 7/16 to $17 13/16... Financial information provider Data Broadcasting Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DBCC)") else Response.Write("(Nasdaq: DBCC)") end if %> advanced $6 1/2 to $26 3/8 ahead of next week's planned initial public offering of its Marketwatch.com online joint-venture with CBS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBS)") else Response.Write("(NYSE: CBS)") end if %>. The Tiffany network rose $1 9/16 to $35 1/8 today as well... Web community operator and recent StockTalk guest GeoCities <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GCTY)") else Response.Write("(Nasdaq: GCTY)") end if %> rose $14 to $54 7/8 after signing an agreement to integrate privately held InterWorld's e-commerce technologies in the company's next generation of GeoShops online stores.
HMO company Oxford Health Plans <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %> gained $1 7/32 to $20 1/32 after saying it could become cash flow positive as soon as Q1 of 1999 and return to profitability sometime in the second half of this year, ahead of the previous forecast of sometime in 2000... Internet sports media company SportsLine USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLN)") else Response.Write("(Nasdaq: SPLN)") end if %> pole vaulted $8 3/8 higher to $28 after saying it expects to post about $9.3 million in revenues in Q4, up 90% from a year ago and in line with analysts' estimates... Film and TV program distributor Kushner-Locke Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLOC)") else Response.Write("(Nasdaq: KLOC)") end if %> locked up a $1 7/8 gain to $11 3/8 on speculation that it may spin off its majority owned online personal search service, 1-800-U.S. Search.
Catalog apparel and jewelry retailer Coldwater Creek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CWTR)") else Response.Write("(Nasdaq: CWTR)") end if %> swam $3 3/4 upstream to $13 5/8 after reporting fiscal Q3 EPS of $0.43 versus $0.41 a year ago, beating the Zacks mean estimate of $0.40... Luxury goods maker Gucci Group NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GUC)") else Response.Write("(NYSE: GUC)") end if %> strutted $7 7/16 higher to $74 7/8 after saying November and December revenues of $200.2 million were 23% higher than last year's results... Shareholders of software development tools provider Programmer's Paradise <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PROG)") else Response.Write("(Nasdaq: PROG)") end if %> were in heaven today as the company gained $4 3/8 to $15 1/2 after saying fiscal 1998 net sales will come in at $230 million, up 30% from a year ago, thanks to a 490% year-on-year increase in Web-based sales.
You wouldn't know it from all the snow and freezing rain currently besieging Fool HQ, but unseasonably warm weather has apparently been scapegoated for the wintertime ills of two sporting goods retailers today. Small-town chain Hibbett Sporting Goods <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HIBB)") else Response.Write("(Nasdaq: HIBB)") end if %> fumbled $8 1/4 to $19 1/4 after it said Q4 EPS will be below Wall Street's $0.45 consensus estimate, with same-store sales coming in "flat to slightly negative." At the same time, Sports Authority <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> continued its slump at the plate, dropping $1/8 to $5 1/8 after warning that Q4 earnings will likely be "substantially below" analysts' $0.32 per share mean estimate as comp-store sales fell 4.5% -- the fourth straight quarterly warning for the troubled superstore company. It was too warm to buy skis, you see... and the recently ended NBA lockout didn't help matters, as spurned fans gave team-licensed merchandise and branded apparel the cold shoulder this season.
West Virginia steelworkers, unmotivated by the last-minute peacemongering of NBA players and owners, continue a strike first reported by high-performance metals company Special Metals <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMCX)") else Response.Write("(Nasdaq: SMCX)") end if %> in mid-December. As it warned last month, Special Metals will take an earnings bite as a result of the problems at its Inco Alloys International facility in Huntington, the largest site within the Inco unit, which Special Metals bought for $365 million in late October. The company said today it expects to report a Q4 loss when it announces results for the period on Feb. 25. Wall Street currently expects a $0.21 per share profit. The strike's tentacles reach beyond the earnings figures, as the company says the shortfall has left it in violation of its credit pact with Credit Lyonnais. Special Metals has applied for a waiver. Today the company lost $1 1/16 to $7 3/8.
A myriad of symptoms -- lower-than-anticipated license fee revenues, higher contracting costs caused by a tight job market, and expenses associated with the cancellation of a stock registration in October -- made enterprise software developer HTE Inc.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HTEI)") else Response.Write("(Nasdaq: HTEI)") end if %> shareholders sick today. HTE dwindled $2 3/16 to $5 5/8 after it said that it expects a Q4 pre-tax loss of between $5.1 and $5.5 million (results haven't been finalized). The two analysts surveyed by First Call had expected $0.12 per share profit. Also interesting is the news that HTE must scale back its workforce expansion thanks to overeager spending fueled by unexpectedly high sales growth. HTE planned for 30% sales growth in 1998, and when it beat that figure in all four quarters, it spent accordingly -- but may have spent too much. The company vowed to toe the 30% line more carefully next year and will take a one-time charge of between $2 and $2.5 million in Q1 1999 for its hubris.
QUICK CUTS: Wireless communications company AirTouch Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> leaked $3 to $79 after MCI Worldcom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WCOM)") else Response.Write("(NYSE: WCOM)") end if %> said it isn't in the running to buy AirTouch despite yesterday's reports of a $55 billion bid from WorldCom... Russian wireless telecommunications company Vimpel-Communications' <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VIP)") else Response.Write("(NYSE: VIP)") end if %> American depositary receipts slid $1 to $14 1/2 after the company said the number of subscribers on its networks in Q4 was 12% below last year's figure. The company anticipates Q4 earnings will come in below Q3's loss of $1.71 per share... Modular and broadloom carpet supplier Interface Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFSIA)") else Response.Write("(Nasdaq: IFSIA)") end if %> frayed $7/8 to $8 1/16 following its announcement that Q4 EPS is seen between $0.18 to $0.22 before a restructuring charge, below the five-analyst estimate compiled by First Call.
Semiconductor wafer stepper maker ASM Lithography <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> flaked away $2 13/16 to $42 1/8 after Deutsche Bank downgraded the stock to "underweight" from a "neutral" rating... Medialink Worldwide <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDLK)") else Response.Write("(Nasdaq: MDLK)") end if %> returned $2 5/16 to $11 11/16 as Prudential Securities downgraded the provider of audio and video production and distribution services to "hold" from "accumulate." The company said yesterday that it expects Q4 EPS of between $0.16 and $0.18, below the $0.20 mean projection of four analysts surveyed by First Call... Seattle-based biopharmaceutical company Immunex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNX)") else Response.Write("(Nasdaq: IMNX)") end if %> lost $6 1/4 to $119 1/2 after Salomon Smith Barney downgraded the stock to "outperform" from "buy."
Three retailers fell today after Credit Suisse First Boston downgraded the stocks: Talbots <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLB)") else Response.Write("(NYSE: TLB)") end if %> lost $1 3/8 to $28 5/8 after being cut to "hold" from "buy," Linens 'n Things <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LIN)") else Response.Write("(NYSE: LIN)") end if %> slipped $5/8 to $37 7/8 following a downgrade to "buy" from "strong buy," and Neiman Marcus Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NMG)") else Response.Write("(NYSE: NMG)") end if %> dropped $7/8 to $24 15/16 on a cut to "hold" from "buy." Talbots and Neiman Marcus reported December sales yesterday -- click here for an expanded listing of results... Electrical installation contracting company Integrated Electrical Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IEE)") else Response.Write("(NYSE: IEE)") end if %> burned off $11/16 to $22 1/8 after it said it will sell $150 million in convertible notes due 2009 to institutional buyers. Integrated Electrical also announced plans to buy five companies with combined yearly revenues of $66 million for an undisclosed sum.
Health and life insurer Conseco Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNC)") else Response.Write("(NYSE: CNC)") end if %> deteriorated $2 1/4 to $34 3/4 following a downgrade to "neutral" from "outperform" by Salomon Smith Barney... Vitamin and supplement retailer General Nutrition Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNCI)") else Response.Write("(Nasdaq: GNCI)") end if %>, which advanced yesterday on news of a deal with Rite Aid <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAD)") else Response.Write("(NYSE: RAD)") end if %>, lost $1 1/4 to $18 1/2 as BT Alex. Brown downgraded the stock to "market perform" from a "buy" rating... Specialty insurer and reinsurer EXEL Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XL)") else Response.Write("(NYSE: XL)") end if %> lost $3 to $69 after PaineWebber downgraded the stock to "attractive" from "buy."
FOOL
ON THE HILL
An Investment Opinion
by
Warren Gump
Clocking Growth at Fossil
When thinking of fossils, most people conjure images of dinosaurs and other relics from the past. Using the Foolish 8 screening technique, however, I've found a Fossil <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FOSL)") else Response.Write("(Nasdaq: FOSL)") end if %> that is alive and emerging as very successful fashion accessory brand. If you aren't familiar with the Foolish 8 screen, it identifies small-cap companies that share eight characteristics often exhibited by successful stocks.
The screen is fairly stringent, seeking companies growing sales and earnings at greater than 25%, maintaining a 7% or higher net margin, having positive cash flow from operations, and carrying a relative strength of greater than 90. In addition, insider holdings have to be at least 10% of the company's outstanding stock. For the lowdown on the Foolish 8 spreadsheet, check out this link.
For those of you not hip enough to peruse the watch section of your favorite department or specialty store, Fossil has become one of the hotter brands over the past few years. Expanding off its success in watches, the company has also launched a line of small leather goods, belts, handbags and sunglasses. While these other items are doing well, watches still accounted for 72% of the company's 1997 sales. You can tic into their background and product offerings via their home page.
Investing in fashion brands involves more risk than many other businesses, as trends (and earnings and cash flow) ebb and flow before you know what happens. Those of us attending high school in the 1980s can remember Izod shirts and LA Gear sneakers, two fashion brands that were hot before heading off into bankruptcy. On the other hand, other brands such as Swatch and Polo have adapted and maintained their leadership for quite a long time. (Let's all hope that Martha Stewart doesn't end up in this category.) Adapting products and marketing to meet changing consumer preferences will be required for long-term success.
As indicated by the company's passing the Foolish 8 screening process, Fossil's recent track record is strong. In addition, the company is expected to post long-term earnings growth of 20% per year, yet trades at a below-market price/earnings (P/E) ratio of 21 based on 1998 earnings estimates. Looking into this year, the company is trading at a tad over 17x First Call consensus estimates. Quite attractive, assuming the company meets expectations.
On the subject of meeting expectations, it is worth noting that the company has beaten analyst expectations for the past nine quarters. This quarter is unlikely to be any different. On December 29, Dow Jones Newswires carried a story from company CFO Randy Kercho stating that "there is an opportunity to beat [First Call's $0.46 consensus estimate]." Assuming that the number will meet that number rather than exceed it (as is likely), this year's earnings per share will have grown 48% on top of last year's record results.
Fueling the growth has been continued acceptance of the company's core watch brand, along with increasing sales for its accessory line. The company has expanded into making private label watches for retail chains such as Emporio Armani and Eddie Bauer, which is also boosting sales and profits. Although all of its product lines are offered domestically, the 30% of sales from international markets are currently derived almost exclusively from watches. As the brand strengthens, other products are expected to be introduced into those regions.
Looking at the income statement for the first nine months of 1998, sales were up 23% as earnings increased 60%. This dramatic jump in earnings was primarily caused by improving gross margins and only modest increases in selling, general and administrative (SG&A) expenses. Gross margins increased 1.3 percentage points to 49.2% thanks to a better product mix and lower costs from the stronger dollar. The relatively small increase in SG&A expenses indicates that the existing company infrastructure was sufficient to meet demands caused by increasing sales.
One comment in the company's 10-K that surprised me is that advertising expenses between 1995 and 1997 was essentially flat in the $14-$15 million range. Given Fossil's desire to increase brand recognition and introduce new products, I would have intuitively expected the number to increase. The recent sales success demonstrates that increased advertising has not been needed. Over time, however, this line item will likely be forced higher to maintain the brand's positioning. An increase in advertising costs would dampen future SG&A leverage.
The balance sheet looks healthy, with no long-term debt and $28 million in cash ($1.33 per share). Inventories don't look out of hand, with 82 days sales on hand (based on Q3 sales) compared with 86 days last year. Another positive indication is that accounts receivable outstanding has decreased from 55 days last year to 49 days this year. Cash flow from operations in the first nine months was a positive $11 million as the company very effectively managed its working capital.
Fossil holds many of the characteristics embodied by successful growth companies. If you can tolerate the risks inherent in the fashion industry, this stock could be worth watching.
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 |