FOOL PLATE SPECIAL

Leaving Earth's Orbit

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There is no more powerful force in the world than hope, particularly for connectivity-related companies with relatively small floats. What is a "float", regular readers might ask, already quite familiar with the concept of hope. A "float" is the number of shares at any one time that are publicly available for trading. For instance, although XYZ Industries might have 20 million shares outstanding, if the chief executive officer's mother-in-law holds 95% of the shares, then there are really only a million shares that are being actively traded. Frankly, a million shares is not all that many -- it means only 10,000 individual investors can own round lots in a market that consists of hundreds of thousands of individuals and institutions.

Cases in point: Navarre <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NAVR)") else Response.Write("(NASDAQ: NAVR)") end if %>, Optical Cable <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCCF)") else Response.Write("(NASDAQ: OCCF)") end if %>, Technical Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCCO)") else Response.Write("(NASDAQ: TCCO)") end if %>, Diana Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %>, CAI Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CAWS)") else Response.Write("(NASDAQ: CAWS)") end if %> and to a lesser degree, Etec Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ETEC)") else Response.Write("(NASDAQ: ETEC)") end if %>. What the first four companies have in common are newly-launched businesses in hot industries with only somewhere between one and two million shares available to the public.

Music distributor Navarre, with only a 1.1 million float, was up $2 7/8 to $30 on hopes for its new Internet radio business. Recent initial public offering (IPO) Optical Cable skyrocketed $19 to $129, bolstered yet again by the fact that only 1.5 millions are available for trading. Untested networker Diana Corp. was up $14 1/4 to $112, not all that surprising considering that there is only a 2.5 million float and most of this is actually short on the stock. Technical Communications surged another $5 to $29 1/2 today as the company continued to maintain that there is absolutely no news to report -- but the fact that there are only about 1.5 million shares in the float explains the volatility. In the latest manifestation of Internet fever, CAI Wireless surged $1 5/8 to $10 1/2 based on an announcement yesterday that it was testing a wireless Internet-access device in Washington. The company also boasts a decided lack of any sizable float. Finally, Intel's purchase of $10 million of semiconductor-equipment manufacturer Etec Systems's stock continues to support the shares today as it decreases their already small float, pushing them up $2 3/4 to $36 1/2.

What does all this talk of float really mean? Simply that stocks are priced by a fairly straightforward supply-and-demand mechanism. If supply is constrained, the price shoots up. Thus it is very easy for the combustible quality of hope to ignite thinly-traded shares and throw them far above any intrinsic value. Does this mean you should jump in on the short side of the trade? Not at all. This kind of volatility means you have to have a lot of margin and risk tolerance to hope to win. As always, caution is advised.

UPGRADES & DOWNGRADES

Boyd Gaming <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BYD)") else Response.Write("(NYSE: BYD)") end if %> received the nod from Bear Stearns today, getting upgraded to "attractive" from "neutral" with fiscal 1997 earnings estimates notched up to $1.00 per share (EPS). Shares rose $1 to $15 1/4.

Up $1 1/4 to $17 1/2 today, STB Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STBI)") else Response.Write("(NASDAQ: STBI)") end if %> was the subject of a Rauscher Pierce Refsnes upgrade to "buy focus" from "market perform" yesterday. The brokerage analyst cited the company's growing market share in the graphics adapters market.

Alex. Brown cut its rating on Diamond Multimedia <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DIMD)") else Response.Write("(NASDAQ: DIMD)") end if %> today from "strong buy" to "neutral", slashing estimates from $1.72 to $1.45 based on "pricing pressures". In response, shares fell $1 1/8 to $16 7/8.

Asensio & Company's "strong sell" rating of SyQuest <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYQT)") else Response.Write("(NASDAQ: SYQT)") end if %> combined with negative comments by the chief financial officer (CFO) last night regarding the possibility of a takeover sent the shares spinning lower today, down $5 9/16 to $12 5/16 today.

EARNINGS SURPRISES

Interpoint <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTP)") else Response.Write("(NASDAQ: INTP)") end if %> was up again today, rising $2 1/2 to $36 on its great second quarter reported two days ago as well as on comments by an analyst that were quite bullish on the company's tape drive business.

SystemSoft <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYSF)") else Response.Write("(NASDAQ: SYSF)") end if %> beat earnings expectations by a penny yesterday, reporting $0.11 EPS. The PC Card developer was rewarded $7 3/4 to $46 today for its performance.

ODDS & ENDS

Chart Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTI)") else Response.Write("(NYSE: CTI)") end if %> rose $1 1/4 to $14 1/8 today after being profiled on Investor's Business Daily's New America page. Their "cool" line of business? The chilling and liquefying of gas.

Switzerland's Sandoz offered to buy the remaining interest in SyStemix <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STMX)") else Response.Write("(NASDAQ: STMX)") end if %> that it does not already own, boosting shares of the California biotechnology firm $8 to $19 -- close to the takeout price of $17.

Loss of some business reported yesterday did not stop investors from taking advantage of a perceived bargain in Computer Horizons <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHRZ)") else Response.Write("(NASDAQ: CHRZ)") end if %> shares. The "Millennium 2000" concern rose $2 7/8 to $42 1/2 in heavy trading today.

Firewall-developer Harris Computers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NHWK)") else Response.Write("(NASDAQ: NHWK)") end if %> was down $1 to $18 1/4 on news yesterday that the company was filing to issue 2.5 million more shares.

Lernout Hauspie Speech Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LHSPF)") else Response.Write("(NASDAQ: LHSPF)") end if %> dropped $4 to $38 after the company upped its 1.9 million share offering to 2.4 million shares.

Randy Befumo (MF Templar), a Fool
Selena Maranjian (MF Selena), another Fool