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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
Dow 9000 -- Who Cares?
At the time of this writing the Dow Jones Industrial Average is up 14.95 points to 9001.59. So, that means the Motley Fool is going to have a special feature early in the afternoon today entitled "Dow 9000" that will document this momentous rise... hold it, to borrow from a well-known and prolific market commentator, WRONG! While this "event" is undoubtedly going to touch off a lot of hysteria today in the traditional business press, here at the Motley Fool we prefer to focus on companies rather than indexes. While it may be called a stock market, it's really a market of stocks. Tracking the progress of indexes is of little value when searching for excess returns. As facile as that may sound, this approach to looking at the investing universe attempts to preserve the fundamental and essential differences between those dynamic and complex entities we call companies.
What is the Dow Jones Industrial Average? It's a price-weighted index of thirty companies (meaning that the higher-priced components will have more influence on the index) that is both the oldest and most widely followed market index. Every day, virtually every news organization in the country feels compelled to make a token assessment about what "the market is doing." Hence, they employ the Dow Jones Industrial Average. This has done more harm than good, encouraging the sentiment that the stock market is nothing but a daily horserace of numbers, rather than real businesses making competitive decisions that the market processes in real time. What of this morning's move? Taking the three largest companies that contributed to the rise: IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> was up $5/16 to $106 1/8, J.P. Morgan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JPM)") else Response.Write("(NYSE: JPM)") end if %> was up $1/2 to $34 1/2, and American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> was up $2 7/8 to $97 5/16. Combined, these tiny movements accounted for 14.74 points of the 14.95 total rise -- with other names dragging the numbers down.
With J.P. Morgan accounting for roughly 6% of the total composition of the index, that translates into situations where insignificant point moves account for big chunks of the total return. While it is true to a degree that thirty of the largest companies in the stock market have something to say about the overall market over time (they represent 1 1/2% of the issues on the NYSE, but about a third of the total market value), even those that feel something meaningful can be said about broad market movements employ many indexes when attempting to try to take a snapshot of the market as a whole. The Wilshire 5000, the Russell 2000, the Nasdaq Composite, and the S&P 500 all have something very specific to say, but none of them by themselves are very meaningful.
It's human nature to want to quantify big unwieldy things and make pronouncements about a degree of understanding. However, a better understanding of the Dow would be gained if an investor were to take all thirty companies, value them independently, and see if they are overvalued or undervalued relative to where the index stands currently. That would be of true value.
GTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %> jumped $3 to $63 7/16 after announcing late yesterday plans to generate $2-$3 billion by selling nonstrategic businesses and to reduce costs by more than $500 million a year over two years through job cuts and improving efficiency. The company will take a first quarter charge of $0.83 per share for the restructuring but expects 1998 earnings (excluding charges) to "be in line with GTE's prior estimates of moderate growth compared to 1997."
Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> continued rising this morning, gaining $3 3/16 to $72 5/8 following its 2-for-1 stock split that took effect after the market close on Wednesday. Separately, Philips Consumer Communications, a joint venture between Lucent and Philips Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHG)") else Response.Write("(NYSE: PHG)") end if %>, expects its 1998 sales in Latin America will increase to about $300 million from less than $50 million the year before, according to Reuters. Lucent owns a 40% stake in the venture.
Unocal Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCL)") else Response.Write("(NYSE: UCL)") end if %> gained $1 1/16 to $40 13/16 after Goldman Sachs upgraded the oil company to its "priority list" from its "recommend list."
SCB Computer Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCBI)") else Response.Write("(Nasdaq: SCBI)") end if %> leapt $2 5/8 to $26 1/8 after the information technology management and technical services company announced a 2-for-1 stock split. The new shares will be issued on April 27 to shareholders of record at the close of business on April 13.
Aircraft engines precision metal components maker Kreisler Manufacturing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KRSL)") else Response.Write("(Nasdaq: KRSL)") end if %> jumped $1 1/4 to $10 1/4 after late yesterday reporting third quarter earnings of $0.20 per share, up from $0.04 in the year-earlier period. Sales increased to $3.5 million from $2.5 million the year before.
Wireless telecom equipment and software provider Qualcomm Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QCOM)") else Response.Write("(Nasdaq: QCOM)") end if %> gained $1 3/8 to $54 7/8 after announcing a $117 million contract with Globalstar L.P. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSTRF)") else Response.Write("(Nasdaq: GSTRF)") end if %> and Globalstar Service Providers to make portable and fixed Code Division Multiple Access (CDMA) telephones for Globalstar's worldwide low-Earth-orbit satellite-based digital telecommunications system.
DSC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIGI)") else Response.Write("(Nasdaq: DIGI)") end if %> rose $2 1/8 to $19 1/16 after yesterday's drop as the telecom equipment and software provider announced that its chairman, president, and CEO James L. Donald intends to retire from his job as president and CEO. He will become a non-employee chairman and director of the company.
Letchworth Independent Bancshares <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LEBC)") else Response.Write("(Nasdaq: LEBC)") end if %> added $2 5/8 to $61 after the thinly traded bank proposed a 3-for-1 stock split, which will be voted on at the company's May 7 annual meeting.
Rental equipment company U.S. Rentals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USR)") else Response.Write("(NYSE: USR)") end if %> climbed $1 1/4 to $28 3/4 after Legg Mason Wood Walker started coverage of the company with a "buy" rating and predicted the stock will hit $38 in 18 months. Legg Mason said that unlike its competitors, the company has been able to maintain earnings through good times and bad.
Semiconductor manufacturing equipment maker Kulicke & Soffa Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLIC)") else Response.Write("(Nasdaq: KLIC)") end if %> was thrown for a $2 1/4 loss to $21 1/2 after saying an order cancellation by an unspecified "major" client for its new wedge bonder product will cause fiscal Q3 revenues to come in below analysts' expectations. Because the order was expected to ship in Q3, the company is forecasting a net loss for the period, missing the First Call mean estimate of earnings of $0.36.
Natural Microsystems Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NMSS)") else Response.Write("(Nasdaq: NMSS)") end if %>, which designs hardware and software products for computer telephony service providers, slumped $8 7/16 to $29 15/16 after saying project delays will lead to fiscal Q1 EPS of $0.18 to $0.20, below the First Call mean estimate of $0.23. Last week, the company's CEO joined analysts in reassuring investors that rumors of delays by the firm's suppliers were "unfounded."
Semiconductor system level verification (SLV) products maker Quickturn Design Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QKTN)") else Response.Write("(Nasdaq: QKTN)") end if %> lost $7/16 to $10 1/16 after announcing slowdowns in Asia and in U.S. markets tied closely to the region will cause a fiscal Q1 loss of $0.09 to $0.11 per share. The Street had been expecting earnings of $0.14 per share in the quarter.
Computer telephony and voice-processing systems supplier Active Voice Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACVC)") else Response.Write("(Nasdaq: ACVC)") end if %> slid $2 5/8 to $10 2 5/8 after forecasting a Q4 loss of between $0.29 to $0.31 per share, missing the Street estimate of earnings of $0.11 per share. The company blamed the shortfall on delays related to the reorganization of its voice processing systems unit.
Enterprise software developer Landmark Systems Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LDMK)") else Response.Write("(Nasdaq: LDMK)") end if %> slipped $2 1/4 to $7 1/2 after saying order delays by its clients will result in fiscal Q1 EPS of $0.07 to $0.08 per share, which is short of the First Call mean estimate of $0.10 per share. Revenues are expected to come in between $10.1 and $10.4 million for the quarter, roughly flat compared to the year-ago period.
Database software company Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> fell $1 3/8 to $28 3/4 after the Wall Street Journal, picking up on a Dataquest research report published yesterday, reported that companies such as FDX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %>, First Union Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %>, and CSX Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSX)") else Response.Write("(NYSE: CSX)") end if %> have recently switched from using "network computers" for some of their operations to PCs and computers using Microsoft's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> Windows platform for some of their operations. Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> was also implicated in the article as a loser in the NC war, but this is a rehash of the continuing battle between UNIX scalability and the "affordability" of fat client and Microsoft NT systems. Rumor has it that Oracle held an analyst meeting yesterday, which might be contributing to its fall.
Customer service software provider Pegasystems Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PEGA)") else Response.Write("(Nasdaq: PEGA)") end if %> dropped $3 1/2 to $16 15/16 after reporting Q4 EPS of $0.15 versus $0.14 a year ago. The company also restated its results for the first three quarters of fiscal 1997 to take into account revenue recognition accounting changes. The company was downgraded by both Goldman Sachs and Raymond James.
Sunbeam Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOC)") else Response.Write("(NYSE: SOC)") end if %> was knocked down $8 13/116 to $36 3/4 after the appliance maker said it will report a fiscal Q1 loss due to costs related to its recent acquisitions of First Alert <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALRT)") else Response.Write("(Nasdaq: ALRT)") end if %>, Signature Brands USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SIGB)") else Response.Write("(Nasdaq: SIGB)") end if %>, and The Coleman Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLN)") else Response.Write("(NYSE: CLN)") end if %>, and on lower sales compared to the same quarter a year ago. The First Call mean estimate called for earnings of $0.30 per share. PaineWebber downgraded the company to "neutral" from "buy."
Spam maker Hormel Foods <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRL)") else Response.Write("(NYSE: HRL)") end if %> choked for a $2 1/8 to $36 5/16 after being downgraded to "hold" from "buy" by Prudential Securities.
Healthcare document management systems developer Imnet Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IMNT)") else Response.Write("(Nasdaq: IMNT)") end if %> dropped $6 5/16 to $16 1/8 after saying order delays by some of its customers will result in a fiscal Q3 loss of between $0.12 and $0.15 per share. The Street had been expecting earnings of $0.20 per share.
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ANOTHER FOOLISH THING
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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
Contributing Writers
Brian Bauer (TMF Hoops), another Fool
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Editing