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FOOL PLATE SPECIAL
An Investment Opinion
by Alex Schay
Short-seller Targets Turbodyne
Manuel Asensio is at again. This time the short-seller's target is Turbodyne Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TRBD)") else Response.Write("(Nasdaq: TRBD)") end if %>, a recently incorporated Delaware firm (formerly a Canadian federal company) that manufactures permanent mold and sand aluminum castings through its Pacific Baja subsidiary. The old news is that Pacific Baja accounted for 100% of the firm's revenues in both fiscal 1996 and 1997. However, the company has tied its future profitability to its two primary, "proprietary" products, the "Turbopac" and the "Dynacharger." Incorporated into these two products is what the company calls Turbodyne Technology -- a "patented" technology designed to optimize air flow to internal combustion engines, resulting in "efficient" fuel combustion in both diesel and gasoline engines. The company's shares have been almost cut in half this morning, losing $7 7/16 to $8 3/8, because Asensio & Co. issued a press release entitled, "Turbodyne Possesses No Valuable Technology."
Not one to mince words, Asensio went on to state, "Turbodyne does not possess any patents on any ignition, combustion, fuel or intake design or product that offers engine manufactures any new technology in emission reduction or power output..." and that, "No manufacturer has ever incorporated a single Turbodyne product in a new engine or vehicle." Indeed, none of the Turbodyne Products are commercially produced except for the Turbopac 1500 product and limited production of the Turbopac 2500 product. The other models of the Turbopac product and all models of the Dynacharger product remain in various stages of development. However, in April the firm did enter into a five-year sales and marketing agreement with Detroit Diesel pursuant to which Detroit Diesel will exclusively market the Turbopac product as part of its mechanical engine rebuild kit for the EPA Urban Bus Program. In June, the firm delivered the initial stocking order consisting of 100 Turbopacs to Detroit Diesel.
This, of course, doesn't invalidate Asensio's claims because the deal involves some retrofitting, as opposed to incorporation into a "new engine or vehicle." As well, the patent claim by Asensio is true in a strict sense, but Turbodyne has been advised by the U.S. Patent Office that its Turbodyne Systems and Dynacharger applications have been approved -- Turbodyne is now just waiting formal approval of its final drawings. The point of this column today is not to provide support for either Asensio's or Turbodyne's claims, but rather to highlight the irony of a wholesale sell-off due to the fact that an institutional money manager in New York has made a pronouncement about the merits of a particular technology. Turbodyne has made it abundantly clear in all of its SEC filings that the future of the company hinges on its technology. What happened to good old-fashioned "scuttlebutt" of the Phil Fisher variety and the central ntral element of Fisher's idea -- independent verification? If the technology is the key to the company's business, don't believe the firm's claims or any short-seller's claims either, if it has to come to that. Ask the potential customers why the heck they have adopted or decided not to adopt a certain technology.
Perusing the company's 6K filing for twenty minutes would reveal the following statement: "The Company also provides each Turbopac-TM- product to OEMs, including Navistar, AlliedSignal, Volkswagen and MAN, for testing to demonstrate the superior performance and marketability of the Turbopac-TM- products to these manufacturers." If the company is giving away product to OEMs for trial testing, by all means give these firms a call and see whether or not they have yet passed judgment. At very least, an understanding can be gained of the performance issues involved. The bottom line is that investors don't have to wait for any money manager to determine whether or not a particular technology has potential.
Computer networking equipment company Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> ticked up $1 1/4 to $97 3/4 in advance of reporting its fiscal first quarter earnings.
Online book and music purveyor Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> rose $4 3/4 to $113 after announcing it will acquire two Internet companies for stock worth about $280 million: Cambridge, Mass.-based PlanetAll, which provides a Web-based address book, calendar, and reminder service at http://www.PlanetAll.com, and Sunnyvale, Calif.-based Junglee Corp., whose virtual database technology helps shoppers find products online.
Some Internet companies recovered this morning after yesterday's fall. Yahoo! <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> whipped up $1 15/16 to $88 3/8; Excite <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> was up $1 15/16 to $37 15/16; and Lycos <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> gained $2 to $56.
Grocery store chain American Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASC)") else Response.Write("(NYSE: ASC)") end if %> climbed another $1 1/16 to $29 9/16 after yesterday announcing it has agreed to be acquired by Albertson's Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABS)") else Response.Write("(NYSE: ABS)") end if %> in a deal valued at $11.7 billion. Albertson's gained $1 5/8 to $50 1/8.
Fault-tolerant computer systems and software company Stratus Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRA)") else Response.Write("(NYSE: SRA)") end if %> moved up another $1 3/8 to $35 1/8 after yesterday's news that it will be acquired by Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>, which gained $1 15/16 to $48 3/4.
Coal producer Zeigler Coal Holding Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZEI)") else Response.Write("(NYSE: ZEI)") end if %> surged $4 13/16, or 30.2%, to $20 3/4 after announcing it has agreed to be acquired by AEI Resources Inc. for $21.25 a share in cash -- a 33% premium to yesterday's closing price. The total value of the deal, including assumption of debt, is about $855 million.
Blood analysis diagnostic systems maker i-STAT Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STAT)") else Response.Write("(Nasdaq: STAT)") end if %> jumped $13/16 to $11 7/8 after announcing a long-term sales, marketing, and research alliance with Abbott Laboratories <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABT)") else Response.Write("(NYSE: ABT)") end if %> by which the two will jointly develop new products and Abbott will sell and market i-STAT's products. Abbott is also taking a minority stake in the company by acquiring 2 million shares at $11.35 a share. i-STAT reported a Q2 loss of $0.31, a penny narrower than last year and better than analysts' mean estimate of a loss of $0.34.
Housewares industry consolidator Home Products International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HPII)") else Response.Write("(Nasdaq: HPII)") end if %> picked up $3/4 to $10 7/8 after announcing it will acquire privately held Tenex Corp.'s consumer storage line, as well as Newell Co.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWL)") else Response.Write("(NYSE: NWL)") end if %> Newell Plastics, consisting of Anchor Hocking Plastics and Plastics Inc. Both transactions are expected to be immediately accretive to earnings. Home Products also reported Q2 EPS of $0.37 (before charges), up from $0.24 a year ago and a penny ahead of estimates.
Internet relationship management applications company BroadVision Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BVSN)") else Response.Write("(Nasdaq: BVSN)") end if %> advanced $1 1/4 to $19 1/8 after announcing an alliance with Security First Technologies, a subsidiary of Security First Network Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFNB)") else Response.Write("(Nasdaq: SFNB)") end if %>. The alliance will include cross-equity investment, joint product development, joint marketing, and a reseller relationship.
Earnings Movers
Conrad Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNRD)") else Response.Write("(Nasdaq: CNRD)") end if %> up $1/2 to $8 1/2; Q2 EPS: $0.30 (before charges) vs. $0.22 last year; Estimate: $0.20 (single analyst)
DA Consulting Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DACG)") else Response.Write("(Nasdaq: DACG)") end if %> up $2 1/4 to $15 1/4; Q2 EPS: $0.16 vs. $0.06 last year; Estimate: $0.10
SFX Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFXE)") else Response.Write("(Nasdaq: SFXE)") end if %> up $1 9/16 to $42 7/8; Q2 EPS: loss of $1.68 vs. profit of $0.13 last year
TMP Worldwide <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMPW)") else Response.Write("(Nasdaq: TMPW)") end if %> up $1 9/16 to $33 13/16; Q2 EPS: $0.20 (before special items) vs. $0.08 last year; Estimate: $0.17
Electronics manufacturing services provider SCI Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SCI)") else Response.Write("(NYSE: SCI)") end if %> fell $7 1/8 to $32 11/16 after reporting fiscal Q4 EPS of $0.54 versus $0.47 last year, which was in line with the Street's mean estimate. However, no less than four brokerage firms downgraded the stock this morning.
Contract mental health program manager Horizon Health Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HORC)") else Response.Write("(Nasdaq: HORC)") end if %> slid $4 13/16 to $5 11/16 after saying changes to how Medicare reimburses Horizon's clients for its services will result in fiscal Q4 earnings short of the $0.34 per share expected by analysts. Further, fiscal 1999 earnings will come in below the $1.11 per share recorded last year.
Wireless communications and networking chips maker VLSI Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLSI)") else Response.Write("(Nasdaq: VLSI)") end if %> was knocked down $1/2 to $13 3/8 after President and COO Richard Beyer quit for "personal reasons."
Office copier supplier Ikon Office Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IKN)") else Response.Write("(NYSE: IKN)") end if %> dropped $1 3/16 to $8 15/16 after saying it will release an "in-depth analysis of the issues facing the company" and the reasons for its recent poor financial results when it issues its third quarter earnings report Aug. 14. The company added that "execution... needs to improve." In June, Ikon warned that its Q3 earnings would fall "significantly" below analysts' estimates.
Home accessories and crafts products retailer Garden Ridge Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRDG)") else Response.Write("(Nasdaq: GRDG)") end if %> was trampled $2 11/16 to $11 7/16 after saying inventory problems, reduced store traffic, and a poorly received ad campaign will result in fiscal Q2 earnings below the $0.03 per share expected by the Street.
CellStar Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLST)") else Response.Write("(Nasdaq: CLST)") end if %> lost another $3/4 to $11 5/8 after saying yesterday that the Securities and Exchange Commission is looking into how the wireless communications products company reported certain events in 1995 and 1996 and whether the disclosures complied with federal securities laws.
Kidney dialysis services provider Total Renal Care <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRL)") else Response.Write("(NYSE: TRL)") end if %> dropped $5 3/16 to $24 7/16 after reporting fiscal Q4 EPS of $0.24 (before charges and accounting changes) compared to $0.17 last year, missing the First Call mean estimate of $0.31.
Managed care and health insurance firm Mid Atlantic Medical Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MME)") else Response.Write("(NYSE: MME)") end if %> slumped $3/4 to $6 7/8 after saying higher medical services utilization rates will result in fiscal Q2 EPS between $0.07 and $0.10, which is short of the First Call mean estimate of $0.15 for the quarter.
Planned community operator and timber company St. Joe Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JOE)") else Response.Write("(NYSE: JOE)") end if %> was felled $2 1/16 to $22 1/2 as president and COO Charles Ledsinger quit to become president and CEO of hotel franchiser Choice Hotels International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHH)") else Response.Write("(NYSE: CHH)") end if %>. Raymond James downgraded the company to "accumulate" from "buy."
Elderly healthcare provider Centennial Healthcare Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTEN)") else Response.Write("(Nasdaq: CTEN)") end if %> tumbled $4 7/8 to $9 7/8 after reporting fiscal Q2 EPS of $0.32 vs. $0.30 last year, which was in line with the Street's estimate. However, the company said that implementing a new payment system will raise Q3 expenses by $1 million and Q4 costs by $1.5 million. BT Alex. Brown downgraded the stock to "market perform" from "buy."
Health Risk Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRMI)") else Response.Write("(Nasdaq: HRMI)") end if %>, a provider of electronic health plan management systems, fell $1 1/32 to $12 1/2 after Philadelphia's Keystone Mercy Health Plan charged the company with breach of contract and said it is trying to terminate its current contract. For its part, Health Risk Management said the claim is "without merit" and will continue to provide services to Keystone Mercy "with no interruption."
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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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