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FOOL PLATE SPECIAL
An Investment Opinion
by Dale Wettlaufer
Let the Market Do the Talking
Stock markets around the world took the Federal Reserve's 25 basis point easing in the Fed funds rate yesterday kind of hard, with Japan's Nikkei dropping to a new 12-year low and Canada dropping 2.9%. Led on by a nasty drop in shares of Northern Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> this morning, Toronto is down another 2%+ plus today as the currency of American's largest trading partner continues to be mired near exchange rate lows set before the Civil War. Back here in the U.S., large banks haven't fared so well, either, as the Fed's move didn't really take with "lead-steer" investors who set prices.
It's hard to submit as the "right interpretation" one viewpoint on the Fed's actions. Rather, this investor can only submit what he thinks might be the problem with bank stocks and equities in general at the moment. First, the Fed funds futures in Chicago are currently pricing in another interest rate cut. Fed policy is incremental, which is no surprise given the competing viewpoints on the Federal Open Market Committee and the ability of Fed Chairman Alan Greenspan to gather these viewpoints into a consensus. But the market is saying it expects the Fed funds rate to be a hair over 5% by December and to reach nearly 4 3/4% by March 1999. Given these expectations, it's really not the absolute level of interest rates that has the lead steers worried.
The market now is probably much more concerned with general levels of business activity in the U.S. and around the world. Add in credit quality worries arising from a pre-existing concern from regulators and the whole Long-Term Capital mess, and investors are re-discounting lots of new information every day into the prices of bank stocks. The level of working capital needs for small and medium-sized businesses is not going in the right direction. Less working capital means less working capital financing, which affects middle-market lenders like BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> and First Union <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %>. Slower import/export activity and securities markets activity affects money center banks such as Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %>. However, it's hard to place all of these into their older money center/regional bank categories, as BankAmerica/NationsBank is very much a money center and Citicorp still is a huge consumer lender here and around the world.
It's not as if their cost of borrowing is going in the wrong direction. Indeed, these companies can borrow in money markets around the world. In addition, branch banks will probably be able to get away with lowering their deposit rates a bit, too. And less inventory and receivables financing needs will likely push more cash into business checking accounts, further helping net interest income spreads. It's really a recession that the lead steers are pricing in. The Fed wouldn't be able to change that even if it had loosened up by 50 basis points yesterday, and it can't wave a magic wand over the rest of the world to clear up embedded structural problems with our trading partners. That being the case, the Fed is not going to try to wash the world's sins away with liquidity. The markets are going to have to work this one out.
Diversified transportation firm CNF Transportation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNF)") else Response.Write("(NYSE: CNF)") end if %> motored ahead $1 7/16 to $28 1/4 after the company said it will be "comfortably profitable" in fiscal Q3 and will report EPS in line with the First Call mean estimate of $0.74. The company added that there have been "no negative developments" to account for the recent slide in its share price.
It's payday for Paychex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAYX)") else Response.Write("(Nasdaq: PAYX)") end if %>, which rose $2 15/16 to $49 3/16 this morning after the provider of accounting and employment services to business was selected to replace Dresser Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DI)") else Response.Write("(NYSE: DI)") end if %> in the S&P MidCap 500 index, starting today. Dresser closed its merger with Halliburton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> yesterday.
Electronic medical and scientific information services firm Ovid Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OVID)") else Response.Write("(Nasdaq: OVID)") end if %> authored a $4 1/8 gain to $24 1/8 after agreeing to be acquired by a subsidiary of Dutch business and scientific publisher Wolters Kluwer N.V. for $24.59 per share, or about $200 million in cash. The purchase price represents a 19% premium to Ovid's closing price of $20 per share yesterday.
Annuity and life reinsurance underwriter Annuity and Life Re Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALREF)") else Response.Write("(Nasdaq: ALREF)") end if %> gained $2 1/8 to $20 after announcing it has completed a "significant" annuity transaction with a U.S. insurer that will provide Annuity and Life Re a $1 billion annuity premium today and an additional $250 million annuity premium by the end of the year. Prudential Securities reiterated its "strong buy" rating on the stock.
Interactive education software company CBT Group PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBTSY)") else Response.Write("(Nasdaq: CBTSY)") end if %> bounced back $2 to $12 15/16 after warning on Monday that its fiscal Q3 results will come in below analysts' estimates. In the past two trading days, the company's share price has declined a total of 63%.
TV and radio network operator CBS Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBS)") else Response.Write("(NYSE: CBS)") end if %> eyed a $1 1/4 gain to $24 1/2 after Donaldson, Lufkin & Jenrette raised its rating on the company to "top pick" from "buy." Yesterday, the Tiffany network fell nearly 10% on worries that its advertising revenues may slow in the second half of the year.
Casual clothing designer Nautica Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NAUT)") else Response.Write("(Nasdaq: NAUT)") end if %> added $3/4 to $18 1/4 after Morgan Stanley Dean Witter started coverage with an "outperform" rating and a $30 per share price target, based on the company's future growth prospects.
Home healthcare medical products manufacturer Sunrise Medical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SMD)") else Response.Write("(NYSE: SMD)") end if %> burst $1 15/16 higher to $9 13/16 courtesy of a PaineWebber upgrade to "buy" from "neutral."
Philadelphia-based electric and natural gas utility PECO Energy Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PE)") else Response.Write("(NYSE: PE)") end if %> charged ahead $1 9/16 to $36 1/4 after Merrill Lynch raised its near-term rating on the firm to "buy" from "accumulate."
RJR Nabisco Holdings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RN)") else Response.Write("(NYSE: RN)") end if %> was smoked for a $1 1/2 loss to $25 1/4 after last night issuing a statement indicating that Russia's economic troubles will result in fiscal third quarter earnings of $0.46 to $0.48, well below the First Call mean estimate of $0.60. For more details, check out today's Breakfast With the Fool.
America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> tumbled $2 3/4 to $114 5/8 as CNBC reported that Goldman Sachs sold one million shares of the online services company at $114 on behalf of an unnamed client.
Banks retreated this morning in the wake of the Fed's quarter percentage point interest rate cut -- some optimists had been expecting a cut of 50 basis points. BankAmerica <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> was down $1 1/2 to $60 3/4; NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> was cut $1 5/8 to $53 15/16; U.S. Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USB)") else Response.Write("(NYSE: USB)") end if %> dropped $2 1/8 to $34 1/4; Citicorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> slipped $1 15/16 to $95 13/16; Bankers Trust (NSYE: BT) slid $4 15/16 to $55 7/8; Merrill Lynch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MER)") else Response.Write("(NYSE: MER)") end if %> took a hit of $1 5/16 to $48 13/16; Lehman Brothers (NSYE: LEH) dipped $1 1/8 to $28 5/8; and First Union <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %> shed $1 1/2 to $51 1/2.
Discount retailing behemoth Wal-Mart Stores <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMT)") else Response.Write("(NYSE: WMT)") end if %> fell $2 1/4 to $55 7/8 as consumer confidence fell for a third consecutive month. The Conference Board's measure of consumer confidence dropped seven points in September to 126 points, down 12.2 points from its 29-year high in June. J.C. Penny <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JCP)") else Response.Write("(NYSE: JCP)") end if %> was clipped $1 to $45 3/16,
Oil services company Schlumberger Ltd. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> shed $1 3/4 to $50 3/4 after saying it cut about 700 jobs, or 1% of its workforce, in June and July, and will trim more staff as falling oil prices reduce demand for its services and products. The company said the positions were cut in North America, where demand for drilling-related services began to fall in the second quarter as oil prices tumbled to nearly 10-year lows.
Telecommunications equipment maker Northern Telecom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %> tanked $5 1/16 to $30 13/16 as Lehman Brothers cut its rating on the company to "outperform" from "buy" after Northern Telecom told analysts yesterday that revenue in its second half will be below expectations due to slack demand in Europe and Asia.
Phone equipment giant Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> was disconnected for a loss of $4 3/4 to $69 3/4 after BT Alex. Brown downgraded its rating on the company to "market perform" from "buy."
Voice and data transport systems maker Tellabs <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> was down $4 9/16 to $40 1/16 as BT Alex. Brown lowered its rating on the company to "market perform" from "buy."
Home equity lender FirstPlus Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FP)") else Response.Write("(NYSE: FP)") end if %> slid another $1 3/8 to $10 1/2 despite saying it remains "strongly engaged" in finding a strategic partner and is in discussions with "more than one party." The company's shares dropped $7 13/16 to $15 1/16 Monday on reports that GE Capital Corp., the finance unit of General Electric <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>, isn't interested in buying all of FirstPlus.
Computer consulting company Cambridge Technology Partners <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CATP)") else Response.Write("(Nasdaq: CATP)") end if %> sank another $1 to $20 3/8 despite denying rumors that employees are quitting as many of their stock options have become worthless amid a continuing decline in its stock price.
Advanced Lighting Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADLT)") else Response.Write("(Nasdaq: ADLT)") end if %> shed $2 3/16 to $9 3/16 as Raymond James cut its rating on the lighting products designer and manufacturer to "accumulate" from "buy."
Contract proposal management company SM&A Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WINS)") else Response.Write("(Nasdaq: WINS)") end if %> plummeted $8 3/16, or 32.9%, to $16 11/16 after announcing it expects Q3 EPS of $0.16, in line with estimates. But the company said that project-start delays resulted in revenue that fell short of internal expectations by about $3.5 million. Q3 revenue is expected to be around $22.3 million, 105% higher than the same year-earlier period.
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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
Editing |