Thursday, December 31, 1998
DJIA               9181.43     -93.21      (-1.00%)
S&P 500            1229.23      -2.70      (-0.22%)
Nasdaq             2192.69     +25.74      (+1.19%)
Value Line Index    927.84     +19.05      (+2.10%)
30-Year Bond     102 12/32      -4/32  5.09% Yield


Just what wine and wine products direct marketer Geerlings & Wade (Nasdaq: GEER) might have been trying to achieve today besides a little boost in its stock price on a slow news day isn't clear... Well, maybe it is. The company poured out a gain of $1 15/16 to $9 3/16, a new 52-week high, after it took what President Jay Essa called "the unusual step of providing some details about our Internet plans," apparently in response to multiple queries from "market observers." Unusual? Maybe Essa lives in a wine cellar... The details? The company hired a consultant to help revamp its site by mid-1999 and will offer "hundreds of Bordeaux wines" on the site in January. You can order from the company online, but it's unlikely any purchases would arrive in time for tonight's revelry.

First Banks America (NYSE: FBA) deposited $2 11/16 to $19 1/2 on about 30 times normal trading volume after 77% owner First Banks Inc. announced last night a Dutch auction tender offer for up to 400,000 of the company's shares with a price range of $16 1/2 to $21 per share. The company's stock closed at $16 13/16 yesterday. If successful, the purchase will make First Banks the owner of nearly 85% of the company's common stock. Today's boost in the shares likely means First Banks won't be picking them up anywhere near the low range of its offer. The high end represents a price the company's shares haven't seen since late July.

QUICK TAKES: Waste services company Eastern Environmental Services (Nasdaq: EESI) bagged $1 1/2 to $29 5/8 while Waste Management (NYSE: WMI) wafted up $1 11/16 to $46 5/8 today as the companies signed an agreement with the Justice Department and three states that will allow them to proceed with their planned merger... Energy exploration, communications, and defense components manufacturer Tech-Sym Corp. (NYSE: TSY) rose $1 5/8 to $22 1/4 on last night's announcement that it hired Morgan Keegan & Co. to help explore strategic alternatives, possibly including acquisitions and the sale of non-core businesses... Life sciences company Monsanto Co. (NYSE: MTC) popped up $1 3/16 to $47 1/2 after winning FDA approval to market Celebrex, a new arthritis painkiller with a huge potential market. Partner Pfizer Inc. (NYSE: PFE) won $1 1/8 to $125.

Accounting and finance staffing company Robert Half International (NYSE: RHI) improved $3 7/16 to $44 1/2 following reports that investor Robert Baron increased his stake in the company to 7.7% from 6.7%, buying shares at prices approaching $49 per share between mid-November and Christmas Eve... Telecommunications company D&E Communications (Nasdaq: DECC) dialed up gains of $7/8 to $14 3/8 on news that D&E SuperNet, an Internet service provider (ISP) half-owned by a subsidiary, will be one of the 17 ISPs that will form to create OneMain.com Inc., which hopes to IPO in Q1... Internet portal Lycos (Nasdaq: LCOS) went off tackle for $2 3/16 to $55 9/16 today as the company unveiled the "the Official Web Site for Super Bowl XXXIII," the product of a partnership with the National Football League. Lycos will sell advertising space on the site, sharing revenue with the league.

Wireless communications services provider AirTouch Communications (NYSE: ATI) blew up $3 1/6 to $72 7/16 on reports that it is in talks to be bought by Bell Atlantic (NYSE: BEL)... Burlington, Vermont-based bank holding company Banknorth Group (Nasdaq: BKNG) grew $2 1/2 to $37 5/8 after it completed the acquisition of Evergreen Bancorp (Nasdaq: EVGN) in a stock swap valued at $291 million when it was announced in late July... Disposable specialty medical products maker Maxxim Medical (NYSE: MAM) advanced $2 1/4 to $29 3/4 as the company will be added to the Standard & Poor's SmallCap 600 Index on Jan. 5... Vision care products retailer Cole National Corp. (NYSE: CNJ) saw a move of $1 7/8 to $17 1/8 after McDonald & Co. upped the stock to "aggressive buy" from "buy."

Business Week's infamous "Inside Wall Street" column helped three stocks post gains today. Asynchronous transfer mode (ATM) switching products maker FORE Systems (Nasdaq: FORE) advanced $1 5/8 to $18 5/16 after the magazine quoted money manager Steve Dalton as saying he sees the stock in the upper $20s in six to 12 months. A rehashing of the news that investors eagerly await the IPO of the Marketwatch.com financial news website meant a jump of $3 9/16 to $17 7/8 for Data Broadcasting Corp. (Nasdaq: DBCC), which created the site in cooperation with CBS Corp. (NYSE: CBS). Finally, space module maker Spacehab (Nasdaq: SPAB) shuttled up $3/8 to $10 1/2 as "Inside Wall Street" quoted one analyst as saying the company will grow with the introduction of the International Space Station and an increase in non-governmental space research.

Cargo air carrier Atlas Air (NYSE: CGO) was lifted $4 3/4 to $48 15/16 after Morgan Stanley Dean Witter reiterated an "outperform" rating on the company, saying it expects that the shares can hit $54 each, up from a previous $43 target. Click here for the reasons the Boring Portfolio sold Atlas... Hanger Orthopedic Group (Amex: HGR), an orthotics and prosthetics services company, hopped up $1 9/16 to $22 1/2 after Wheat First Union raised its rating on the company to "buy" from "outperform," saying the stock could hit $28 within a year.


Northwest Airlines (Nasdaq: NWAC) skidded $3/8 to $25 9/16 as word got out that the number four U.S. airline guided analysts this week to expect a wider-than-anticipated fourth quarter loss due to business lost during a strike staged by its pilots in September. Higher maintenance costs are also expected to shear the airline's earnings in the period, according to Morgan Stanley Dean Witter analyst Kevin Murphy, who also forecasted profit per passenger to fall 5% in Q4 on top of a 3% increase in unit costs. Murphy now expects the company to post a loss of $1.50 per share for the quarter, which is $0.50 per share lower than his earlier forecast and $0.15 worse than the previous First Call mean estimate. On the bright side, Murphy sees Northwest's business returning to its pre-strike level in the new year, which may help the firm's stock recover from its 49% drop in 1998.

Coin operated arcade and supermarket "skill crane" machines maker American Coin Merchandising (Nasdaq: AMCN) was wrecked for a $2 11/16 loss to $5 7/8 after saying slowing revenues and higher expenses related to recent acquisitions will result in Q4 EPS "significantly below" the $0.14 earned in Q3 and the $0.26 earned a year ago. The First Call mean estimate had called for EPS of $0.18 in the period. As folks are often fond of saying when December draws to a close, "There's always next year." Unfortunately for American Coin, there's not much to look forward to in the new year. "We expect that our earnings will continue to be depressed into 1999," President and CEO Jerome Lapin said.

QUICK CUTS: In-flight catalog and online retailer SkyMall (Nasdaq: SKYM) fell $6 7/8 to $20 7/8 after co-founder and board member Alan Ashton resigned in part to "simplify his lifestyle." President and CEO Robert Worsley has acquired Ashton's 2.4 million share stake in the company, boosting his individual holdings to 54% of SkyMall's outstanding stock... Information technology and systems integration services firm Computer Sciences Corp. (NYSE: CSC) was crunched for a $1 13/16 loss to $64 1/4 after the company lost a competition for a $1 billion computer privatization contract for the state of Connecticut to EDS (NYSE: EDS)... Movie camera maker Panavision (NYSE: PVI) was cut $1 5/8 to $12 3/8 today. The firm refused to give the NYSE an explanation for the recent activity of its share price, which has dropped 16% this week.

Banking giant BankAmerica Corp. (NYSE: BAC) was knocked down $1 9/16 to $60 1/8 as analysts expect the company to take a $100 million ($0.03 per share) earnings bath in Q4 due to the lingering negative effects of its relationship with beat-up hedge fund and securities firm D.E. Shaw & Co... Pacemaker and medical devices maker Medtronic (NYSE: MDT) skipped a beat and lost $1 19/32 to $74 9/32 after The Wall Street Journal's "Heard on the Street" column cited analysts who suggested the firm may use its highly accretive recent acquisitions to keep its earnings growth alive and mask slowing growth in its core business segments.

Electromagnetic Sciences (Nasdaq: ELMG) was shocked for a $2 1/8 loss to $14 after the maker of wireless and satellite communications products announced that delayed orders will result in "near breakeven" operating results for Q4, missing the First Call mean earnings estimate of $0.31 per share. Also, the company said it will trim its workforce by 10% in the quarter... A pair of yesterday's Internet-related highfliers fell back to Earth with a thud today. Branded merchandise catalog and online retailer Genesis Direct (Nasdaq: GEND) gave back $2 1/16 to $7 13/16 after yesterday's 40% pop, while float-challenged financial data provider Track Data Corp. (Nasdaq: TRAC) slid $1 to $6 11/16 following a 102% advance on Wednesday.

Dayton Superior (NYSE: DSD), which makes metal accessories used in concrete construction, was jackhammered for a $1 loss to $19 3/8 after a jury ordered its Symons subsidiary to pay $36.4 million in damages to a competitor in connection with charges of false advertising, misappropriation of trade secrets, and intentional interference with contractual relations... Active Apparel Group (Nasdaq: AAGP) dropped $4 3/8 another to $8 1/8 today. Yesterday, the stock slid 34% after its CEO told CNBC that the company, which currently markets activewear under the Everlast, Converse All Star, and MTV's The Grind brand names, may not renew contracts for the latter two.

An Investment Opinion
by Dale Wettlaufer

Creating Wealth

Have you ever read Graham and Dodd's Security Analysis? As an introduction to investing, it's pretty tough. It's dense with information and insights and one must be at least semi-fluent in accounting and financial vocabulary to really get the most out of it.

As a completely viable alternative for beginning to intermediate investors who are searching for a good framework for looking at the investing world, The Intelligent Investor is Graham's successful attempt at boiling down to a more friendly form many of the concepts found in Security Analysis.

Until now, investors and business owners who want to understand Economic Value Added have gone straight to G. Bennett Stewart III's The Quest for Value: The EVA Management Guide. One of Amazon.com's readers submitted a review of the book to that site saying "Very Useful, Conceptually perfect. This book takes you step by step through the direct link between corporate performance and valuation." Conceptually "perfect" might be pushing it a bit, but the consulting firm of Stern Stewart & Co. has put together a very tight way of understanding business conceptually and practically. The company's way of looking at the world, which takes into account the interaction of all three financial statements, is a much better way of understanding corporate performance and valuation than just looking at earnings per share growth. EPS growth in the short term doesn't mean much if you can't quantify the economic resources needed to accomplish that growth.

The problem with Stern Stewart's original approach to the explanation of EVA is that it can be a pretty heavy metal for beginning and intermediate investors, which is a shame, since beginning investors should be introduced to this subject matter before letting tangential issues dominate their investment thinking. For instance, margins alone are tangential to the whole. They are not the whole. Beginning investors don't learn early enough about capital management, leverage, and accounting distortions -- why inventory turns, asset turns, financing decisions, and correcting distortions introduced by Generally Accepted Accounting Principles all feed into the whole of running businesses and assessing businesses.

Happily, Stern Stewart & Co. Vice-President Al Ehrbar has written a better introduction to EVA, titled EVA: The Real Key to Creating Wealth. Ehrbar says many of the same things Stewart says in his book, he just says them more clearly in a more succinct overall presentation of the concepts. Perhaps the most important concept that EVA can introduce to investors that isn't found in many valuation methods is the fact that equity is not free. Many explanations of valuing companies look at the cost of debt but don't provide a discussion of the cost of equity, which is kind of like learning about arms in anatomy class and never discussing legs.

While Bennett Stewart III's book on EVA is like advanced financial anatomy, Al Ehrbar's book is more an introduction that leads you on to Stewart's more definitive work. It also stands alone quite well, just as The Intelligent Investor stands on its own as well as serving as a prelude to Security Analysis.

In addition to introducing the calculation of EVA and its significance for both investors and managers, EVA: The Real Key to Creating Wealth also contains some excellent case studies on the companies that have used the EVA financial management system. The most famous of these is Coca-Cola Co. (NYSE: KO), whose legendary CEO Roberto Goizueta said in 1995: "We are very pleased to have been one of the first on board the EVA wagon. EVA has given our people a very useful tool for running their individual business units and a sound principle to guide their daily behavior.

Other case studies of companies that have adopted EVA successfully covered in the book include SPX Corp. (NYSE: SPW), Herman Miller (Nasdaq: MLHR), Equifax (NYSE: EFX), Federal Mogul (NYSE: FMO), and Centura Banks (NYSE: CBC). All help readers see the the theory put into practice. If you are looking for a book that explains how EVA works, how it has been applied by real companies, and how an understanding of EVA can help you improve your analysis of companies, Al Ehrbar's work is the better choice for those closer to the beginner's end of the spectrum.


Please see the Motley Fool's Conference Calls page for call information and links to synopses.

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