Thursday, January 14, 1999
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Micropositioning and precision optical products supplier Axsys Technologies (Nasdaq: AXYS) zoomed in on a gain of $4 1/2 to $18 1/2 after the company received an unsolicited offer to be acquired for $20 per share in cash, about a 43% premium to yesterday's closing price. Chairman and CEO Stephen Bershad withdrew his Nov. 20 offer for the company, which was $5 per share below the new proposal. While shareholders may wonder why their CEO isn't heading to the mat with the new suitor, the answer might be simple enough: As a 31% owner himself (at the time of his offer), Bershad likely noticed that the proposal now on the table represents a nifty 84% bonus to Axsys' stock price as of his original overture. Axsys didn't name the company making the offer and probably won't until its board finishes looking it over and makes a recommendation to shareholders. The committee formed by Axsys to evaluate Bershad's offer has been disbanded; they have other things to think about now.

Drug developer Cytel Corp. (Nasdaq: CYTL) shot up $5 3/8, or 268.8%, to $7 3/8 after it dispatched a press release reporting that Epimmune Inc., its majority-owned subsidiary, released data suggesting its epitope-based vaccines hold promise for the control of HIV infection. Robert Chesnut, an executive VP at Cytel, said at an HIV conference in Colorado that the company will conduct further tests after data from experiments on monkeys infected with simian immunodeficiency virus (SIV), a disease similar to HIV, produced encouraging results. Epitope-based vaccines are an alternative to other treatments under development such as protein and gene-based approaches. Among other projects, Epimmune works with Monsanto (NYSE: MTC) subsidiary G.D. Searle to develop cancer treatments.

In a two-step, $833 million move aimed at boosting its wireless presence in the U.S., switched telecommunications services provider NextLink Communications (Nasdaq: NXLK) will buy privately owned WNP Communications, for $695 million in cash and stock. NextLink gets WNP's 40 local multipoint distribution service (LMDS) wireless licenses covering a total of 114 million potential customers, which it plans to use to build fixed wireless extensions to its local fiber optic networks in major cities across the country. NextLink also announced an agreement in principle to buy Nextel Communications' (Nasdaq: NXTL) 50% interest in NEXTBAND, a joint venture of Nextel and NextLink that owns a further 42 licenses for about $138 million. The two deals would make NextLink the largest owner of LMDS spectrum in North America, covering most major cities in the U.S. Nextlink shares moved up $4 13/16 to $36 1/16.

QUICK TAKES: Sunglass Hut International (Nasdaq: RAYS) flipped up $1 3/4 to $9 1/8 after it said it has acquired privately held shades.com, an Internet site devoted to selling branded nonprescription sunglasses, and SwissArmyDepot.com, which mainly peddles SwissArmy knives and watches, for roughly $2.8 million in cash and $1.2 million in a convertible subordinated note... Computer systems integration and maintenance services firm Unisys Corp. (NYSE: UIS) picked up $15/16 to $34 3/8 after turning in Q4 EPS of $0.42, $0.02 better than the Street's consensus and ahead of last year's $0.25 figure as well... Online software retailer Egghead.com (Nasdaq: EGGS) hatched $1 1/4 to $24 following the company's announcement that it signed an agreement with @Home Network (Nasdaq: ATHM) to create an auction service for @Home along with Internet Shopping Network's First Auction.

Sam Adams brewer the Boston Beer Co. (NYSE: SAM) bubbled up $7/8 to $9 7/8 following rumors that Anheuser-Busch (NYSE: BUD) was to acquire the brewer. Both companies declined comment on the scuttlebutt... Bear Stearns raised Excel Industries (NYSE: EXC) to "buy" from an "attractive" rating, pushing the ground transportation components maker's stock up $1 3/4 to $20 1/8... Insurance holding company AFLAC Inc. (NYSE: AFL) took $2 9/16 to $43 9/16 after Donaldson, Lufkin & Jenrette upgraded the stock to "buy" from "market perform," setting a $48 12-month price target... Internet-based direct marketing company XOOM.com (Nasdaq: XMCM) zipped ahead $9 13/16 to $47 15/16 after the company entered into sponsorship agreements with online auctioneer eBay (Nasdaq: EBAY) as well as search engine GoTo.com and software retailer BUYDIRECT.COM. eBay was bid up $9 13/16 to $225 5/16 today.

British mobile phone service provider Vodafone Group PLC (NYSE: VOD) dialed gains of $4 1/16 to $174 9/16 after BT Alex. Brown reiterated a "strong buy" rating on the stock... Medical products company Thoratec Laboratories (Nasdaq: THOR) hammered out gains of $1 5/8 to $8 1/8 after announcing that Guidant Corp. (NYSE: GDT) agreed to distribute its Vectra vascular access graft, which is approved for sale in Europe and under study for domestic use... Telecom equipment company Advanced Fibre Communications (Nasdaq: AFCI) gained $1 7/8 to $13 1/2 after NationsBank Montgomery upgraded the stock to "buy" from a "hold" rating... Technical calculation and analytic software provider MathSoft Inc. (Nasdaq: MATH) added $1 11/32 to $6 1/32 after it announced a partnership with Amazon.com (Nasdaq: AMZN) allowing shoppers to select Amazon products on MathSoft's e-tailing site in exchange for mention on Amazon and a percentage of sales.

Internet software developer HomeCom Communications (Nasdaq: HCOM) hammered out gains of $7/8 to $5 1/8 on news that Houston-based data processing services provider Total/1 contracted HomeCom to build an exclusive version of its "Personal Internet Banker" for Total/1's customers... Year 2000 specialist Accelr8 Technology Corp. (Nasdaq: ACLY) sped up $1 15/32 to $6 27/32 after it launched a "virtual year 2000 factory" on its website providing a self-test for companies seeking to gauge their readiness for the year 2000. Users can then contract with Accelr8 for related services... Business productivity software firm International Microcomputer Software (Nasdaq: IMSI) rose $1 1/4 to finish at $13 after it announced an advertising agreement with Yahoo! (Nasdaq: YHOO).

Boston-based equity investment firm Affiliated Managers Group (NYSE: AMG) won $2 5/8 to $29 5/16 after it said Q4 EPS will be above Wall Street's $0.29 consensus estimate by about 35% to 40%... Technical, embedded, Web, e-commerce, and enterprise information systems software developer Rational Software Corp. (Nasdaq: RATL) moved ahead $4 to $30 9/16 on an upgrade to the "recommended list" from "market outperfrom" from Goldman Sachs... Fiber optic transmission systems company Harmonic Lightwaves (Nasdaq: HLIT) brightened $2 1/8 to $18 following an upgrade to "strong buy" from "neutral" by S.G. Cowen & Co... Enterprise middleware solutions provider BEA Systems (Nasdaq: BEAS) clawed its way up $2 to $13 9/16 on the back of an upgrade to "strong buy" from "buy" at Soundview Securities.


Shares of Apple Computer (Nasdaq: AAPL) fell $5 1/8 to $41 3/8 even though the company released a better-than-expected fiscal Q1 earnings report last night. Excluding a one-time gain, earnings of $0.78 per share topped the consensus $0.70 estimate. Earnings in the seasonally strong September quarter had been $0.68 per share, so the company delivered a sequential gain as well as a crushing 136% advance over the year-ago period, when Apple rode the rollout of its G3 desktops to its first real turnaround quarter. However, some analysts rained on the company's victory parade today. Salomon issued a downgrade based partly on fears that Apple had stuffed the retail channel during the period. Meanwhile, PaineWebber complained that iMac sales, while strong at 519,000 units out of a total of 944,000 total units sold, were below the firm's aggressive target. For a Foolish take on these and other concerns at Apple, see this afternoon's Fool Plate Special.

Natural foods supermarket operator Whole Foods Market (Nasdaq: WFMI) fell to pieces today, dropping $10 to $34 1/2 after saying it expects to report fiscal first quarter EPS between $0.45 and $0.50, which is less than the $0.58 the company said analysts had been expecting. The firm said store labor costs are over budget for the quarter and general and administrative costs are rising as the company prepares to open 29 new stores. "We have seen some of our expenses get out of control temporarily," Chairman and CEO John Mackey said. While the labor expenses are expected to be corralled quickly by the company, management is now forecasting earnings growth through the rest of the fiscal year in the 8% to 14% range, which will put 1999 growth below analysts' previous five-year growth estimate of 20% to 25% per year. In knee-jerk fashion, no less than six analysts lowered their ratings on the company today.

Chip maker Advanced Micro Devices (NYSE: AMD) flopped $5 1/4 to $22 1/2 after reporting Q4 EPS of $0.15, up $0.06 from last year but $0.04 shy of the First Call mean estimate. Revenues increased 15% sequentially and 29% year-over-year to $788.8 million, which the company attributed exclusively to higher sales of its K-6-2 processors with 3DNow! technology. Disappointed, at least five brokerage houses downgraded the company today, although Needham & Co. bucked the trend and issued an upgrade to "strong buy" from "hold." While AMD said it shipped "hundreds of thousands" of its high-speed 400 MHz K-6-2s in the quarter, a manufacturing glitch apparently kept the firm from taking full advantage of strong market demand. The company reportedly said it has resolved the problem and expects to ship more of its high-margin chips during the current period.

QUICK CUTS: Photographic film and products company Eastman Kodak (NYSE: EK) slid $8 3/16 to $70 1/2 after reporting Q4 EPS of $1.05 (excluding charges), which was $0.30 higher than a year ago but a dime short of the First Call mean estimate. Archrival Fuji Photo Film (Nasdaq: FUJIY) rose $1 1/2 to $34 5/8 on Kodak's misfortune... Semiconductor and cellular communications products maker Motorola (NYSE: MOT) fell $4 3/8 to $66 1/2 after reporting Q4 EPS of $0.26, substantially lower than last year's $0.65 (before charges) but ahead of analysts' expectations of $0.23. The company reportedly does not expect to meet its official long-term goal of 15% annual sales growth this year.

Enterprise resource planning (ERP) software firm J.D. Edwards & Co. (Nasdaq: JDEC) was decked for a $1 7/8 loss to $21 1/2 after Morgan Stanley Dean Witter lowered its rating to "outperform" from "strong buy"... Financial service application software developer Phoenix International Ltd. (Nasdaq: PHXX) blew up for a $5 1/8 loss to $9 1/2 after saying its fiscal Q4 EPS will come in between $0.08 and $0.10, missing the $0.20 the company said analysts had been expecting. For the year, EPS should be around $0.27 or $0.29, below the previous $0.39 estimate... Web portal company Lycos Inc. (Nasdaq: LCOS) fell $11 3/16 to $85 3/4 after Deutsche Bank Securities cut its rating on the firm to "accumulate" from "buy."

Oil and gas exploration and production company Snyder Oil Corp. (NYSE: SNY) was drilled for a $1 9/16 loss to $11 7/8 after agreeing to merge with larger rival Santa Fe Energy Resources (NYSE: SFR) in a stock swapped valued at $448 million, based on last night's closing prices. Santa Fe lost $9/16 to $6 this morning... Internet service provider EarthLink Network (Nasdaq: ELNK) slipped $5 1/2 to $68 1/2 after saying it sold an additional 2.75 million shares at a price of $73 5/8 per share. The offering included about 436,000 shares sold by selling shareholders... International long-distance carrier IDT Corp. (Nasdaq: IDTC) slid $1 15/16 to $13 3/8 after being downgraded to "hold" from "buy" by Jefferies & Co... Online health and wellness information publisher OnHealth Network Co. (Nasdaq: ONHN) dropped $6 5/16 to $12 3/16, giving back some of yesterday's 85% surge that was reportedly prompted by a mutual fund manager's positive comments about the company on CNBC.

Online software delivery technologies company Digital River (Nasdaq: DRIV) floated $2 1/8 lower to $40 as Piper Jaffray started coverage with a less than encouraging "neutral" rating and a 12-month price target of $31 per share... Tobacco leaf dealer and wool trader Standard Commercial Corp. (NYSE: STW) was fleeced $13/16 to $8 1/16 after saying its fiscal 1999 EPS will be between $0.60 and $0.90 as wool prices fall to nearly an all-time low. The First Call mean estimate had called for EPS of $1.69 during the period... Israeli printed circuit board (PCB) defect detection systems designer Orbotech Ltd. (Nasdaq: ORBKF) slid $2 1/8 to $43 after reportedly saying its earnings growth in fiscal 1999 will slow to 10%, or half of last year's rate, as the company increases its staffing and R&D budgets.

An Investment Opinion
by Dale Wettlaufer

Estelle's Legacy

Ted could hardly see through the tears that had turned his vision prismatic. He couldn't believe his Grandmother was gone. He couldn't imagine a stronger person. Gran had been a child of the Depression, had started a business when that was a lot more daunting for a woman than it is today, and had grown that business into the class of its industry. Running the company without her occasional sage advice would be hard. Ted loved that this person was not only a good friend and a wonderful Grandmother but his business partner, too.

Ted was still not himself, at all, two days later at Bob Reynolds' office. Reynolds was talking, but Ted wasn't paying too much attention. "Who the hell decorated this place? And what is this kid doing wearing a $3,000 suit? This guy is nothing like his old man," Ted thought as he looked over at the young lawyer. In moments of profound grief or crisis, the mind can dwell on the stupidest details, Ted observed to himself.

"Mr. Jaworski, your Grandmother wanted you to watch this videotape in lieu of a reading of the will. I think you should try to pay attention. This may come as a bit of a shock." Gran always did have a flair for the dramatic. Ted sat up and came to.

"Hello dear," Estelle started. Ted could almost smell her perfume again. "In some ways I have not been looking forward to today and in some ways I've been very excited for a while about telling you what I'm about to tell you. The bad part is, I'm no longer with you. As you used to say when you were a youngster, 'No duh, Gran.'"Ted chuckled. "As we planned long ago, nothing is going to change for you or the company, my chou-chou." Ted had been the 95% majority shareholder of Estelle's Recipes since buying out his grandmother 14 years ago. "But there is a pretty big piece of news outside of that. Mr. Reynolds, won't you fill in Ted on the details?"

"Mr. Jaworski, your grandmother has instructed us to divide the cash and securities portion of her estate between yourself and the Estelle Jaworski Foundation. Upon resolution of probate, we have been directed to transfer her common stock holdings to the foundation's account with our trust department. In her place, she has also named you sole Director and has asked that you continue with the Foundation's original program. You are free, however, to direct 25% of the disbursements to the charities of your choice, no restrictions. After tax, the Foundation's net assets will increase by $3 billion." Ted was wondering how Reynolds could speak without choking on his own drool.

"Furthermore, Mr. Jaworski, your grandmother has directed that you receive the remaining after-tax balance of the estate. Again, this won't happen immediately because of probate and the sheer size of the assets we're talking about here." Ted started to fidget. "Mr. Jaworski, your Grandmother has left you $5 billion and the bulk of it is in short-term Treasuries and municipal debt. She also asked that you view this other videotape alone."

Ted had to get away. He headed to the island, which had always been his place to think. This was the perfect time of the year to be out there, too -- no tourists, the nights were cool, and the noontime temps were still nice most days. Shortly after he arrived, Ted threw a log on the fire, set his scotch down, and hit play.

"Hello again, Ted. Here we are. I hope I didn't surprise you too badly the other day." As far as Estelle's Recipes went, there were no secrets between the two, but Gran had always said that one's personal financial affairs were not an open book. In fact, Gran had always stressed discretion in one's financial matters unless you were in a jam and needed some backup from your family. Estelle had trained Ted well, though. Little did Estelle know what happened with Ted's brokerage account after he reached 18-years-old and little did Ted know that Grandmother had amassed a fortune of over $12 billion. "Let's see," Ted thought, "after tax, Grandmother must have realized $500 million on the sale of the company. Now her estate is 24 times that? That can't be."

"Sure enough." Ted went over the calculations three times on his TI just to make sure. "That's better than 25% compounded per year. Gran surely beat the market with this performance." Indeed she had. The market had advanced just over 18% per year over this time period. He turned back to the videotape and had to rewind. He hadn't stopped the tape, so stupefied was he by these returns.

"Ted, I want to tell you a few things about this money you're going to receive." Ted had seen Gran go from grandmother to businesswoman regularly, but he had never seen her this serious. "I believe money is a serious thing. Your grandfather and I started the business because it was something we loved to do and we thought we could succeed at it. The money wasn't the reason, but we didn't treat it lightly when it did come along." Tom looked out across the lawn and onto the sunset that had painted the bay red and orange. All of this was Gran's doing.

"After we sold the business to you, Ted, we simply applied the same principles we learned in building our own business to investing in individual companies. I'll say this. We never bought any options, we never traded, and we didn't buy any companies that we wouldn't want to own outright ourselves." Ted smiled. Of course Gran would have done well with investing. She was a great businesswoman.

"Let me tell you something, dear. You don't have to invest this. You can spend it, you can burn it, you can do whatever you want with it. I'm not going to try to run your life from the grave. But if you want to invest it, I want to say a few things about going about investing." Estelle Jaworski had no college degrees, but Ted would have sooner listened to her on any business matter than attend a one-on-one lunch meeting with Alan Greenspan.

"When you invest this money, the decisions you make with it should be no different than the decisions you make at Estelle's Recipes. When was the last time you announced a stock split at the company to increase shareholder value?" At privately held Estelle's Recipes, this would be irrelevant. "You wouldn't, not only because there's no reason to, but because it doesn't add value, Ted." As a New York University MBA, Ted wasn't learning anything new here, but Gran could be a lovable curmudgeon at times.

"Ted, your grandfather and I learned long ago that investing is like running a business. We started setting money aside when we were young and we heard it all from the brokers. Then the mutual fund craze came along and then the one-decision craze came along. But the minute you ask most brokers about a company's accounts receivable or margins, they don't know what they're talking about. They want you to invest in their top pick for the week and then sell if it goes up 20% or goes down 8% or some arbitrary amount. Don't listen to this sort of thing, please. This is not business. This is trading."

"Another thing, Ted. I remember our Salomon Brothers banker telling us we needed to diversify 5% of our portfolio into commodities. This was a 34-year-old telling Joe and me, two people that had built a business in which we had become intimately familiar with commodity price movements, that we needed to protect our wealth with commodities. At that point, dear, your grandfather and I decided we didn't need anyone's help. We didn't use lawyers and their ideas, we didn't buy tax shelters from the very nice but very dull brokers that used to bother Joe at the club, and we certainly did not panic upon reading headlines written by people that don't even invest for themselves." Gran had a point there.

"Ted, this is a lot of money you have to deal with here, but let me tell you something else. Few people do extraordinarily well spreading their portfolio across hundreds of companies. You don't have to invest this right away and you don't need to take this advice, but your Grandfather and I did best when we invested in things we knew well, were available at what we thought was a fair price, and where we could make a significant commitment to the company. We weren't idea factories. Joe and I actually had a life and didn't want to worry about 100 different investments we had made." Having almost his entire net worth invested in Estelle's Recipes and having done well for himself, Ted understood quite clearly what his grandmother was saying.

"I remember the time we went on the cruise up the Great Lakes, through the St. Lawrence Seaway, and down the East Coast. We didn't see the television for six months. It always drove your grandfather nuts anyway and I didn't care to see what the market was doing. And you know, Ted, when I did see what the market and our few investments had done while we were away, it was as you say 'no biggie.' We had done well and of course the market had done what the market will always do. It went up and down and sideways and around in circles for all we cared. We were busy living."

Grandmother never had any problems in that department. For all her evidently very careful ways with setting aside money over the years, Gran had lived a very nice life and had been around the world.

"Ted, I'm not preaching, you know that," Estelle continued. "But we just don't believe in all this hoopla you read about and see in the magazines and on TV. A stock that happens to trade publicly is nothing more than an ownership claim on a corporation. If you don't think of yourself as a business owner and think more of yourself as an owner of slips of paper that are readily tradable in the market, your chances of doing well are greatly reduced. Business is business, whether it's a public or private company. You do the things that we did together to build Estee's Recipes and I think you'll do fine, my dear. I'll love you always."

The screen went dark. Grandmother could do anything, and this was just more proof of that. Ted hadn't thought that much about investing in the market. Of course, his competitors were publicly traded, but Gran had always said the more you worry about your competitors or their stock prices, the less you're going to do for your own business. But Ted would have to address this situation at some point in the next year. He would no doubt watch this videotape over, probably many times, as he went about taking care of Gran's legacy.


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