<THE EVENING NEWS>
Friday, January 15, 1999
DJIA 9340.55 +219.62 (+2.41%) S&P 500 1243.26 +31.07 (+2.56%) Nasdaq 2348.20 +71.38 (+3.14%) Value Line Index 934.37 +16.95 (+1.85%) 30-Year Bond 102 6/32 -25/32 5.11 Yield
"Hot initial public offering of the day" honors went to Marketwatch.com Inc. (Nasdaq: MKTW), which watched as the market eagerly gobbled up the 2.75 million shares it offered last night at a price of $17 per stub. By the time the first day of trading was said and done, those initial shares had changed hands more than 3.5 times and closed at $97 1/2, giving the financial website operator a tidy $1.17 billion post-IPO market capitalization. CBS Corp. (NYSE: CBS), which owns half of the 76% stake in the company not sold in the offering, eyed a $13/16 gain to $34 15/16 as well. Meanwhile, Data Broadcasting Corp. (Nasdaq: DBCC), which owns the other half of that leftover stake, was dumped $9 7/16 to $21 3/4. Rumors that CBS' lovable curmudgeon Andy Rooney was left out of today's IPO action and is preparing to launch one of his "You know what I hate..." tirades against the stock on this week's edition of 60 Minutes could not be confirmed by the Fool.
The American depositary shares of several Brazilian companies took flight today, offering a mirror image of the capital flight that has rocked the country since its domestic financial problems made headlines earlier this week. Earlier today, the Brazilian government decided to bite the bullet (instead of the dust) and floated its currency, the real, in the world's currency markets. That frees Brazil from defending the currency by pegging it within a band against the dollar -- a strategy that unraveled for several Asian countries in 1997 and produced lasting ramifications. Traders, encouraged by today's 33% (23% in U.S. dollar-terms) rise by the main Brazilian stock market index, drove Brazilian stocks higher. Telecomunicacoes Brasileiras S.A. (NYSE: TBH), which is now a tracking stock for the twelve companies resulting from the breakup of telephone monopoly Telebras last year, gained $15 1/8 to $69 1/4. Long-distance phone company Embratel (NYSE: EMT) jumped $3 7/16 to $13 9/16 and Sao Paulo-based Unibanco (NYSE: UBB) danced $2 1/8 higher to $12 1/16.
QUICK TAKES: Utility and network security software firm Symantec Corp. (Nasdaq: SYMC) gained $2 5/8 to $22 7/8 after reporting fiscal Q3 EPS of $0.42 (excluding charges), up from $0.37 a year ago and a penny ahead of the First Call mean estimate. The company said it had "solid" retail and corporate sales increases, with "substantial" growth occurring in Europe... Streaming media technologies company RealNetworks (Nasdaq: RNWK) picked up $4 15/16 to $55 after announcing it will work with cable-based online services provider and Rule Breaker Portfolio holding @Home Network (Nasdaq: ATHM) to develop a new broadband streaming media platform based on RealNetworks' RealSystem G2 technology... Enterprise software company BMC Software (Nasdaq: BMCS) was boosted $2 5/16 to $40 1/16 after Prudential Securities raised its rating to "strong buy" from "accumulate."
Internet-based direct marketing company XOOM.com (Nasdaq: XMCM) sped ahead $9 1/16 to $57 after saying Web content integrator and aggregator InfoSpace.com (Nasdaq: INSP) will provide online white pages, yellow pages, and classified ads to Xoom.com's 5.6 million members. In exchange, InfoSpace.com users will be able to join Xoom.com's Buyers Club and receive free discounts on merchandise. InfoSpace.com rose $2 5/8 to $55 1/2... Quicken and TurboTax software developer Intuit Inc. (Nasdaq: INTU) added $6 1/2 to $85 3/16 after Credit Suisse First Boston raised its rating to "strong buy" from "buy" on views that the company's upcoming Web TurboTax software will be a hit... Telecom components and chip inspection equipment maker Uniphase Corp. (Nasdaq: UNPH) rose $8 3/4 to $78 5/8 thanks to a Salomon Smith Barney upgrade to "outperform" from "neutral."
Biotechnology firm Biogen (Nasdaq: BGEN) advanced $5 3/4 to $96 after reporting Q4 EPS of $0.54, up from $0.42 a year ago and in line with the preview management gave at an investment conference earlier this week... Magazine publisher Reader's Digest Association (NYSE: RDA) gained $2 9/16 to $28 5/8 after Business Week quoted sources saying that the company is in discussions to combine the company with "several Time Inc. publications and direct-marketing businesses" owned by media giant Time Warner (NYSE: TWX)... Wireless communications company AirTouch Communications (NYSE: ATI) added $4 3/16 to $83 after reports by The Financial Times and Bloomberg News said rival suitors Vodaphone (NYSE: VOD) and Bell Atlantic (NYSE: BEL), respectively, may raise their bids for the company.
Telemarketing outsourcing firm TeleSpectrum Worldwide (Nasdaq: TLSP) rang up $1 9/16 to $11 7/16 after announcing it will acquire privately held teleservices firm International Data Response Corp. for 9.2 million shares, 3 million stock purchase warrants, and $105 million in debt refinancing... High-end workstations and supercomputers provider Silicon Graphics (NYSE: SGI) rose $1 to $15 1/8 after saying it will divest its remaining 85% stake in chip design firm MIPS Technologies (Nasdaq: MIPS) through secondary stock sales and other transactions over the next 20 months. MIPS fell $1 to $32 1/8... Information technology consulting firm Atlantic Data Services (Nasdaq: ADSC) gained $3 3/4 higher to $12 1/16 thanks in part to an upgrade to "strong buy" from "attractive" by Adams, Harkness & Hill.
Blood transfusion safety products designer Cerus Corp. (Nasdaq: CERS) pumped out a $3 1/2 gain to $29 1/2 after the stock received a positive mention in Business Week's "Inside Wall Street" column... Mutual fund manager Franklin Resources (NYSE: BEN) moved up $1 7/16 to $33 3/8 after saying it will take a $58 million charge in fiscal Q1 for a restructuring, which will include the termination of about 7% of its workforce... Bar code solutions provider Zebra Technologies (Nasdaq: ZBRA) earned an extra stripe and rose $2 9/16 to $33 5/16 after Bear Stearns started coverage of the stock with a "buy" rating and a 12-month price target of $49 per share.
Applied Micro Circuits Corp. (Nasdaq: AMCC) up $3 1/2 to $40 1/2; fiscal Q3 EPS: $0.23 vs. $0.20 last year; Estimate: $0.21
Briggs & Stratton Corp. (NYSE: BGG) up $3 1/2 to $50 3/16; fiscal Q2 EPS: $1.05 vs. $0.41 last year; Estimate: $0.65
Dionex Corp. (Nasdaq: DNEX) up $2 7/16 to $36 1/16; fiscal Q2 EPS: $0.37 (excluding charges) vs. $0.32 last year; Estimate: $0.35
Fifth Third Bancorp (Nasdaq: FITB) up $5 3/4 to $70 1/8; Q4 EPS: $0.55 vs. $0.45 last year; Estimate: $0.54
Jacobs Engineering Group (NYSE: JEC) up $2 1/4 to $41 5/16; fiscal Q1 EPS: $0.58 vs. $0.49 last year; Estimate: $0.57
Pinnacle Systems (Nasdaq: PCLE) up $4 3/8 to $38 1/2; fiscal Q2 EPS: $0.44 vs. $0.26 last year; Estimate: $0.41
Investors hoping for a return to 1997-like sequential-quarter earnings progress from DRAM chip enhancement technologies developer Rambus Inc. (Nasdaq: RMBS) will be disappointed this year. The company said earnings for the next two or three quarters will likely be "no better than flat" compared with fiscal first quarter results. Rambus, which slowed $8 1/2 to $89 1/2 today, last night reported Q1 EPS of $0.08, ahead of last year's $0.02 mark but even with the five-analyst estimate reported by First Call. Because of an expected seasonal decline in royalties from shipments of Rambus-enhanced chips used in Nintendo 64 video games, among other things, EPS figures aren't expected to improve in 1999 -- much like last year, when sequential earnings were essentially flat. Wall Street had expected EPS to grow steadily over the next three quarters, reaching $0.13 in September. Four quarters of $0.08 per share profits would represent year-over-year earnings growth of about 14%, well off the 43% hoped for by analysts.
International long-distance carrier IDT Corp. (Nasdaq: IDTC), which last night said fiscal Q2 EPS is expected to come in about a dime below Street projections at $0.06 per share, hung up $3 15/32 to $9 29/32 today. While revenue is seen meeting or beating expectations, gross margins were hurt in part by slower-than-anticipated connections with foreign telecommunications providers (the company deals with 17 such organizations, or "PTTs," worldwide), competitive carriers, and alternative routes. Also blamed for the shortfall were increased losses at the company's Internet business and Net2Phone division, which offers a variety of PC-to-PC telephone services. IDT "intends to continue to develop [Net2Phone] aggressively," according to a company statement, and as such it is moving two of its top executives to the division -- COO Howie Balter will become Net2Phone's CEO, while IDT's Finance VP Ilan Slasky will join Balter's side as CFO.
QUICK CUTS: Caching and searching software developer Inktomi Corp. (Nasdaq: INKT) leaked $10 to $148 1/2 after it reported a fiscal first quarter loss of $0.24 a share, compared with a loss of $0.25 last year and analysts' mean estimate of a loss of $0.29... Specialty semiconductor company Microchip Technology (Nasdaq: MCHP) crumbled $4 5/8 to $35 1/8 after reporting fiscal Q3 EPS of $0.34 last night, ahead of the year-ago $0.30 (pre-charge) figure but a penny short of analysts' expectations... Compound semiconductors maker Cree Research (Nasdaq: CREE) lost $4 7/8 to $42 1/2 after reporting fiscal Q2 EPS of $0.21, a dime above last year's levels and a penny ahead of Street estimates. The company announced plans for a 1.3 million-share offering.
Information technology software company Platinum Technology (Nasdaq: PLAT) dulled $5 5/16 to $13 3/8 after last night's news that it expects Q4 EPS of about $0.40, well off Wall Street's $0.53 estimate... Automated industrial production equipment maker DT Industries (Nasdaq: DTII) fumbled $2 3/8 to $16 1/4 after it said it expects fiscal Q2 EPS of between $0.10 and $0.12, down from both last year's $0.66 figure and First Call's $0.41 consensus estimate... Video Display Corp. (Nasdaq: VIDE), a maker of cathode ray tubes and other electron optic devices, slid $1 7/32 to $6 25/32 after turning in fiscal Q3 EPS of $0.11, missing last year's $0.25 mark.
Catalina Marketing (NYSE: POS) fell $1 9/16 to $64 after Donaldson, Lufkin & Jenrette downgraded the in-store electronic marketing programs provider's stock to "buy" from "top pick"... Friendly Ice Cream (Nasdaq: FRND) melted $1 to $5 3/16 on its announcement of expected Q4 losses of between $0.60 and $0.55 per share, well below First Call's three-analyst estimate of a $0.13 loss per share... Supply chain software maker Manugistics (Nasdaq: MANU) stumbled $1 1/4 to $15 3/8 following reports that the company disclosed in a SEC filing that it faces delays in selling its products while it decides on a future direction, possibly resulting in a sale of the company.
Telecommunications network synchronization products and integrated circuits maker SymmetriCom Inc. (Nasdaq: SYMM) slipped $1 to $6 3/4 on news that fiscal Q2 EPS was $0.04, even with market projections but well off last year's $0.21... Telecom services integrator Premiere Technologies (Nasdaq: PTEK) shed $1 3/16 to $9 5/8 after Raymond James downgraded the stock to "accumulate" from a "buy" rating... Drug developer Cytel Corp. (Nasdaq: CYTL), one of yesterday's heroes, lost $1 7/8 to $5 1/2 after rising nearly 270% in Thursday's session on news that its Epimmune reported encouraging results in early tests of an experimental HIV vaccine... Osteoporosis monitoring devices manufacturer Lunar Corp. (Nasdaq: LUNR) set $1 7/32 to $9 5/32 after it said it expects to report revenues of approximately $23.4 million and net income of approximately $730,000 for fiscal Q2, both figures below Street projections.
Converting to Foolishness
Buy and hold. The mantra of The Motley Fool. Find great companies, invest in their stocks, hold onto them over the years, and watch them grow. No need to pull out your checkbook to pay Uncle Sam taxes on capital gains. Instead of paying brokerage commissions, all of your money stays invested, earning more for you. It makes so much sense and should be so easy. For me, however, it has been tough to implement this simple strategy. You see, I'm a recovering trader and relatively new Fool. To help me become more Foolish, I have made one financial resolution for 1999.
Before discussing my plan for the new year, I should fill you in a little bit on my background. While having successfully invested money in dividend reinvestment plans since college, an increasing portion of my portfolio was being allocated to my trading account. Before finding the Fool, I would have been excited to read How to Get Started in Electronic Day Trading: Everything You Need to Know to Win in Wall Street's Hottest Game. It would have helped me bring my average holding period down to several hours from several months.
Part of my decision to become a Fool was a desire to reduce, if not eliminate, my trading habit. This strategic shift was not prompted by bad performance. While some of my early years of investing were erratic (yes, folks, that's a euphemism for poor), the past few have been quite good. These results come compliments of a raging bull market and a couple of extremely successful speculative bets.
When executing a trading-oriented strategy, however, it isn't enough to just stay abreast of news when its convenient. You must always be on top of market activity. I would call in at least three or four times a day for market updates when away from work. During a vacation to bucolic South Carolina, I hesitated to go out during the day because of my draw to CNBC. The channel not only allowed me to track the market, but also it provided an opportunity to further develop my (one-way) friendship with Mark Haines, David Faber, Joe Kernen, and Maria Bartiromo. How pathetic one's life can become!
Okay, okay. It wasn't just that I wanted to get my life back. Passing along a significant portion of my profits to Uncle Sam, as well as the State and City of New York, cut my returns noticeably. Due to the payout these "partners" demand, my (pretax) market-beating returns sometimes became market-lagging gains.
How is this so? The total tax rate on short-term gains for someone in the 28% federal bracket is a bit over 40% in New York City after state and local taxes are included. Assuming 100% short-term portfolio turnover, a taxable trader's net return on a 42% pretax gain is much less impressive (and last year, a market-lagging) 25%. A buy and hold strategy, on the other hand, keeps the government at bay so your gains can compound and make even more money.
Having traded for so long, however, it is a struggle to stop. How many gambling addicts do you know that are working at a casino? Quarterly earnings news, "big" new product developments, and monthly chain-store sales are a few of the pieces of information I used to trade on. As a Fool writer, I still see this kind of information every day. While I have improved my ability to suppress trading on some news, some ideas have proven too tantalizing and I couldn't resist getting involved in the action. (The Fool's policy requiring employees to hold onto securities for at least 30 days has kept me out of certain ideas.)
To squelch the final remnants of my trading habits, I am going to only buy stocks during four "buying periods" in 1999. Instead of purchasing a security whenever one "seems to be a great buy" (and money is available), I'm only going to buy stocks during the last week of February, May, August, and November. This point in the quarter was consciously picked because it is usually fairly quiet, as the quarterly earnings season has wound down. By making purchase decisions during this "quiet time," my focus will be on the long-term underlying economic fundamentals of the companies rather than short-term hype and hysteria.
I have created a watch list to track the stocks that pop onto my radar screen outside of these buying periods. Each quarter, in preparation of a buy decision, I'll closely evaluate the merits of the companies on this list with the brightest long-term prospects. By narrowing my purchase selections from a pool of appealing companies, I will be forced to thoroughly compare each one. This should result in only taking a stake in the creme-de-la-creme of my ideas. Hopefully, the companies in my portfolio will be so strong that I will often find myself adding to positions I already own.
Since it can be so much fun (and sometime extremely profitable) to speculate on "wild ideas," I am giving myself a little out. I have set aside a small portion of my IRA (where capital gains are tax-deferred) as "funny money" that is not subject to the above restrictions. I can do whatever I want with this money, whether Foolish or Wise. I can trade, speculate, or do anything else. But only with this money. If it grows, I'll have more to play with. If not, that's it. No more funny money until next year. This money will give my more unusual ideas a venue to perform and also provide a live laboratory for me to experiment with innovative investing strategies.
I expect to become a better investor and increase my long-term after-tax returns because of this more stringent buying process. Admittedly, it borders on the absurd to be so consumed with trading that a buying restriction like this is necessary. At the same time, who cares if it improves my investment performance?
Beyond higher returns, I anticipate having more time to enjoy the many pleasures of living. No longer will I be glued to CNBC or the Internet to follow the market on an hourly basis. I can instead spend time with friends and family, climb mountains, raft rivers, watch theater, volunteer, and participate in the many other pleasures of life. Making money isn't an end in itself, it's a means to a more enjoyable life. Now that's Foolish!
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