<THE EVENING NEWS>
Tuesday, February 16, 1999
DJIA 9297.03 +22.14 +0.24% S&P 500 1241.87 +11.74 +0.95% Nasdaq 2313.87 -8.2 -0.35% Russell 2000 396.40 -2.4 -0.60% 30-Year Bond 98 15/32 +1 5.35 Yield
American Depositary Receipts (ADRs) of British bank National Westminster plc (NYSE: NW) surged $13 11/16 to $131 1/16 after rival Barclays plc (NYSE: BCS) reported second half results and saw its ADRs move up $6 to $108. Barclays reported second half revenues of �3.584 billion, down from �3.836 billion reported in the first half. Profit attributable to shareholders fell to �448 million in the second half from �887 million in the first half due in large part to heavy loan writedowns and provisions at the international bank. These items increased 340% from the first half to the second half. However, Barclays ended the year in a better risk-weighted capital position and also announced that it would send back to investors another �500 million this year in share repurchases. The capital discipline and the Barclays results pleased both Barclays and NatWest investors today.
Gadget retailer Sharper Image (Nasdaq: SHRP) jumped $1 5/16 to $15 1/2 today after reporting fiscal Q4 EPS of $1.00, up from $0.67 last year and in line with estimates. The company raked in 45% of its total sales for the year and all of its profits during the all-important gift-giving fourth quarter. Much of the move today has to do with the firm's margin improvements and its catalog/Internet sales, which increased 25% to $36.8 million from last year's $29.4 million. The Internet component of sales for the fourth quarter -- though growing 243% year-over-year -- still only grabbed $3 million, or 8% of catalog sales and 2.71% of total sales for the quarter. In stark contrast to the typical higher-end model of making up for low asset turns by grabbing high margins, Sharper Image sports net margins more in line with a business putting out a pure commodity offering (1.89% for last year, with average asset turns of about 3.5). For Alex Schay's (TMF Nexus6) take on Sharper Image, check out today's Fool Plate Special in the Lunchtime News.
QUICK TAKES: Truck and bus maker Navistar International Corp. (NYSE: NAV) drove ahead $7 1/8 to $42 3/8 following reports over the weekend that Sweden's Volvo AB (Nasdaq: VOLVY), the world's second largest heavy-truck maker, is in talks to buy Navistar... Discount retailing giant Wal-Mart (NYSE: WMT) advanced $3 3/16 to $87 9/16 after reporting Q4 EPS of $0.70, up 23% from $0.57 last year. Analysts predicted EPS of $0.67... Shaving blades and razors maker American Safety Razor (Nasdaq: RAZR) lathered up $3 7/8 to $13 3/4 after J.W. Childs Equity Partners II agreed to buy the company for about $173 million in cash. J.W. Childs will pay $14 1/8 for each Razor share, a 43% premium on Friday's closing price.
Diversified manufacturer, financial services giant, and NBC parent General Electric (NYSE: GE) gained $1 3/8 to $99 after it won a $1.74 billion contract from the Defense Department to provide spare parts for certain military engines through 2012. The company was the sole bidder for the fixed-priced contract... Preppie apparel retailer Abercrombie & Fitch Co. (NYSE: ANF) rose $3 7/16 to $78 following reports in The New York Times that Goldman, Sachs & Co.'s senior retail analyst Richard Baum expects the company's stock to hit $90 per share in 18 months. Baum named the stock his favorite for the second year running... Atlantic Southeast Airlines parent company ASA Holdings (Nasdaq: ASAI) lifted off $1 13/16 to $33 3/4 after Delta Air Lines (NYSE: DAL) agreed to buy ASA for about $700 million. The $34 per share cash offer represents about a 6.5% premium on Friday's closing price for ASA shareholders.
Brokerage and online darling Charles Schwab (NYSE: SCH) packed in gains of $3 11/16 to $66 3/8 after the company said assets held in customer accounts hit $521 billion in January, 40% ahead of a year ago... Streaming media leader RealNetworks (Nasdaq: RNWK) flowed ahead $3 15/16 to $65 15/16 as the company launched six international versions of its RealPlayer G2 software in French, Italian, German, Spanish, Portuguese and Japanese... Telecommunications company MCI WorldCom (Nasdaq: WCOM) dialed up gains of $3 9/16 to $83 as the company said its new Internet service will provide subscribers localized news and entertainment content from America Online.
Footwear retailer Shoe Pavilion (Nasdaq: SHOE) tied up a gain of $1 1/16 to $7 1/16 after the company said online services company America Online (NYSE: AOL) will link to the company's website on its shopping channel as well as a storefront on the shopping section of AOL's CompuServe service... In-store electronic marketing programs provider Catalina Marketing (NYSE: POS) took $2 1/4 to $67 3/8 after the company said its SuperMarkets Online subsidiary will offer its "ValuPage" coupons on AOL... Shares of software developer SCM Microsystems (Nasdaq: SCMM) took on $12 5/8 to $93 5/8 after the company said its "smart card" interfaces are fully compatible with Microsoft's (Nasdaq: MSFT) Windows operating systems... Online software retailer Egghead.com (Nasdaq: EGGS) whipped up gains of $1 9/16 to $18 7/8 after saying it will be featured on the Microsoft Network's shopping site.
Low-temperature industrial process equipment maker Chart Industries (NYSE: CTI), subject of an October Daily Trouble, added $13/16 to $7 15/16 after agreeing to buy privately owned MVE Holdings for about $240 million... AmerUs Life Holdings (NYSE: AMH) moved up $1 13/16 to $19 1/4 after controlling shareholder American Mutual Holding Co., a mutual insurance holding company, said Monday it authorized management to review the potential benefits of a demutualization... Drugstore owner Walgreen Co. (NYSE: WAG), which split its stock 2-for-1 after Friday's session, added $1 11/16 to $31 7/8 today. Click here for a recent Foolish look at the company by Warren Gump.
Information technology services company Condor Technology Solutions (Nasdaq: CNDR) earned $1 1/4 to $12 3/4 after Volpe, Brown Whelan & Co. raised the stock to "strong buy" from a "buy" rating... Drug maker King Pharmaceuticals (Nasdaq: KING) was crowned for a $2 3/8 gain to $22 1/4 after reporting Q4 EPS of $0.23, up from $0.07 last year and beating Wall Street's $0.20 consensus estimate... Farm and lawn care equipment maker Deere & Co. (NYSE: DE) plowed ahead $1/2 to $33 1/8 after reporting fiscal Q1 EPS of $0.21, down from $0.81 last year but ahead of Wall Street's $0.18 consensus estimate.
PC maker Dell Computer (Nasdaq: DELL) ticked down $1 1/8 to $88 3/4 in advance of reporting fourth-quarter earnings after the bell today. As expected, the company reported Q4 EPS of $0.31, up 64% year-over-year. Revenues for the quarter were $5.17 billion, up 38% year-over-year and 7.4% sequentially. Many analysts had been expecting higher revenues, and of course some commentators will latch on to the "miss" this quarter as a bad sign. But the key developments to concentrate on are the company's product mix, asset management, and cash flow. For the quarter, 63% of revenues came from desktops, down from 67% a year ago, but higher-priced and higher-margin enterprise products such as workstations and servers made up 14% of sales, up from 11% last year, while portables made up 23% of revenues, up from 22% last year. Return on invested capital was 170%, down from prior achievements but still excellent. Net cash flow from operations was $752 million, equal to 176% of net income for the quarter. More on Dell's fourth quarter is available at http://www.dell.com/corporate/investor/earningscall/021699/index.htm. Apparently, the market didn't like the report, however. In advance of the start of the conference call, Dell's stock was trading below $80 in after hours trading.
Golf range, ice rink, and family entertainment center operator Family Golf Centers (Nasdaq: FGCI) bogeyed for a $5 15/16 loss to $7 1/2 after warning that fourth-quarter earnings will fall short of analysts' expectations due to underperformance at recently purchased locations. Among the culprits was Eagle Quest Golf -- a competitor the company took out in a June stock deal -- where Q4 same-store sales fell 23% compared with a 50% rise at the 50 non-Eagle Quest sites open during the period. Family Golf put preliminary results at around $27 million in revenue and EPS of $0.03 to $0.05, compared with the mean estimate of $0.11. What's more, the company added that underperforming sites will continue to underperform in the near term; expansion will be slowed while the company tries to right its newer ships. Investors who were around when Family Golf was a Daily Double at more than $21 per share in November hope the company will quickly replace its divots.
QUICK CUTS: PC and workstation maker Hewlett-Packard (NYSE: HWP) lost $6 7/16 to $70 today ahead of its fiscal Q1 earnings report. After the bell, the company said EPS was $0.92, beating the year-ago $0.86 and First Call's $0.83 consensus estimate... Kevco (Nasdaq: KVCO), a wholesaler of building products to the manufactured housing and recreational vehicle industries, slid $2 3/8 to $5 3/4 after Wingate Partners II terminated an agreement to buy stock and warrants from the company... Neonatal and pediatric care physician group Pediatrix Medical Group (NYSE: PDX) dropped another $1 5/8 to $26 3/8 after last Friday announcing that it may have to restate previously reported earnings. The announcement came after the company said on Wednesday that it expected to beat analysts' estimates for the fourth quarter and full-year 1998.
Outdoor clothing, equipment and footwear catalog retailer The Sportsman's Guide (Nasdaq: SGDE) lost $1 1/8 to $5 3/4 after turning in fourth quarter EPS of $0.10, down from $0.71 last year and below the single-analyst projection of $0.13 listed by First Call... Perceptron Inc. (Nasdaq: PRCP) sank $1 7/8 to $6 3/16 after the industrial process measurement and guidance tools maker said Q4 losses were $0.07 per share, missing Wall Street's estimated $0.17 per share profit. The company named John Garber CFO; he held that position at Newcor (Nasdaq: NEWC) since 1991... Women's apparel direct marketer DM Management (Nasdaq: DMMC) tumbled $1 7/8 to $15 3/4 after reporting Q4 EPS of $0.28, which was up from $0.16 a year ago and a penny ahead of estimates. The company's shares jumped $2 last week in anticipation of the earnings release.
Biopharmaceutical company OXiGENE Inc. (Nasdaq: OXGN) exhaled $1 1/8 to $7 7/8 after it said it has decided to stop the development of Neu-Sensamide in order to focus on "products with greater commercial promise." Neu-Sensamide was being developed for use in conjunction with radiation therapy in patients with non-small cell lung cancer and in patients with glioblastoma.... Medical cost management services firm Healthcare Recoveries (Nasdaq: HCRI) fell $1 3/4 to $11 13/16 after announcing it has closed the acquisition of MedCap Medical Cost Management Inc. by paying $10 million in cash. In addition, the company added that it may pay additional amounts over the next two years depending on earnings growth.
Managed care software developer Health Risk Management (Nasdaq: HRMI) shed $2 3/8 to $9 3/8 after reporting a fiscal Q2 loss of $0.16 per share (before charges) versus a profit of $0.17 in the same year-earlier quarter... Digital business phone systems company Inter-Tel Inc. (Nasdaq: INTL) sank $3 to $19 13/16 after announcing Q4 EPS of $0.24, up from $0.18 last year but right in line with estimates... Financial information publisher Individual Investor Group (Nasdaq: INDI), which announced that it will provide daily content from its website to Yahoo!'s (Nasdaq: YHOO) finance site, lost $1 to $7 1/4... Financial services company ARM Financial Group (NYSE: ARM) weakened $2 to $14 3/16 after Schroder & Co. downgraded the stock to "perform in line" from an "outperform significantly" rating.
Recent IPO Perot Systems (NYSE: PER), a computer services company, announced an agreement to provide insurance software company Pyramid Services with consulting services and lost $3 1/2 to $37 3/4 today... Financial services company FINOVA Group (NYSE: FNV) retreated $2 1/2 to $53 3/4 after Legg Mason & Co. lowered its rating on the stock to "outperform" from "buy" and set a $67 12-month price target on the shares... AMR Corp.'s (NYSE: AMR) shares slipped $1/8 to $55 after American Airlines said it planned to resume nearly all of its 2,250 scheduled flights after a damaging pilots' sick-out. For more on this story, head back to today's Breakfast With the Fool... Online brokerage E*Trade (Nasdaq: EGRP) fell $5/16 to $45 11/16 after the company earned approval from the SEC and the National Association of Securities Dealers (NASD) to go into the asset management business.
It's the Long Term That Matters
Working from home today to keep an annoying virus away from Fool HQ, I spent a good part of the day watching CNBC during market hours for the first time since converting to Foolishness last year. Unless you're striving to be a day trader (hoping to lose a substantial portion of your capital, as most do), watching this business news channel live throughout the day may not be that helpful. Much of the analysis that I saw focuses on short-term price movements, ignoring longer-term trends.
The biggest news story of the day was the anticipation surrounding Dell Computer's (Nasdaq: DELL) earnings announcement, which was scheduled to be released after the market's close. As one of the best performing stocks over the past three years, interest in any announcement from this company is high. Increasing the anticipation for this report was a 12% drop in the company's stock on Friday after an analyst issued a report suggesting that competition was stiffening as other manufacturers improved their direct sales model. (Of course, no one that I heard mentioned that the stock was still up over 22% since January 1 and multiple-fold over the past few years.)
Early in the morning the stock was up $4 1/2, and a technology analyst indicated that investors might have overreacted to the reports issued on Friday. I hope you didn't just tune into CNBC at the time of that comment and then trade on that suggestion. Later on in the day, the stock reversed course and fell $3 15/16 before rebounding somewhat near the close. If you want to buy Dell stock, you shouldn't be tempted by short-term price movements and projections. You should step up to the plate because you think the company has a superior business model that will allow the company's growth to continue at a rapid pace to justify its current price/earnings (P/E) multiple of 94x trailing earnings.
Another story that was repeated throughout the day was that the Japanese Stock Market may have hit a bottom because the Nikkei Index closed above 14,000 for the first time in "several sessions." The Finance Ministry announced plans to purchase some bonds with its trust fund, which should help reverse the recent jump in interest rates.
Learning about how the Japanese government addresses the country's problems is helpful in analyzing the future of the economy, but to suggest that a long-term bottom is in place because the market index rebounded above some "magical" number doesn't hold much water with me. I don't think it would be prudent to jump into that (or any) market because of some technical indicator.
Before considering investing in Japan, you have to think about several different issues. First, are you willing to absorb not only the stock market fluctuations, but also the currency fluctuations inherent in investing internationally? Second, do you understand the financial reports of the companies in which you're investing (every country has somewhat different accounting reporting standards)? Third, considering your outlook for Japanese companies over the next 20 or more years, do you think the stocks represent good values?
Another instance of CNBC myopia occurred when Mark Minervini of the Quantech Research Group came on the air to give his outlook for stocks. He was asked to discuss his current perspective because of his accurate forecast earlier this month that the Nasdaq 100 stocks may weaken. CNBC boasted about his willingness to make this call despite laughter from many other investors. While it is always nice to be correct, making one short-term call on market movements doesn't really impress me. (Mr. Minervini's long-term track record was not disclosed; if he shows terrific performance over five or more years I would be much more interested.)
CNBC does a great job of announcing and describing news as it occurs. While obtaining some perspective on the reasons for intraday market movements is interesting, such movements often defy explanation. Trying to understand minute-by-minute (or even day-by-day) market movements often leads to overanalysis. Enthusiasm about positive news is usually overplayed. Concern about negative turns is often exaggerated. Reacting to each bit of news as it is announced will likely lead to a less-than-stellar investment record.
Don't interpret me incorrectly. Long-term investors absolutely need to stay abreast of news on companies in which they are invested. To track this information throughout the day, however, is overkill for most people. It causes you to look at the trees rather than the forest. In fact, much of the daily news doesn't even focus on a whole tree -- it just discusses a branch or perhaps even a leaf. Instead of following intraday movements, step back and look at news and trends over a monthly, quarterly, or annual basis to evaluate your portfolio holdings. Beyond saving you a lot of time, you'll likely remain focused on long-term, rather than short-term, prospects.
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Brian Graney (TMF Panic), a Fool
David Marino-Nachison (TMF Braden), a new Fool