Tuesday, June 22, 1999
DJIA           10721.63    -94.35   (-0.87%)
S&P 500         1335.88    -13.12   (-0.97%)
Nasdaq          2580.26    -50.02   (-1.90%)
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30-Year Bond   88 28/32    -15/32  6.06 Yield


Information technology system integration consultant Ciber Inc. (NYSE: CBR) moved up $1 7/8 to $18 5/8 after saying it will repurchase up to 10% of its outstanding shares on the belief that the company's bright future is not being properly expressed in its current share price. "We believe we can be the next $1 billion, global systems integrator," CEO Mac Slingerlend said. Of course, based on last night's closing share price of $17 per share and the company's roughly 59 million shares outstanding, Ciber already is a $1 billion company. Assuming Slingerland was referring to $1 billion in annual sales, Ciber has a little ways to go. Given its fiscal 1999 revenue run rate of $736 million and its less-than-thrilling 4% compounded average sales growth rate over the past five quarters, Ciber will not crack the $1 billion in annual sales plateau until fiscal 2001 at the earliest, barring any surprises.

Office furniture maker Knoll Inc. (NYSE: KNL) moved up $1 3/4 to $26 9/26 after accepting a sweetened offer from a group including investment firm Warburg, Pincus and members of Knoll's management team to acquire the 40% stake in the company they do not already own for a price of $28 per share in cash. The bid is an improvement from the $25 per share the group had originally offered in March, which prompted lawsuits and outcries of "Lowball Bid!" from numerous Knoll shareholders. The company's share price chart over its short two-year history as a public company looks like a toddler's rendering of a frown face, mirroring the performance of rival Herman Miller (Nasdaq: MLHR) and the office furniture biz as a whole over the same span. For the record, the higher bid gives Knoll shareholders hanging on since the 1997 initial public offering a 65% total return on their investment, a tad better than the two-year return of the S&P 500 index but with much more volatility.

QUICK TAKES: Vitamin and nutritional supplements retailer General Nutrition Centers (Nasdaq: GNCI) bulked up with a $3/4 gain to $20 13/16 after forming a 10-year partnership with online pharmacy drugstore.com along with drugstore chain Rite Aid (NYSE: RAD). Under the deal, GNC will acquire an 8% stake in drugstore.com and Rite Aid will get a 25.3% stake. In return, Rite Aid and GNC's co-branded website will be folded into drugstore.com. Rite Aid gained $7/8 to $25 15/16... Online software retailer Digital River (Nasdaq: DRIV) swam up $2 3/16 to $27 following a Dain Rauscher Wessels upgrade to "strong buy" from "buy"... Irish pharmaceutical company Elan Corp. (NYSE: ELN) rose $2 7/16 to $31 1/4 amid takeover speculation, much of which centers on a possible buyout by British drug maker Glaxo Wellcome (NYSE: GLX).

Phone.com (Nasdaq: PHCM), which delivers Internet-based services to wireless telephones, rang up a $7 1/16 gain to $53 1/16 after Italian wireless services provider Omnitel Pronto Italia agreed to license the company's wireless application protocol (WAP)-compatible UP.Link Server Suite product for its new Internet portal... Internet protocol and Web hosting services provider Concentrix Network Corp. (Nasdaq: CNCX) gained $1 3/4 to $34 1/4 after software giant Microsoft (Nasdaq: MSFT) agreed to make a $50 million investment in the company and extend its network supply service contract for WebTV for two more years. In return, Concentrix will develop and co-market Windows NT Server-based application hosting services and a co-branded MSN portal for dial-up and digital subscriber line (DSL) users.

Property and casualty insurer and reinsurer Chartwell Re Corp. (NYSE: CWL) picked up $5 to $20 1/8 after agreeing to be acquired by fellow reinsurer Trenwick Group (Nasdaq: TREN) for $368 million in stock, assumed debt, and reserve protection to be purchased by Chartwell. Trenwick fell $2 3/8 to $26 1/2... Toymaker Mattel (NYSE: MAT) skipped up $1 1/4 to $24 5/8 after Bear Stearns started coverage of the company with an "attractive" rating and a 12- to 18-month price target of $36 per share... Shareholders of transaction processing services firm National Processing (NYSE: NAP) woke up to a $2 11/32 gain to $10 1/32 after parent National City Corp. (NYSE: NCC) offered to buy the 12% stake in the company it does not already own for $9.50 per share in cash.

Internet service provider EarthLink (Nasdaq: ELNK) jumped $9 5/8 to $57 1/4 on rumors it may be acquired by boxmaker Gateway (NYSE: GTW)... Drug delivery technologies firm Alza Corp. (NYSE: AZA) added $1 1/2 to $4 3/4 after agreeing to be acquired by drug developer Abbott Laboratories (NYSE: ABT) in a stock swap valued at about $7.3 billion, or $53.025 a share. That's a 14.6% premium to Alza's close yesterday of $46.25. For more on the news, head back to today's edition of Breakfast With the Fool... Supply chain management software firm Manugistics Group (Nasdaq: MANU) rose $2 3/8 to $15 5/16 ahead of its fiscal Q1 earnings report. After the bell, the company posted EPS of $0.01, up from last year's loss of $0.33 per share and better than the Zacks mean estimate of a loss of $0.04 per share.

Online telecommunications hardware and software firm e-Net Inc. (Nasdaq: ETEL) e-xploded for a $3 3/16 gain to $6 3/8 after announcing its ZeroPlus.com subsidiary will offer users a permanent Internet phone number and software to make and receive free phone calls over the Internet. Enhanced fee-based services are in the works, the firm said... Mobile data networking technology company Metricom Inc. (Nasdaq: MCOM) added another $2 1/8 to $18 after gaining 43% yesterday on news that MCI WorldCom (Nasdaq: WCOM) and Paul Allen investment vehicle Vulcan Ventures each made $300 million investments in the company to fund the rollout of its Ricochet 128 Kbps mobile data service... Small business Internet access company Ramp Networks (Nasdaq: RAMP) ramped up $5 3/4 to $16 3/4 after selling 4 million shares in an initial public offering at a price of $11 per share.


Investors who have been following auto towing, impounding, and storage firm United Road Services (Nasdaq: URSI) since the company's late-March earnings warning probably saw today's bad news coming. Nevertheless, the shares lost $1 29/32 to $5 1/32 today after the company said it expects Q2 EPS of between $0.05 and $0.08, missing First Call's six-analyst $0.16 consensus projection. Let's recap: United said in March that Q1 numbers were held down by a mild winter but pointed to a turnaround for Q2. Whoops! Unmentioned in any of United's press missives -- despite the company's assertion that everything has been "previously stated" -- but revealed for the first time today, is the fact that much of the trouble stems from costs associated with scrap steel under one of its contracts. That certainly makes more sense then saying the same warm weather that hurt Q1 results was expected not to do so in Q2. Having heard enough, CEO and Chairman Edward Sheehan is leaving; director Donald Moorehead, Jr., will become chairman. The CEO seat is not yet filled.

In other earnings warning news, staffing services company Romac International (Nasdaq: ROMC) let go $2 1/2 to $7 1/8 after late yesterday afternoon saying it expects Q3 and Q4 revenue growth to underperform market expectations by about 5% with break-even earnings for the last three quarters of 1999. Romac is banking that the hit to earnings, currently seen confined to this year, will be justified as it spends heavily to built out its new KnowledgeForce Network, a website where job seekers and employers can bid on assignments. The technology, marketing, and retraining costs associated with the endeavor are expected to be considerable: First Call's analyst survey was projecting EPS above $0.20 in each of the next three quarters. Romac shares fell in early March after the company said since closing its acquisition of Source Services a focus on integrating the acquisition has meant diminished growth.

QUICK CUTS: Brokerage Lehman Bros. (NYSE: LEH) gave away $3 11/16 to $56 5/8 despite reporting Q2 EPS of $2.09, better than Wall Street's $1.68 per share consensus estimate. EPS was down from $2.12 a year ago... Online 'zine Salon.com's (Nasdaq: SALN) first day in the public market wasn't a huge success, as the shares fell $1/2 to $10 after selling 2.5 million shares for $10.50 each in a Dutch Auction format... Textiles designer, maker, and marketer Dan River Inc. (NYSE: DRF) flowed down $1 3/8 to $8 after reporting that it expects Q2 EPS of between $0.13 and $0.15, missing First Call's four-analyst $0.18 consensus.

Shares of chemicals giant DuPont (NYSE: DD) faded $2 7/16 to $67 3/4. Late yesterday afternoon, the company said the European Commission okayed the company's planned $40 per share cash-and-stock buyout of seed producer Pioneer Hi-Bred International (NYSE: PHB)... Computer products, hardware, and industrial products marketer Systemax (NYSE: SYX) fell $1 13/16 to $10 1/16 after saying it expects to report Q2 EPS of between $0.18 and $0.20, well off First Call's $0.31 three-analyst estimate... Aavid Thermal Technologies (Nasdaq: AATT), which makes products to address problems associated with the dissipation of unwanted heat in electronic and electrical components and systems, cooled $1 7/8 to $22 5/8 after it said it's in talks to sell itself for $24 1/2 per share, last night's close.

Networking products maker Cabletron Systems (NYSE: CS), which reported fiscal Q1 EPS of $0.04 before charges, lost $1 5/8 to $14 1/8 this morning. Though Wall Street was looking for a penny's profit, CEO Piyush Patel told analysts revenues were boosted by revenue from Compaq (NYSE: CPQ) that wasn't expected until Q2... Electronic payment and collections systems maker CheckFree Corp. (Nasdaq: CKFR) drew back $2 9/16 to $37 11/16 after the company sold 3.8 million shares for $39 each in a secondary offering, less than last night's $40 1/4 close... Radio broadcaster Cumulus Media (Nasdaq: CMLS) gave up $1 11/16 to $16 9/16 after saying it filed to sell 8.2 million shares of company stock to the public to pay down debt and redeem convertible stock.

Internet music technology company Diamond Multimedia (Nasdaq: DIMD) dimmed $15/16 to $4 3/4 after agreeing to sell to S3 Inc. (Nasdaq: SIII) in a $173 million stock swap valuing Diamond at a 14% discount to last night's close. S3 shed $11/16 to $8 3/4... Vista Eyecare (Nasdaq: VSTA) blurred $1 to $3 7/8 after the eye care chain operator said it expects a loss of as much as $0.06 in Q2. Two analysts surveyed by First Call were looking for a $0.06 profit... Internet venture capitalist CMGI (Nasdaq: CMGI) retreated $8 1/16 to $94 15/16 today. The company said its @Ventures division invested $5 million in business-to-business online marketplace BizBuyer.com.

Steel products company Oregon Steel Mills (NYSE: OS) rusted $1 3/4 to $13 after saying it expects Q2 EPS of between $0.10 and $0.12 including a charge for a plant shutdown costs. First Call's analysts were looking for EPS of $0.28... Construction products company Gibraltar Steel (Nasdaq: ROCK) crumbled $3 3/4 to $21 today. After the market's close, it said it named company men Walter Erazmus and John Flint president and CFO, respectively. Erazmus was CFO, while Flint was vice president of accounting... Alliance Semiconductor (Nasdaq: ALSC) moved back $1 1/8 to $8 7/8 after the semiconductor manufacturer was cut to "buy" from "strong buy" by Needham & Co.

An Investment Opinion
by Warren Gump

Investing in Intel

It's happening once again. Analysts are raising concerns that problems Intel (NYSE: INTC) is having ramping up production of a new chip will impact earnings and therefore the stock price. According to news reports, the company has delayed by two months to November the introduction of a 600mhz chip based on 0.18 micron technology. Intel will still introduce a 600mhz chip based on 0.25 micron, but that one will likely cost Intel more to make because it requires a little more material. Over the past week, some analysts have cut estimates by up to $0.05-$0.10 per share to account for the delay.

Despite suggestions by the company that this delay will not impact earnings, there is no doubt a higher risk that earnings over the next couple of quarters could be impacted by the delay. Over the past year, competitor Advanced Micro Devices (NYSE: AMD) has gained substantial market share by offering chips for sub-$1,000 machines that Intel initially ignored. More recently, Intel has combated Advanced Micro with its lower-priced Celeron chip and aggressive price cuts. If Intel does not have a faster chip to offer than AMD, speculation abounds that price cuts will likely intensify, impacting Intel's overall margins.

These analysts could be correct in analyzing what might happen to Intel over the next quarter or two, slowing down the company's earnings growth. Such a situation would lead to some institutional and individual investors focused on short-term performance to sell or avoid the stock. Hence, over the past week, Intel is down about $4 to $55 11/16. At the current price, it is trading for about 24x earnings estimates for 1999.

If you are investing in Intel for the long haul, blips like what has occurred over the past week are irrelevant. The impact to Intel two years for now will most likely be nonexistent. Remember the scare when it was found that a version of the Pentium chip made a calculation error when doing esoteric calculations? That issue caused Intel stock to plunge because of fear that its market dominance would be destroyed. Looking back, it has had virtually no impact on the company whatsoever. The strength of Intel's technology and its market presence will likely lead to a similar situation. While some aspects of the company's plans for 1999 could be temporarily hampered, the delay shouldn't seriously hinder the company's overall competitive position.

Seeing so many people view a minor stumble by Intel as a major event leads me to think that people don't recognize that the manufacturing side of the microprocessor business is highly complex. One of the reasons that Intel has beaten competitors is that it has proven more adept at managing this challenging process. While most people accept Intel's expectations for production plans at face value, whenever Advanced Micro issues new chip and production plans, the game among investors is figuring out how much of a delay the company will encounter. It seems like Advanced Micro has seriously stumbled on every major product introduction in the past few years. Seeing Intel run into an occasional production delays should be expected as part of the business.

While holders of Intel stock may bemoan the fact that analysts and some shareholders change their opinion so quickly, you can turn such volatility into your favor using dollar cost averaging (DCA). With DCA, a shareholder invests a fixed dollar amount into a security at a specified interval, such as monthly or quarterly. The beauty of this strategy is that it causes you to buy fewer shares when the stock price is high and more shares when the price is low. DCA tends to be a strategy that works best when you find a security with terrific long-term prospects that might be subject to substantial short-term price volatility.

Here's how it works. Let's say you decided to start a dollar-cost-averaging program into Intel at the start of 1999 by investing $200 at the end of each month. Here is what your Intel investment plan would look like so far:

       Share    Shares   Average
Date   Price   Purchased  Owned  Cost/Share
1/31   $70.47   2.838     2.838    $70.47
2/26   $59.97   3.335     6.173    $64.80
3/31   $59.48   3.363     9.536    $62.92
4/30   $61.19   3.269    12.805    $62.48
5/31   $54.06   3.700    16.505    $60.59

As you can see, after five months, you would have accumulated a stake of 16.5 shares at an average cost of $60.59. Notice that you picked up 3.7 shares on the dip in May compared to 2.8 shares in January? Because more shares were acquired when the stock price was lower, your cost basis per share is a little lower than the average share price of $61.03 during the period. By dollar cost averaging, you were able to increase the number of shares you owned and bring your average cost per share down below the average share price over your investment horizon.

DCA works best for companies that have dramatic stock price fluctuations on both the upside and downside by helping to ensure that you don't purchase all of your shares at a market peak. Even though Intel will probably be worth far more than $70 in a few years, it is nice to know that you didn't buy all your shares at what turned out to be a short-term high in late January.

When using a DCA strategy, it is imperative that you have confidence about the company's long-term outlook. The strategy doesn't work if you don't continue investing through the dips in stock price. For example, if you had decided to stop investing in February because of concerns about the company when the stock fell, you would be left holding only shares that were purchased at $70 a pop, without the rewards of buying shares at the lower price.

If you find companies with terrific long-term prospects, but significant short-term stock price volatility that scares you away, consider turning those price fluctuations to your advantage by starting a DCA program. The most cost-efficient way to implement such a strategy is through a dividend reinvestment plan with low costs; otherwise you could be stuck paying commissions that would eat away at the advantage of the strategy. Whatever you decide to do, remember that as an individual investor with a long-term perspective, there are several ways to take advantage of the myopia of other market participants.


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