Monday, April 19, 1999
DJIA 10723.05 +229.16 (+2.18%) S&P 500 1336.02 +17.02 (+1.29%) Nasdaq 2479.61 -4.43 (-0.18%) Russell 2000 425.84 +4.26 (+1.01%) 30-Year Bond 95 9/32 -2/32 5.58 Yield

An Investment Opinion
by Warren Gump

Code Red! Time To Rotate

Those of you not sophisticated enough to have a market-timing pager should be warned that Joe Timer's never-lose alerts (sponsored by your broker at Morgan Lynch Edwards & Robertson) sent out a Code Red rotate alert this morning. With a week of poor performance by the tech stocks and a strong movement by the cyclicals, it's time to move all of your money out of the stocks you own and into cyclicals and small caps that have now taken over market leadership. You don't need to worry about the opportunity costs of your current investments, capital gains taxes, or commissions. What you need to do is take action now! If you wait, you'll lose out on this rapid market shift and never be able to fund your child's college education or your retirement.

Hopefully you realize by now I'm kidding. Although our friendly pundits on TV, in the media, and on the Internet have been talking about the massive sector rotation for the past week, an investor with a solid portfolio need not worry. You'll be fine. As a long-term investor, your portfolio is probably structured in such a way that you don't need to make rapid-fire movements in changing markets. You don't have to track day-to-day, week-to-week, or month-to-month stock price movements. You simply need to have confidence that your companies have the current and future prospects to justify the current stock price. Once that criterion is met, you can avoid worrying about the company except during quarterly or annual check ups to ensure it is on track to realize its (and your) objectives.

Seeing stock prices gyrate can be a nerve-racking experience. In reality, though, it shouldn't. With your money socked away for the next five, ten, or thirty years, today's stock price movements don't really mean diddly squat. What really matters is how your companies build value over time and how much you pay for that value. Do you really think that the fundamental worth of Charles Schwab (NYSE: SCH) has dropped 33% over the past few days? Or that the underlying value of 3M (NYSE: MMM) has increased 20% since last Monday? Of course not. These changes in stock prices simply reflect a shift in the supply/demand balance. The real value of each company, the present value of its future free cash flows, has not been dramatically altered.

Over a few days, a few months, or even a few years, stocks prices can be way out of synch with the underlying value of a company. Sometimes they're too high, while at other times they're too low. Finding companies that successfully increase their intrinsic value over time is the name of the investment game. Once you find one of these companies that is not priced too dearly, you can just latch on and enjoy the ride for (hopefully) years to come. While you'll have to review each company on a monthly or quarterly basis, you don't need daily updates and alerts from market mavens. Time is one of most people's scarcest resources. Don't let investing take up too much of yours.


Fiber-optic network and long-distance company Qwest Communications (Nasdaq: QWST) moved up $3 11/16 to $85 11/16 on news that regional phone company BellSouth Corp. (NYSE: BLS) plans to spend about $3.5 billion -- $94.50 per share -- on a 10% stake in Qwest. About $1.93 billion will go directly to Qwest in exchange for 20.35 million newly issued shares, while $1.57 billion will be paid to Qwest's largest shareholder Anschutz Co. for 16.65 million Qwest shares, cutting Anschutz's interest in the company to some 39%. BellSouth's investment represents a 13% premium over Qwest's closing price Friday of $82 but is 8% less than Qwest's 52-week high of $104.75.

Telecommunications giant MCI WorldCom (Nasdaq: WCOM) advanced $1 3/16 to $85 15/16 this morning. The company will acquire wireless cable TV company CAI Wireless Corp. (OTC: CWSS) for $24 a share, or $408 million, allowing MCI WorldCom to reach homes or businesses without going through the Baby Bell's local phone networks. CAI Wireless closed at $22 5/8 on Friday.

Telecommunications giant AT&T (NYSE: T) dialed in gains of $1 5/16 to $57 5/16 after reportedly signing a three-year deal to provide data, video, wireless, and other telecommunications services to Delta Air Lines (NYSE: DAL) in the U.S., Puerto Rico, and the U.S. Virgin Islands. Terms of the deal were not reported.

Mega-retailer Wal-Mart (NYSE: WMT), which will split its stock 2-for-1 after today's market close, bagged $3 to $98 in this morning's trading.

Shares of Compaq Computer (Nasdaq: CPQ) moved ahead $1/16 to $23 11/16 following the news that the company's board ousted CEO Eckhard Pfeiffer in the wake of the company's shocking warning that its first-quarter earnings would come in at less than half of analysts' estimates. For a closer look at the development, head back to this morning's Breakfast With the Fool.

Financial services company JWGenesis Financial Corp. (AMEX: JWG) rose $7/8 to $13 3/8 after announcing plans to sell its Clearing Corp. unit to financial data processing systems developer Fiserv (Nasdaq: FISV) for approximately $58 million in cash. JWGenesis intends to concentrate its efforts on developing focus on its retail securities and investment banking businesses and other opportunities.

Healthcare information technology firm QuadraMed (Nasdaq: QMDC) won $1 1/16 to $7 1/4 after the company said it expects Q1 revenues of between $57.5 million and $60 million, up from $46.3 million in Q4 and well ahead of the year-ago $30.7 million figure.

Bank holding company USABancShares (Nasdaq: USAB) raced ahead $8 7/8 to $19 3/4, complementing Friday's $2 1/2 rise, on Friday morning's news that it will launch the USABanc.com online banking service. Investment services will be available online through the company's brokerage subsidiary.

International broadband communications provider United International Holdings (Nasdaq: UIHIA) took $3 7/8 to $62 this morning as Goldman, Sachs & Co. raised its price target on the stock to $75 per share from $58.

TeleBanc Financial Corp. (Nasdaq: TBFC) deposited $10 1/4 to $100 3/4 after Merrill Lynch initiated coverage of the stock with a near-term "accumulate" rating and a long-term "buy."

Film and imaging products maker Eastman Kodak (NYSE: EK) developed $2 7/8 to $75 7/8 this morning after rising $6 7/16 Friday on news of impressive first-quarter earnings and a $2 billion stock buyback plan. PaineWebber upgraded the stock to "attractive" from "neutral" this morning.

Ziff-Davis (NYSE: ZD), a leading publisher of tech-oriented magazines and host of the popular Comdex trade shows, zipped up $1 7/16 to $18 7/16 following an upgrade to "market outperformer" from "market performer." The company was featured in a recent Fool on the Hill column.

Earnings Movers

American Standard Cos.
(NYSE: ASD) up $3 13/16 to $44 1/8; Q1 EPS $0.65 vs. $0.49 last year; estimate: $0.54

Case Corp. (NYSE: CSE) up $1 1/16 to $34; Q1 EPS loss of $0.68 vs. profit of $0.88 last year; estimate: loss of $0.85

Check Point Software Technologies (Nasdaq: CHKP) up $1 13/16 to $33 1/8; Q1 EPS $0.49 vs. $0.39 last year; estimate: $0.44

Citigroup (NYSE: C) up $2 3/4 to $74 3/8; Q1 EPS $1.01 vs. $0.90 last year; estimate: $0.87

Rockwell International (NYSE: ROK) up $3 9/16 to $52 1/2; fiscal Q2 EPS $0.74 vs. $0.60 last year; estimate: $0.70

Tower Automotive (NYSE: TWR) up $2 7/8 to $24 11/16; Q1 EPS $0.51 vs. $0.37 last year; estimate: $0.44

Travelers Property Casualty (NYSE: TAP) up $1 9/16 to $36 3/16; Q1 EPS $0.83 (from operations) vs. $0.77 last year; estimate: $0.83


Front-office automation software developer Vantive Corp. (Nasdaq: VNTV) was knocked down $3 1/16 to $6 5/16 after saying lower software license revenues will lead to breakeven Q1 results, missing the earnings of $0.06 per share expected by analysts. The company also said it has appointed former 3Com (Nasdaq: COMS) executive Thomas L. Thomas as its new chairman and CEO.

Diversified natural gas company Columbia Energy Group (NYSE: CG) dropped $1 13/16 to $46 7/16 after announcing an unsolicited takeover offer for fellow gas company Consolidated Natural Gas (NYSE: CNG). Under the offer, each Consolidated share would be converted into $45.50 in cash and $24.50 in Columbia stock. Columbia said the offer represents a 21% premium to the price Dominion Resources (NYSE: D) offered for Consolidated earlier this year. Consolidated rose $1 13/16 to $39 7/8 on the news.

Indianapolis-based pharmaceutical company Eli Lilly and Co. (NYSE: LLY) slipped $4 15/16 to $77 3/8 after reporting Q1 EPS of $0.53 (excluding gains and charges), up from $0.46 a year ago and in line with the First Call mean estimate. However, the company said sales of its Prozac depression drug slowed 4% during the period and 6% in the U.S. alone due to increased competition.

Drug developer Sepracor (Nasdaq: SEPR) fell $9 1/2 to $84 1/2 after Bear Stearns lowered its rating on the company to "unattractive" from "neutral." On Friday, the company reported a Q1 loss of $0.93 per share compared to a loss of $0.43 per share a year ago.

Competitive local exchange carrier (CLEC) IXC Communications (Nasdaq: IIXC) slid $1 5/8 to $42 5/8 after Merrill Lynch lowered its near-term rating on the company to "neutral" from "accumulate."

Television-based Internet service company WorldGate Communications (Nasdaq: WGAT) gave back $4 11/16 to $39 1/16 after rising 108% in its first two days of trading last week.


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