July 22, 1999

Midyear Losers
by Rick Munarriz (TMFEdible), David Marino-Nachison (TMFBraden), and Paul Larson (TMFParlay)

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What's Here

  • Introduction
  • AT&T & Broadband
  • Pharmaceutical Unrest
  • Online Financial Svcs.
  • Internet Stocks
  • InterNOT Stocks
  • See You Later, CEOs
  • Big Winners
  • Big Losers
  • Market Returns
  • Fool Portfolio Returns
  • Global satellite phone company Iridium World Communications (Nasdaq: IRID) has fallen from orbit in 1999. While offering phone and paging service anywhere on the planet is a technological feat, Iridium's marketing has been a disaster. The satellite phones the company uses have been in short supply, and the lofty prices of its service have made Iridium cost-prohibitive to all but a handful of users. The company has since lowered its prices in an attempt to drum up subscribers, but the total demand still remains far below what was originally envisioned. Adding insult to injury, the trouble brought on by Iridium's poor operating results has been exacerbated by relatively high levels of debt. With total liabilities at Iridium's parent company eclipsing $3.5 billion and total first quarter revenues totaling a scant $1.5 million, it doesn't take a rocket scientist to see that Iridium is in a steep financial nosedive. The company has had to renegotiate the terms of its outstanding debt to avoid default, and there is no guarantee that the company can keep its creditors on hold for much longer. Unless the company can dramatically change its course in short order, Iridium may continue to spiral downward.
    Loss: 73% through 6/30

    It has been anything but a healthy year at McKesson HBOC (NYSE: MCK), the largest distributor of pharmaceutical products in the U.S. and Canada. After running to $89 soon after the blockbuster $14 billion merger in January between McKesson and HBOC & Co., the shares fell off a cliff in late April. On April 29, a whopping 47.5% of the stock's value and $9.2 billion worth of market capitalization vanished into thin air in a single trading session. Aspirin, anyone? Behind McKesson HBOC's beheading was the company's announcement that prior earnings were to be restated downwards. Plus, the firm watered down forward profit expectations, making for a fairly nasty one-two punch for investors. The class-action lawyers are salivating at the company's accounting problems, and shareholders have been left with a troubling feeling about their stock.
    Loss: 59% through 6/30

    Nurse! That's what investors in Centennial Healthcare (Nasdaq: CTEN) may have been yelling this year after more than two-thirds of the stock's value was chopped off during early 1999. Almost all of that chopping was done on March 30 when the stock lost over $7 on news that the Department of Health and Human Services had subpoenaed documents in connection with a civil investigation into possible "improper" Medicare claims by four of the firm's facilities. The company also released first quarter earnings of $0.08 per share, far below the $0.18 Wall Street expected. This small-cap company, which provides long-term healthcare to the elderly, has yet to recover from this serious illness.
    Loss: 66% through 6/30

    What happens to a seed when it doesn't get watered? Forage and turf seed seller AgriBioTech (Nasdaq: ABTX) has found out the hard way. After believing the company was laying new sod by acquiring 34 different companies in a fragmented sector, it forgot about the weeds. Synergy has a way of getting uprooted when a company can't efficiently tackle the integration of the new additions. While the company is hoping to curb its costly overhead by trimming down redundancy, its expectations of a profit in fiscal year 2000 are only freshly planted -- who knows what will turn up?
    Loss: 53% through 6/30

    Just for Feet
    (Nasdaq: FEET) thought it had a layup, but it got stuffed. The athletic shoe superstore chain figured it had a category killer on its hands. With its full-blown stores offering wide selection, discounted prices, and in-store basketball courts, how could it miss? Then the category got killed. Patrons ditched the status-ladened Nike (NYSE: NKE) sneakers in favor of the comfortable brown Timberland (NYSE: TBL) look. While even debt-riddled heavyweight Venator (NYSE: Z) has been able to march back into the investing world's good graces -- and Nike, too, for that matter -- Just for Feet has fouled out and is watching from the bench. Like the sole of an aging Air Jordan, the company's credit line is treading thin. Just for Feet has had to suspend new openings in fiscal 2000 and is turning to its vendors for support. With the chain's fundamentals in a full-court press, it's getting harder and harder to find an open shot this time.
    Loss: 63% through 6/30

    Now, Vlasic (NYSE: VL) has gotten itself into a pickle. The foodmaker behind the classic Vlasic and Swanson brands had a rough start this year. A new minimum tax law in Argentina is cramping profits at its Swift-Armour division, while mushroom farming problems are taking the fun out of the fungi. The company is also suffering from Swanson's inability to change with the times. Vlasic is selling less Swanson frozen dinners than it sold five years ago. For a brand that defined the "TV dinner" in the 1950s and ruled the roost until the 1970s, it has slipped to number four through the years. Hungry-Man, yes -- but not hungry enough.
    Loss: 69% through 6/30

    Shares of Travel Services International (Nasdaq: TRVL) have been temporarily grounded. The roughed up baggage has come courtesy of a company trying to adapt to the travel industry's razor-thin commissions. Airlines started first -- slashing their payouts to online and then offline travel agents. Travel Services tried to offset the smaller royalties by raising anchor and specializing in the cruise sector. It's a move many all-purpose agents with a strong online presence like Preview Travel (Nasdaq: PTVL) have tried. Yet, this voyage has been anything but "bon" for Travel Services. The company invested plenty in beefing up its cruise booking staff only to find it couldn't beef up its cruise bookings. While the leisure ship industry appears booming, with many new ships on the way, Travel Services seems to have been left behind at a forgotten port of call.
    Loss: 61% through 6/30

    While some investors have been partying 'cause it's 1999, the man in the corner diluting his beer with tears might be an investor who's stubbornly kept his money in computer disk drive stocks. Things are tough all over in the sector -- as PC prices have fallen, drive makers have had to battle for business and profitability. Probably worst hit has been Western Digital (NYSE: WDC). "The pricing pressures we have seen so far this quarter in the desktop drive business," chairman and CEO Chuck Haggerty said recently, "are among the worst I have ever seen." 'Nuff said. Companies like EMC Corp. (NYSE: EMC), focused on enterprise storage, are in better shape and, given the projected proliferation of enterprise storage area networks (SAN) over the next several years, will probably provide better memories for investors. Given that, many disk drive companies are making the move into network storage. One such company, Quantum Corp. (Nasdaq: QNTM), may even have its network business traded separately. Western has been in the business since fiscal 1997; predictably, however, lower-margin desktop units make up the vast majority of the company's shipments.
    Loss: 57% through 6/30

    What in November was Trouble has since become doubly so, as shares of X-ray systems marketer Hologic Inc. (Nasdaq: HOLX) are now worth less than half what they were last winter -- drifting near penny-stock range -- when the Fool last chronicled the company's woes. For a time it was able to maintain revenue growth despite industrywide woes, but the dam finally broke in fiscal Q2 when Hologic went unprofitable amid flagging domestic sales of its bone densitometers and ultrasound bone sonometers and problems with Latin American markets. Job cuts followed. While Hologic was able to hold the water back somewhat longer longer than rivals Lunar Corp. (Nasdaq: LUNR) and Norland Medical Systems (Nasdaq: NRLD), the proverbial finger has left the proverbial dike. To the company's credit, Hologic has been boosting its direct sales force and a few acquisitions have gone on the books, so there may be some reasons to watch this company -- with X-ray glasses, if possible.
    Loss: 54% through 6/30

    Looking at the performance of electronic design automation company Cadence Design Systems (NYSE: CDN) through the first six months of 1999, an investor might be led to think the company had done something terribly wrong. In fact, that isn't really the case. Through a series of acquisitions, the company has positioned itself well for future growth with a formidable array of products and product opportunities. Then why the loss this year? With Cadence, it's tough to tell when all the pieces will come together. Relatively new CEO Ray Bingham's interest in improving revenue visibility by prioritizing a shift to subscription-based (rather than flexible-access) software licensing may hurt results in the near term but stands to reward patient investors with increased predictability. If Bingham can make the transition work and successfully integrate purchases like OrCAD and Quickturn, it could mean fewer disappointments like Q2's earnings, which missed Street projections. Until the new CEO's stamp is well burned into Cadence's rump, it may be some time before the company falls into step with investors' designs.
    Loss: 58% through 6/30

    Check the Daily Trouble Archives for other recent losers.

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