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KLICKie, In regard to the 'blowoff' that you meantioned last week, you might find the following interesting (from wsj interactive):
The Trader: A Barron's Column
By LAUREN R. RUBLIN
AP-Dow Jones News Service
'This is getting to look more and more like the `blowoff stage' that signifies the
end of a bull market. Usually it ends in tears.'
Ray DeVoe, an eloquent and experienced observer of financial fads, penned
those ominous words in the May 7 issue of the DeVoe Report, his more-or-less
weekly rumination on the permutations of the market. It's no secret to DeVoe,
or anyone else, that the tears these days all belong to short sellers. They scored
a few points Thursday and Friday, when Iomega, a favorite target of the tattered
remnants of the breed, tumbled 9 7/16 (more about that to follow). But, in the
main, stock fans have been eating stock foes for lunch, reports Barron's in its
May 27 edition.
Yet, with each passing week, the bull market seems to be bearing out DeVoe's
'blowoff stage' observation, and in the process inching closer to its inevitably
tearful denouement. What better proof of the pick-up in speculative fervor than
the recent example of Optical Cable? The shares of this high-speed fiber-optic
cable manufacturer came public April 2 at $10 apiece, in a do-it-yourself
offering orchestrated by president and CEO Robert Kopstein, who continues to
hold 90% of the 9.67 million shares outstanding. (Thursday the stock will split
2-for-1, increasing the public float to 1.34 million shares.)
Last Thursday Optical Cable closed at $110 a share, up $31 in the session.
Friday the stock peaked at $136, before back tracking to $92, on turnover of
437,400 Nasdaq-traded shares. That stunning trajectory speaks not to the
wisdom of eschewing an underwriter's assistance (actually, a market source
reports that several glanced and passed), but to the sheer determination and
promotional exertions of Kopstein himself, who was sitting atop a paper profit of
at least $1 billion as of Friday's peak. (He was no pauper at the close, either.)
Presumably, Optical Cable's commendable products (last year, anyway, they
reportedly earned commendation from Internetwork Magazine), its recent
financial results (profits of $8.2 million, or 58 cents a share, on sales of $36.4
million for the fiscal year ended October) and its competitive advantages (only
small-fry such as AT&T and Corning troll the same arena) all propelled the
stock from its initial offering price to Wednesday's high of 79.
Nor has the company been shy about introducing itself and its products to the
investment community. In a release dated May 13 and addressed to 'National
Stock Brokers,' management graciously invited participation in the aftermarket.
Moreover, it argued that Optical, with 45.2% gross margins, a 31.6% return on
assets, and a 43.9% return on equity, deserves a price/earnings multiple well in
excess of the average P/E of 44.9 awarded (as of May 1) to some 18 other
companies, from Adaptec to Xilinx, that also provide materials to the
fast-growing communications industry. (How does a P/E of 159 times fiscal '95
net sound?)
What allegedly has pushed the stock up since Wednesday, however, has been
Kopstein's Thursday morning appearance on CNBC's Squawk Box show. That,
and the by-now-familiar Internet chatter, which apparently drove innumerable
small investors to the phones to buzz their brokers. Most of last week's trading,
in fact, involved lots of 100 and 200 shares, suggesting Moms and Pops, rather
than swaggering mutual-fund managers, were responsible for Optical Cable's
elevation to unimagined, and previously unimaginable, heights.
With corporate profits still growing and billions of dollars of fresh cash still
flowing into equity mutual funds, it's too soon to proclaim this bull market's grand
finale. And who would dare do so with the Dow Jones Industrial Average now
resting comfortably at 5762.86, having hit two new records on the week? Yet
DeVoe, though obviously early, may be on to something. Whatever you do,
don't short Kleenex.
It began with a bang and ended with a whimper, but the trading week put to bed
Friday did more than a yeoman's job in lifting the market's major measures,
several to new highs. It also marked vaunted Fidelity Magellan manager Jeffrey
Vinik's resignation from the helm of the world's largest, $56 billion mutual fund,
and the fund's corporate sponsor, Fidelity Management & Research. Vinik,
whose recent underperformance has placed him in the Fidelity fishbowl, not to
mention that of the financial press, will start his own money management firm.
And if he finds few compelling stocks to buy - indeed, his big bet on bonds and
ample cash reserves led to his latest poor showing - he'll owe only himself and
the clients who care to inquire an explanation.
Vinik's announcement pushed the bond market lower Thursday morning, on the
theory that his Magellan replacement, Robert Stansky, will be clearing out the
bond inventory. Certain Stansky favorites, on the other hand, got momentary
lifts. But, in the end, the alleged Fidelity-related maneuvers had less to do with
the stock market's advance than the usual corporate developments and sector
rotations.
Among the key indexes, the S&P 500 led the pack, climbing 1.44%, or 8.74
points, to a record 678.51. The Dow Industrials, which sprinted 61.32 points
Monday on a big oil-stock rally, gained 75.36, or 1.33%, over the five-day
span.
Just why the oils, and crude itself, shot up on the news that the U.N. will let Iraq
resume limited production mystified industry players. Some termed the uncertain
timing of the country's reentry into the market a cloud hanging over the stocks;
the evident resolution of the lingering problem, they say, inspired otherwise
hesitant investors to fill out under weighted positions. In any case, Chevron
picked up 1 5/8, to 61 1/8; Texaco 2 1/4, to 86; Atlantic Richfield 3 3/8, to 121
3/4; and Exxon 2 1/4, to 87.
Philip Morris also deserves a good deal of credit for sending the Dow
heavenward. The cigarette maker's shares surged 6 1/4 points to a closing high
of 103 7/8 Thursday after a federal court in New Orleans decertified a
mammoth class-action suit against tobacco marketers. RJR Nabisco also moved
up, adding 2, to 33 1/8, on the day, while UST leaped 1 3/4, to 34 3/8, and
Loews 3 1/2, to 82 1/8.
The lawyers for Castano, as the suit was known, have vowed to push on in
individual state courts, but the industry has been granted at least a temporary
reprieve. Sanford Bernstein analyst Gary Black, who is recommending Philip
Morris, RJR and UST, believes 'people will look back at this decision and see it
as the beginning of the end of the third litigation wave' to overtake the
beleagured industry. Philip Morris shares, he argues, will return to a relative
multiple of 80%-85% of that of the broad market, while the decertification
'basically will force RJR management to consider again spinning off' the
company's Nabisco food division.
Among other market measures, the Nasdaq Composite picked up 5.92, or
0.48%, to 1247.80, while the small-cap Russell 2000 added 3.96, or 1.1%, to
364.59. Technology stocks staged a mixed performance, with New York stock
exchange-traded Computer Associates sinking 5 5/8 on fears about future
earnings. On the other hand, several tech IPOs scored smashing debuts, among
them Open Market, which opened at $18 and peaked above $40. The
Internet-related company, founded in 1994, has yet to post a profit.
The amazing, levitating Diana, which may or may not have a big Internet product
but definitely is saddled with a drab meat and seafood distributorship, shot up 18
1/2, to 103 1/2, on the week. For the ninth time since late February, the
company refused to comment on the inexplicable rise. Iomega, one of the most
chatted-up companies in cyberspace, also rose sharply on the week but, as
noted, fell almost as sharply in the final sessions.
Theories abound on just what cratered the high-flying issue, but one skeptic
points to a 'breakthrough' removable disk drive, developed by MKE of Japan,
Compaq Computer and Minnesota Mining & Manufacturing, that reportedly will
be included in future Compaq PCs. The product, said to be priced competitively
with Iomega's 100-megabyte drive, in his view could become the new industry
standard.
Wayne Huizenga has had such a knack for enriching investors, conspicuously
including himself, that his mother should have named him 'M. Wayne'. M for
Midas, that is. Since founding Waste Management (now WMX Technologies) in
the early 1960s, and building it into a billion-dollar trash-hauling and remediation
colossus, Huizenga has honed a remarkable ability to foster gilt by association.
And he did it seemingly effortlessly again last week, not just once but twice.
Monday Republic Industries, in which Huizenga and associates hold a controlling
stake, announced plans to acquire Continental Waste Industries, a Clark, New
Jersey, provider of solid-waste management services, in a $240 million
stock-swap netting Continental holders two-fifths of a Republic share for each
Continental share held. Typically, on takeover announcements, the seller's shares
rise while those of the buyer fall in an expression of investor concern about the
ultimate impact of the deal on the acquiring company. When Huizenga buys,
however, everyone goes home richer. Continental surged 3 1/8, to 16 1/2, on
the week, and Republic rallied 7 7/8, to 48 1/2, after first hitting back-to-back
intraday peaks of 50 1/8.
Typically, too, when a company issues more stock, current holders grouse about
the prospective dilution by knocking down the price of the shares. Again, not so
in a Huizenga issue; the Continental news was accompanied by the unrelated
disclosure that Republic planned to sell five million common shares to institutional
holders, at a then-indicated $40.50 apiece, in a private placement arranged by
Allen & Co.
In April 1995, Republic (then known as Republic Waste) spun off its
hazardous-waste division, Republic Environmental Systems, as a publicly traded
concern. That stock, too, got a mighty jolt last week, initially climbing 19 5/8
points, or 424%, to Wednesday's intraday high of 19 5/8, before backtracking 5
1/4 points. Still, Republic Environmental finished the five days at 15 3/4, an
exceedingly long way from its month-ago low of 2 7/8.
So, what elevated this Republic? The company agreed to sell a majority stake to
privately-held Alliance Holding, the Cleveland-based parent of a group of
insurance concerns. And it obtained another new investor - H. Wayne Huizenga,
who will kick in $5.25 million in exchange for a million newly issued common
shares and warrants to acquire an additional three million shares at prices ranging
from $5.25 to $7.75 apiece, for periods ranging from two to four years.
The very same Huizenga magic, which also transformed Blockbuster
Entertainment from a handful of stores into a video-rental giant for which Viacom
paid $8 billion in 1994, cast its spell over Republic Waste immediately upon the
announcement of Huizenga's initial $27 million investment in May 1995. The
shares of this heretofore relatively sleepy landfill and waste-removal concern,
then trading at 3 7/8, doubled with the disclosure, and, as the chart nearby
attests, has been working their way higher since. In the last month, this advance
has taken a turn for the torrid; the stock has risen 51%, giving Republic a hefty
price/earnings multiple of 65 times this year's Street estimates, and 42 times
estimated '97 net.
Huizenga, officially named chairman and CEO in August, shook things up from
the get-go. Rechristening the company and relocating it to Fort Lauderdale, he
embarked on the same sort of acquisition binge that earlier had bulked up
Blockbuster and WMX. In fact, his first purchase was of a pair of companies
owned by his brother-in-law, now Republic's president, although his most
controversial to date has been the $250 million acquisition of AutoNation, a
privately held (in part, by Huizenga himself) company that plans to develop (but
hasn't yet) a nationwide chain of used-car superstores.
Other acquisitions, nearly all done for stock, have included waste, home-security
and billboard-advertising concerns. The new additions enabled the budding
conglomerate to post '95 earnings of $23 million, compared with a '94 net of
$17 million and a '93 loss. Fully diluted per-share net, however, dipped to 35
cents last year from '94's 38 cents, as the number of shares outstanding
expanded. Sales, meanwhile, grew to $260 million from a year-earlier $187
million, and the company's express goal is to produce annualized revenues of
$800 million-$1 billion by the end of '96.
In this year's first quarter, which witnessed no fewer than 21 acquisitions in
various industry sectors, Republic racked up earnings of $11 million, or six cents
a share, on sales of $99.6 million. The company's once-bruised balance sheet,
repaired by additional private placements and Huizenga investments, sported
$137.7 million in cash and no long-term debt.
As the 10Q details, the company's common and common-equivalent shares
have grown apace, to 193 million from 96.6 million as of March 30 a year ago.
And the common soon will be split 2-for-1, payable June 8 to holders of record
May 28.
Huizenga's track record, as noted, and an ebullient market repeatedly have lifted
the price of those shares. And their increasingly exalted value, in turn, has both
handed Republic ready deal currency and facilitated still more private
placements. Those who have bet against Huizenga in the past more often than
not have paid an unfortunate price. Besides, in this market a P/E of 42, or even
65, might look like small potatoes. But Republic, of late, has had an especially
fevered rise, and its current valuation doesn't leave much room for
disappointment. |
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