From todays' Barron's: "Bristol-Myers skidded 4 1/2 to 51 1/2 last week after the company lost a key court ruling, paving the way for generic competition for its cancer drug, Taxol." Old timers to this thread will remember that CYPH's big claim to fame thatt it was gonna provide BMY with an alternate taxol source. Now it looks like it does not matter at all. Once a fish stock, always a fish stock.
Of course CYPH's taxol was an unrealiable and uneconomic sourse and CYPH was one of the troika of Jannsen Meyers deals that got that Dreyfus fund manager fired
interactive.wsj.com
Winner
By Andrew Bary
Vital Signs
Stocks finally produced a broad advance last week as bargain hunters
snapped up many depressed Old Economy stocks and as investors continued
their infatuation with technology issues.
The Dow Jones Industrial Average popped back above the 10,000 mark
after its sharp slide in the prior week, rising 505 points, or 5.1%, to 10,367.
The Nasdaq composite once again bested the dowdy Dow and neared the
historic 5,000 mark. The Nasdaq, boosted by gains in Cisco Systems, Intel
and a revived Microsoft as well as upstarts JDS Uniphase, Veritas Software
and Ariba, advanced 324 points, or 7.1%, to finish at 4914, another new
high.
The Nasdaq now is up 20.8% this year, while the Dow is off 9.8%,
dramatizing the gulf between New Economy and Old Economy stocks -- a
divergence that has become a worldwide phenomenon. The Nasdaq has risen
over 80% from its October low and, amazingly, has more than tripled from its
low of 1419 in October 1998.
Smaller technology and health-care stocks, especially biotechnology issues,
remained the subject of frenzied buying, which was apparent in the Russell
2000 index. The small-cap benchmark rose 7.4% last week to a new high of
597 and is up 18.5% this year.
All the major indexes got a boost Friday after the government reported a
smaller-than-expected gain in payroll employment in February and a slight
uptick in the jobless rate to 4.1%. The hope on Wall Street is that the jobs
data will take some pressure off the Federal Reserve, which has signaled its
intention to raise short-term rates further to cool off the economy. The Dow
rose 202 points Friday, while the Nasdaq gained 160 points.
The headline-grabbing market reception last week for Palm's initial public
offering dramatized the enormous demand for hot technology stocks. Palm
came public Wednesday at $38 a share, more than double the original
expectation of around 15, and it soared as high as 165 in chaotic early trading
before ending the week at 80 1/4, making it the most highly valued IPO in
history. Palm, the leading maker of handheld computing devices, now has a
market capitalization of $45 billion, about $16 billion more than market value
of 3Com, which still owns about 95% of Palm shares. (Before the IPO, Palm
was a division of 3Com.) Palm also is valued at more than such companies as
Gillette and Boeing.
Part of the Palm hype is that the company, in contrast with newly public
technology outfits, is profitable. True enough, but Palm now trades for about
1,000 times its annualized profits in the six months ended last November. The
great bullish argument for Palm is that its operating system will become the
standard for personal digital assistants, enabling the company to become the
next Qualcomm, which has soared because of rising royalty income from its
CDMA cellular-phone technology. But as Barron's noted in a skeptical cover
story last week, Palm's operating system could soon become outdated, and
other standards are emerging.
Those partial to Palm ought to purchase 3Com instead. Here's why: 3Com
owns about 532 million Palm shares, which are worth $42 billion, or $120
per 3Com share. 3Com, whose shares surged in weeks prior to the Palm
deal, rose 2 3/8 last week to 83 1/16 after touching a high of 119 3/4 .
3Com now trades at a sizable discount to the current value of its Palm stake,
without giving any credit to 3Com's appreciable cash reserves of $10 a share
and a networking and modem business that is probably worth at least $10 a
share. 3Com's asset value therefore totals $140 a share, way above the
company's current price of 83. 3Com, moreover, intends to spin off its Palm
stake to 3Com shareholders in about six months.
Why is there such a big gap between 3Com's share price and the value of its
Palm stake and other assets? For starters, it's very difficult now for
arbitrageurs to short Palm because of restrictions on the ability of institutional
holders to lend shares. And even when shorting does become easier, a sizable
spread probably will persist for some time because the public float in Palm is
just 23 million shares, or 4% of its outstanding common.
What the market also may be saying is that Palm's lofty share price reflects
scarcity value and feverish current investor demand and that six months from
now, Palm will be trading well below 80. In fact, 3Com's share price of 83
implies that Palm will be trading for about 40 when 3Com makes the
distribution of Palm stock to its shareholders later this year.
"It makes no sense to buy Palm when you can buy 3Com," says Alec Cutler,
a managing director at Brandywine Asset Management. Cutler says that
3Com will continue to be driven by the price of Palm stock, although the two
stocks eventually will converge by the time of the Palm spinoff. Cutler likes
3Com because it offers a cheaper way to play an admittedly expensive Palm
and because he thinks the company's networking business doesn't get as
much credit as it deserves. 3Com's specialty, network interface cards, could
become increasingly important to addressing broadband data bottlenecks,
Cutler says.
Regional bank stocks remain dogged by weak fundamentals and poor fund
flows, as investors continue to pull money out of underperforming
value-oriented mutual funds.
Three banks, Bank One, First Security and First Tennessee, last week
became the latest companies to signal weaker-than-expected profits.
Utah-based First Security, which is set to merge with Zions Bancorp, another
Utah bank, plunged 8 1/2 to 14 Friday after saying that it expects first-quarter
profits of 24-26 cents a share, below the consensus estimate of 32 cents,
because of margin compression from higher rates and reduced mortgage
lending activity. First Tennessee fell 5 1/4 to 17 3/8 after announcing Monday
that its first-quarter profits would be about a dime below last year's 40 cents a
share.
Bank One issued its latest profit warning Friday, telling analysts to expect
first-quarter profits of 60 cents a share, below the current consensus forecast
of 65 cents. But Bank One was off just 13/16 to 25 1/2 Friday, partly
because investors seem inured to bad news with the stock down over 50%
since last summer and because of continued takeover speculation.
Indeed, PaineWebber strategist Ed Kerschner included Bank One on a list of
51 potential takeover candidates Friday, saying it could fetch $50 a share.
That $50 target, it should be said, is considered way too high by some
bank-stock investors, given Bank One's woes and the depressed multiples
throughout the sector. Most regional banks now trade for less than 10 times
projected 2000 profits, giving few the currency for big deals. Kerschner also
included such companies as Allstate, Clorox, Kodak, Gillette, Heinz and J.C.
Penney on his list.
While many bank stocks suffered, brokerage issues surged. Morgan Stanley
Dean Witter rose 9 1/4 to 79 3/16 after gaining nine points in the prior week,
and Goldman Sachs gained 13 1/4 to 102 1/2 . Goldman is up over 25% in
the past two weeks. Morgan Stanley and Goldman, both of which hit new
highs Friday, have come to be viewed as technology surrogates by many
investors because of their dominant tech underwriting franchises. Reflecting
that status, Morgan Stanley and Goldman were lead managers for the Palm
deal last week. The pair each trade for around 20 times projected 2000
profits, an historically high P/E for brokerage stocks, but a steep discount to
the tech leaders.
One of the many current market ironies is that as biotechnology stocks like
Genentech continue to soar, major drug companies like Merck,
Schering-Plough and Bristol-Myers Squibb are falling. Merck and
Bristol-Myers hit new 52-week lows Friday while Schering-Plough finished
just above its recent low.
"Once investors get the perception that earnings growth is slowing down, they
don't want to own the stocks," says Neil Sweig, drug analyst at Ryan Beck.
Merck, which fell 2 11/16 to 57 1/2, leaving it well below its 52-week high of
87, remains dogged by fears of slowing profit growth in 2001 because of
patent expirations on several key drugs.
Merck's earnings are seen rising 13% this year to $2.78 a share, but its profits
are seen increasing just 10% in 2001 to $3.07 with some analysts saying the
figure could be as low as $3. Schering-Plough, which was unchanged at 34
11/16, is down from a high of 60 because of fears about looming generic
threats to its key allergy drug, Claritin, and competition from Allegra, another
allergy drug. Bristol-Myers skidded 4 1/2 to 51 1/2 last week after the
company lost a key court ruling, paving the way for generic competition for its
cancer drug, Taxol. Merck and ScheringPlough now trade for just over 20
times projected 2000 profits, their lowest P/Es in several years, but they've
gotten thrown into the value bin by many growth investors, rendering their
shares virtually untouchable. Sweig says that annual profit growth of even
15%-20% is deemed too low for many aggressive investors these days.
The Trader, Part 2 |
