Ice and MrB, here's A.Abelson's latest...it's long but good reading.
MrB, you can do this!
Lend Us Your Ears
Alan Abelson
o, he bit off more than he could chew.
But why the outcry, whence the outrage? Aren't we all exhorted, whatever our
station, to test our limits? Shouldn't man's grasp, as Browning put it, always
exceed his reach?
Sportswriters, a gamy lot, are constantly extolling the ``hungry fighter'' as one
who is exceptionally motivated. Yet they were all over Mike Tyson for merely
taking their insipid cliche seriously. Their biggest complaint seemed to be that by
indulging what admittedly is an acquired taste, he sullied the reputation of
professional boxing. That's like complaining that Jeffrey Dahmer gave serial
killing a bad name.
Estimably, Mr. Tyson proved himself a true prizebiter by eschewing any
discriminatory preference: No sooner had he masticated on one lobe than, at the
earliest opportunity, he forthwith put fang to flesh on the other.
Before treating himself to a bit of ear, Mr. Tyson carefully removed his
mouthpiece. A tribute, all the more touching for being reflexive, to his first
manager, Cus D'Amato, who plucked a vicious urchin from the mean streets
and transformed him into a fine human being by, among other things, insisting
that Young Tyson not eat with his mouth full.
As a tutor of budding pugilists, Mr. D'Amato gained repute as a kind of
Socrates among the sleaze because of his knowledge of craft and devotion to
his rough-hewn charges. He was also, reports Robert Boyle, a brilliant
chronicler of the sweet science, so insistent on his specialness that, in order to
refute envious rivals who sneered that, at bottom, he was like everyone else and
put on his pants one leg at a time, he became adept at putting on his pants both
legs at once.
Some years have passed since Cus D'Amato gallantly went down for, alas, the
final count. Were he still among the quick, Mr. D'Amato would have contrived
to thwart Mr. Tyson from turning the prize ring into a teething ring, if only by
warning sternly of the dire consequences of carnivorous compulsion. Something
to the effect of: ``Ear today, Mike, gone tomorrow.''
Even the most genteel among us might be inclined to a modicum of sympathy for
the intolerable frustration that caused Mike Tyson to go bicuspidly ballistic. And
for sure, a certain type of investor, no matter how firmly vegetarian, must feel
not just sympathy, but downright empathy. We're thinking, of course, of the
Doubting Thomases who have spent the last several years on the sidelines
watching, with mounting bewilderment and angst, as the bull market soared from
one incredible peak to the next, making their fears seem so foolish and their
prophecies so much piffle. The world will never know how many, in their
sanctum sanctorums, have sought release from their rage by gnawing, if not on
innocent ears or noses, then on equally inculpable furniture.
The sources of the bears' discontent, not least among them the extraordinary
combination of economic strength, growing corporate earnings and suppressed
inflation, have been widely advertised. Less attention, however, has been
granted the bullish thrust provided by the workings of the tidal forces of supply
and demand. As the accompanying chart, the handiwork of our friends at
Montgomery Securities, graphically depicts, demand for equities has been
dramatically outstripping the supply of the stuff.
Last year, as the firm calculates, demand for stock totaled $493 billion, of which
mutual funds chipped in a tidy $260 billion, cash mergers and acquisitions $200
billion and $32 billion represented stock buybacks. Supply, by contrast,
aggregated only $129 billion worth, including $50 billion from initial public
offerings and $79 billion from secondary issues. That works out to a stunning
imbalance of demand over supply of $364 billion.
What's more, so far this year the tilt is again heavily in favor of the bulls, with
demand for stock outweighing supply by $123 billion ($163 billion versus $40
billion). The auguries, in case you're wondering, appear quite positive. Money
continues to pour into mutual funds at a phenomenal rate, and there's no visible
diminution of acquisitive appetites among fat corporate cats, nor, perhaps more
important, of the cash to satisfy those appetites. Meanwhile, as Scott Reeves
points out in his new-issues roundup over on page 17, while the dust is starting
to stir on the offering front, the number and dollar value of IPOs remain no
threat to '96's blistering pace.
The increasingly powerful influence of demand and supply rather than
fundamentals as drivers of this market leads the scholarly market savant,
Paul Macrae Montgomery, to some wry observations. In his June 30 Universal
Economics letter, Paul suggests that the ``present methods of choice for
handling the equity market are not those of Graham and Dodd but those of the
commodity pit.'' He notes that a recent week's ``average daily range on the
stock market was greater than 2%,'' while the annual dividend yield is 1.6%.
With daily volatility exceeding yield, Paul concludes, on an ``investment'' basis,
there's not much basic ``difference between the S&P 500 and November
soybeans.'' (Frankly, maybe because we're incorrigibly conservative, soybeans
stack up as the preferred bet.)
As we say, the portents at the moment are bright for the impetus provided by so
much demand, coupled with so little supply, to continue to speed the market in
its heavenly ascent. Forgive us our weakness for stating the obvious, but supply
and demand, whatever the commodity, are never constant but always in flux,
and price is the primary agent of change; high prices dry up demand and
stimulate supply, low prices have the opposite effect.
Stocks seem to be the one exception, but the emphasis is on seem. As the
market draws a bead on 8000 and the ethereal realms beyond, the temptation
to go public or sell more shares will also rise mightily, as will the lure of doing
deals for stock rather than cash. A billion less demand here, a billion more
supply there - before you know it, the billions start to add up. And sooner or
later, your old friends, supply and demand, turn around and bite you.
lue Bell, Pa., is the reorganization capital of the world. Blue Bell is also the
home of Unisys. Which, in fact, is why Blue Bell is the reorganization capital of
the world.
Unisys, for those of tender years or soft memories, was formed in 1986 by the
union of two computer pioneers, Sperry and Burroughs. What brought these
dimming corporate luminaries together, as we recall, were necessity and W.
Michael Blumenthal. Mr. Blumenthal, an engaging and bright chap, in the flush of
postmerger anticipation, forecast that the combined companies would generate
sales of some $20 billion within a half-dozen years. In the event, such
expectations proved roughly $10 billion too ebullient, a modest miscalculation
we ascribe to Mr. B's having spent some time as Secretary of the Treasury,
where sums of less than $100 billion are considered chump change (or, in the
official parlance, ``statistically insignificant'').
Following two decent years and a peak in the stock of 48, something funny
happened to Unisys on its way to the golden 'Nineties: It sank hundreds of
millions of dollars into the red in 1989. Mr. Blumenthal chose to pursue other
interests, and he was replaced in 1990 by James A. Unrah. Four sweeping
reorganizations and seven markedly undistinguished operating years later, Mr.
Unrah has announced his plans to follow Mr. Blumenthal into exile. Mr. Unrah
explained that seven years is a long time for CEOs and, especially, we would
imagine, when they're seven lean years. Mr. Unrah's decision evoked a
cheer-and-a-half from the stock market; the shares closed the week at 7 5/8.
One of the first things we suggest a new chief might fruitfully consider is a
change in the company's name to something less sibilant. Something like Sperry
Rand, say, or Burroughs. Chances are, though, like most newly minted CEOs -
and this being Blue Bell - he or she will feel compelled to launch a
reorganization. We fervently hope not. First, because Unisys has been shrunk a
fair piece, and there isn't all that much left to reorganize. And secondly, because
Mr. Unrah's last redo seems to be taking.
Unisys, let there be no mistake, still has a mess of problems. Its balance sheet,
at first glance, is plain ugly and doesn't improve much on second glance. It's still
big in mainframes, and mainframes, from all we can gather, are not the wave of
the future in computers. It has a pretty heavy exposure to Europe, which has not
conspicuously been a dynamite market.
Still, a fellow we know who's a first-rate stockpicker and has the good life to
show for it, has taken a liking to the stock. More than that, he's bought a bundle
of the shares around these prices. It's mostly on his say-so, reinforced by the
results of rooting around the available material and taking a stray Street
sounding or two, that we're poised to say something moderately nice about
Unisys.
As noted, the last of Mr. Unrah's quartet of restructurings appears to be yielding
tangible benefits, particularly his splitting operations into three parts - computer
hardware, maintenance and information services. The company wound up in the
black in last year's closing quarter, cut its loss in the first three months of '97 and
for the full year will probably throw off some cash, should earn around 40 cents
a share and even show a little top-line growth.
One of the things that caught our friend's eye was that the new main financial guy
at Unisys is late of GE, and he's banking on the ex Welch-man to work a little
magic and squeeze maybe $100 million in savings over the next couple of years
out of the financial end of the business. Further, our source points out that the
company's heavily laden with very high-coupon debt, a chunk of which is
maturing, and some costly preferred ripe for redemption.
He also sees the chance for serious improvement on expiring low-margin
contracts that can be gradually rolled over on, natch, more advantageous terms.
The difference, he figures, ultimately will run to $150 million or so. Add that to
the aforementioned $100 million and, according to our abacus, you get roughly
$250 million. Even pre-tax and over a two-year stretch, $250 million is
meaningful jam to spread over 175 million shares.
When our stockpicking pal leaves the secure terrain of numbers he becomes a
bit vague. But he does relay that he's heard good things about the company's
software. Mercifully, we didn't press him for details. Other, reasonably
disinterested types also profess to spot rays of sunshine shafting through the
clouds that have hovered over Unisys.
Our friend is free of investment illusions or delusions, and he doesn't suggest that
Unisys is the next Microsoft (or even the next IBM). But he does think that,
after so many false starts, it's finally on the right track, that the stock's thoroughly
washed out and, if earnings show their expected resiliency, it's a very decent
speculation.
|
