MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING WED DECEMBER 17, 1997 (2)
New York Commentary - Continued
After The Bell
The Justice Department asked a federal judge to hold Microsoft (MSFT) in "civil contempt" and levy a $1 million-per-day fine on the software firm. Last week, U.S. District Court Judge Thomas Penfield Jackson ordered Microsoft to offer a version of Windows 95 without forcing PC makers to also include its Internet explorer but did not hold the company in contempt. Microsoft shares fell 3 7/16 to 135 5/8 on Wednesday.
Broderbund Software (BROD) reported first-quarter earnings of 49 cents per share, a nickel better than Street expectations.
Software tools developer Cognos (COGNF) said it earned 30 cents per share in its third quarter, 4 cents ahead of expectations.
Speedfam International (SFAM) said it earned 49 cents per share in its second quarter, in line with projections.
Analysts' predictions were also right on the money for CKS Group (CKS) and National Data Corp. (NDC). CKS earned 7 cents per share in its fourth quarter, while National Data posted second quarter results of 41 cents per share.
Telco Systems (TELC) beat the Street by 4 cents. The developer of networking-access products said it earned 6 cents per share in its first quarter.
Centocor (CNTO), which tumbled 6 3/8 to 31 1/2 Wednesday on a profit warning, said it is postponing the IPO of its Centocor Diagnostics unit.
Excel Communications (ECI) said it will buy back up to 10 million shares of its common stock.
American Pad & Paper (AGP) warned that it will have a loss of upto 10 cents per share in the fourth quarter. Wall Street was expecting a gain of 50 cents per share.
Wednesday's Markets
The take-away from Wednesday's action is that Wall Street loves lower taxes, but hates profit warnings from blue-chip companies. In the end, the red flag from 3M overshadowed an unexpected income-tax cut in Japan's bailout package in a terse battle for the hearts and pocket books of investors. The Dow finished down 19 points while the Nasdaq closed off more than 5.
Technology stocks showed strength in the early going, but the rise proved short-lived. Though some players said Tuesday's action signaled that a bottom had been reached in the sector, today's setback is proof that the rise was technical in nature and that fundamentals remain murky, other players say.
Technology's woes and the warning from 3M did help spur more interest in small-cap stocks, which rose sharply for the second straight day.
The Dow Jones Industrial Average ($INDUA) shot higher by more than 50 points at the opening bell, spurred by a 555-point gain for Japan's Nikkei 225 Index, where investors responded favorably to a one-time income-tax cut of some $15 billion. The Dow abruptly reversed course at about 10 a.m. as investors turned their focus to 3M's profit warning. By 11 a.m., the Dow was in negative territory by about 25 points; the index then marched back to a similar gain by 12:30 p.m. The index waffled through the afternoon, then turned lower again heading into the last hour of trading, during which it flip-flopped around the break-even point before turning lower by as much as 45 points. The Dow ended with a flurry, closing off 18.90 points at 7,957.41.
The Nasdaq Composite Index (COMP) also failed to hold onto early gains, but suffered less volatility than the Dow. Instead, the tech-rich index saw its initial 12-point rise erode an hour into the session, then drift slowly lower. The Nasdaq also experienced some weakness in the last hour of the day, closing off 5.63 points at 1,547.37.
The S&P 500 (SPX) slid 2.50 points to 965.54, while the Russell 2000 Index (RUT) rose 1.11 points to 426.45.
On the NYSE, a heavy 632 million shares were traded, while advancing issues bested decliners by a 16-to-13 margin. In Nasdaq activity, 768 million shares were exchanged while the breadth was essentially even.
In conjunction with the Nikkei's big rise, the yen enjoyed its best one day performance versus the dollar in four years after the Bank of Japan acknowledged that it had intervened to support the yen. The dollar's weakness and rumors of Japanese selling of 2-year and 5-year notes sent bond prices lower. The long bond fell nearly half a point, sending the yield on the benchmark 30-year Treasury bond rising to 5.99%.
On the eve of its presidential elections, South Korea's Composite Index climbed 3.5% and its currency, the won, improved as well. With its bigger neighbors on the rise, Hong Kong joined the party, as the Hang Seng Index rose 3.4%.
Technology Stocks
The pockets of strength that existed early on in technology faded as the session progressed. The Morgan Stanley High Tech Index (MSH) fell 3.85 points to 427.71.
Among bellwether stocks trading on the Nasdaq, Dell Computer (DELL) declined 2 1/4 to 84 3/4, Intel (INTC) closed down 1 11/16 to 69 1/2, and PeopleSoft (PSFT) closed off 1 7/8 to 32 5/8.
Goldman bumped Ascend Communications (ASND) from its "recommended" list with a "market perform" rating, and the stock fell 2 1/8 to 24 3/4.
Swapped into Goldman's "recommended" list was Cisco Systems (CSCO), which closed up 49/64 to 54 3/16, which nonetheless was well off its best levels of the day.
Sun Microsystems (SUNW) also displayed strength, rising 1 to 37 13/16.
On the NYSE, Dow component IBM (IBM) fell 1 3/4 to 102, Compaq Computer (CPQ) shed 2 1/8 to 55 3/8, and Motorola (MOT) closed down 2 to 54 1/4.
Strength was evidenced by the likes of Computer Associates (CA), which rose 59/64 to 51 1/2, and Nokia (NOK/A), up 2 11/16 to 71 9/16.
Shares of Nextlevel Systems (NLV) rose 2 11/16 to 17 11/16 on word the company has entered pacts worth at least $4.5 billion to develop set-top boxes for the cable industry. The company also said it is changing its name to General Instruments and is undertaking a restructuring that will result in after-tax charges of $65 million to $100 million in the fourth quarter of 1997 and first quarter of 1998. The cuts are designed to generate a 5- to 7-cents-per-share boost to its earnings.
America Online (AOL) closed off 3/8 to 83 15/16 after inking a 4-year, $40 million deal to be the exclusive on-line source for Barnes & Noble (BKS). The news weighed on shares of online book seller Amazon.com (AMZN), which fell 13/16 to 52 11/16. Barnes & Noble closed up 3/4 to 32 13/16.
Silicon Graphics (SGI) received no boost from news that it is working with Microsoft to develop 3D-graphics software that is compatible with Windows NT, falling 1/8 to 13 5/16. Currently, Silicon Graphics develops programs that run on its proprietary operating system.
Jabil Circuits (JBIL) jumped 3 1/2 to 41 1/2. The company reported fiscal first quarter earnings of 49 cents per share, a penny ahead of expectations. The results from the contract assembler of computer products, as well as its disclosure that Asia's crisis is only having a small impact on its business initially helped stem some worries about the degree of the slowdown in the PC industry. UBS Securities upped its rating on Jabil to "buy" from "hold."
Fair, Issac and Co. (FIC) tumbled 8 5/16 to 32 after the developer of software products used to generate credit reports said its fiscal first quarter earnings would be in line with the 33 cents it earned a year ago. Analysts were expecting Fair, Issac to earn 41 cents per share in the quarter.
After rising nearly $2 per share Tuesday following an upgrade from Lehman Brothers, International Networks Services (INSS) rose 3 9/16 to 22 7/16 Wednesday, thanks to an upgrade to "strong buy" from "neutral" at Morgan Stanley Dean Witter.
SBC Warburg Dillon Read initiated coverage on several semiconductor makers, with mixed results. Opening with "outperform" ratings were Altera (ALTR), up 2 1/16 to 37, and Atmel (ATML), which rose 3/4 to 18 13/16. National Semiconductor (NSM), up 1/4 to 26 3/16, and Xilinx (XLNX), up 13/16 to 34 5/16, received a new "buy" ratings. SBC Warburg began coverage of Intel with a "neutral" rating.
Pericom Semiconductor (PSEM) rose 7/8 to 7 1/4 thanks to an upgrade from C.E. Unterberg Towbin to "strong buy" from "buy."
Elsewhere in the chip and equipment sector, Adaptec (ADPT) fell 2 to 38; Applied Materials (AMAT) dipped 1 to 28; SGS-Thomson Microelectronics (STM) lost 1 1/16 to 56; Lattice Semiconductor (LSCC) closed down 2 5/8 to 49 1/2; and KLA-Tencor (KLAC) fell 2 5/16 to 34 3/4.
Macromedia (MACR) closed up 1 27/64 to 8 11/16 after Piper Jaffray upgraded the software maker to "strong buy" from "buy."
An upgrade from Prudential Securities to "buy" from "hold" helped send shares of Brooktrout Technology (BRKT) up 2 5/8 to 12 1/2.
Interlink Electronics (LINK) fell 7/8 to 5 3/4. The company said first quarter losses could exceed $1 million due to costs associated with introduction of products based on its new VersaPad technology.
C-Phone (CFON) rose 3/4 to 7 3/4 on news it signed an agreement with Sprint (FON) to supply the company with its C-Phone consumer video technology. Sprint shares closed down 1/4 to 57 5/8.
Active Issues
In addition to 3M, weak Dow components included Procter & Gamble (PG), down 2 1/16 to 81 5/16; DuPont (DD), which lost 1 1/8 to 61; and Union Carbide (UK), which closed off 7/8 to 44 3/4.
J.P. Morgan (JPM) led the Dow gainers, rising 3 5/8 to 123. Other leaders included Alcoa (AA), up 2 3/16 to 71 7/8; Eastman Kodak (EK), which rose 2 to 56 1/2; and Caterpillar (CAT), which climbed 1 7/8 to 50 11/16.
AT&T (T) rose 1 to 57 7/8 amid reports that the telecommunications giant is going to sell its credit-card unit to Citicorp (CCI). Citicorp gained 2 to 131 1/2.
Big drug stocks were mixed. Gainers were led by Warner-Lambert (WLA), up 1 7/8 to 113 5/8, while Pfizer (PFE) fell 1 7/16 to 75 5/16 and Bristol-Myers Squibb (BMY) shed 2 to 94 11/16.
United Airlines (UAL) soared 3 5/16 to 91 1/16 after Salomon Smith Barney dubbed the airline its top pick of 1998. Other airline stocks were mixed, though AMR (AMR) rose 7/8 to 130 1/8 and US Airways Group (U) climbed 5/8 to 61 7/16 after announcing some price cuts on domestic routes.
Polaroid (PRD) gained 1 3/16 to 44 3/16. Late Tuesday, the company said it plans to take a fourth-quarter charge of about $310 million to pay for a restructuring that will eliminate about 1,500 jobs.
Think inclusion in the S&P 500 isn't a big deal? Then check out shares of Cincinnati Financial (CINF), which jumped 25 3/8 to 140 1/4 a day before becoming a component of the index. Many fund managers cannot buy stocks unless they are part of the S&P 500, so stocks newly added to the index often get a boost.
Mining stocks showed some signs of life, led by Barrick Gold (ABX), up 1 7/16 to 18 1/2, Getchell Gold (GGO), which rose 1 1/4 to 21 7/8, and Newmont Mining (NEM), up 2 1/4 to 29 3/4. The CBOE Gold Index (GOX) closed up 4.46 points to 52.46.
Also enjoying a "dead cat bounce" Wednesday was Danka Business Systems (DANKY), which rose 1 13/16 to 14 7/8 following a near-$18-per-share tumble a day prior.
Circuit City Group (CC) fell 1 5/16 to 33 7/8 after the electronics retailer posted third quarter earnings of 14 cents per share, a penny below expectations. Poor performance at its Carmax Group (KMX), which lost 9 cents per share, weighed on Circuit City's results. The Carmax unit fell 5/16 to 9 1/4.
Wisconsin Central Transportation (WCLX) declined 5 7/8 to 21 3/8 after the railroad operator warned that its fourth-quarter earnings will be below the 44 cents Wall Street was looking for. Also keeping the Dow's Transportation Index under wraps was CNF Transportation (CNF), which fell 3 5/8 to 39, and Airborne Freight (ABF), which declined 1 5/8 to 65 3/8.
Heartport (HPRT) slid 3 7/8 to 19 1/2 thanks to a downgrade from BT Alex. Brown to "buy" from "strong buy."
PaineWebber put the clamps of shares of Primark (PMK), which fell 1 9/16 to 40 1/16 following a downgrade to "neutral" from "attractive."
The Major Overseas Markets Closed Mixed.
London: Britain's leading stock index finished slightly lower after fears a sluggish Christmas would hit some retailers. The FT-SE 100 index closed at 5190.8, down 12.6 points or 0.2%.
Frankfurt: German blue chips advanced. The Dax index closed at 4158.68, up 74.71 points or 1.8%.
Tokyo: The benchmark Nikkei average closed sharply higher after Japanese Prime Minister Ryutaro Hashimoto's surprise announcement of a special income-tax cut. The 225-stock Nikkei average closed at 16,541.06, up 555.85 points or 3.5%.
Hong Kong: Stocks surged, boosted by New York's overnight gains and firmer markets around the region. The Hang Seng index closed at 10,692.7, up 346.32 points or 3.4%.
Sydney: Bargain hunters in the hard-hit resources sector led the Australian stock market to a firmer close. The all ordinaries index closed at 2562.1, up 48 points or 1.9%.
MARKET EYE
High Hopes Rocket Ballard To New Dimension
William Hanley Financial Post
That vapor trail spotted high over Bay Street is the wake formed by the shares of Ballard Power Systems Inc., which are whooshing higher on hopes the company will one day save the Earth with a feasible alternative to the infernal combustion engine.
Ballard (bpd/tse) jumped $9.60 to $97.60 on Monday after Ford Motor Co. said it would spend $600 million - including $296 million in new capital - to join Ballard, based in Burnaby, B.C., and Daimler-Benz AG in developing Ballard's environmentally friendly fuel-cell system for commercial use by 2004.
The stock added $4.30 on Tuesday and turned on the afterburners yesterday with an astonishing rocket shot of $13.10 to $115.
In April, Daimler-Benz struck up a $450-million alliance with Ballard, whose technology converts hydrogen, methanol or natural gas into electricity without combustion, leaving water vapor as the only emission.
Never mind that an operating profit is nowhere in sight. Considering that the shares began trading in 1993 at $8 and that the market values the company at an astounding $3 billion, Ballard may just be the most successful venture capital investment-assisted public launch in terms of market cap.
Which brings us to Ventures West Management Inc. of Vancouver, now well in the background, watching Ballard's vapor trail with mixed emotions. Ventures West president Michael Brown says his firm bought into Ballard in 1987, seven years after Ballard was founded, picking up 850,000 shares at a price that was "clearly less than the [$8 a share] IPO price." (One source puts it at less than $1.) Then it bought $1-million worth of shares in the IPO.
Brown says Ventures West viewed - and still views - Ballard and its fuel cell as the potential transportation technology equivalent of Intel Corp. and its Pentium processor.
And yet, Brown and Ventures West can only look on through binoculars as Ballard shares soar into the stratosphere: Ventures West disposed of its last Ballard stock over the past 18 months as part of the mandated winding down of that particular Ventures West fund.
"If I had my druthers now, I wouldn't have sold them," Brown says, adding that Ventures West is not in the business of managing clients' investments in publicly traded companies. Its role is to obtain the financing to get the Ballards of the world into a position to graduate to market.
But Market Eye will not be having a tag day for Ventures West even if it has missed this latest remarkable runup in Ballard. Brown refuses to disclose just when and at how much Ventures West sold its stake, saying only that the shares were "dribbled out." Suffice to say Ventures West and its fund clients did splendidly on their investment.
Brown and his partners are not sitting idly by as Ballard blazes its fuel-cell trail. In keeping with the view that Ballard is at the centre of a transportation technology revolution, Ventures West is investing venture funds in at least one West Coast company that has a "mind-share" with Ballard.
Brown believes the Ballard fuel-cell technology will spin off an array of associated technologies and industries needed to put the zero-emissions vehicle on the road, just as the computer/technology industry grew up around the semiconductor.
And Ventures West has no shortage of money to assign to the right project, whether in transport technology, life sciences or communications. In partnership with Bank of Montreal, among others, it has more than $100 million at the ready.
We will be watching for any further vapor trails-in-the-making.
Templeton Management's Buy & Sell
No Rush To Buy In Pricey Market
Sonita Horvitch - Financial Post
Toronto-based Templeton Management Ltd. is picking its spots carefully in the North American equity market, which it has for some time considered to be expensive.
The global manager is finding some good value in the beaten down Asian markets "but there is no rush to buy," said Norman Boersma, senior vice-president of global equity management.
Templeton International Stock Fund, which invests worldwide except in Canada and the U.S., had about 17% to 20% in cash before the Asian upset and has retained this cash complement.
Boersma and colleagues George Morgan, vice-president of global equity management, and Peter Moeschter, a research analyst, noted that the North American equity market has not corrected substantially.
The Standard & Poor's 500 composite index is still up substantially this year - in sharp contrast, said Boersma, to the huge declines of southeast Asian markets. For example, expressed in US$, South Korea is down about 70% in the year to date, Malaysia is down about 68% and the Philippines about 58%.
The Templeton trio's North American stock picks are:
Columbia/HCA Healthcare Corp. (COL/NYSE), which closed recently at US$29 and has a 52-week trading range of US$44 7/8 to US$25 3/4. Based in Nashville, Tenn., the company provides acute care medical services in hospitals and surgery centres. The company is dealing with fraud allegations and U.S. Justice Department investigations into possible overbillings. Investors are concerned and the stock is trading at the low end of its historic price to book, cash flow and earnings multiples. Boersma points to the company's "huge free cash flow", which should cover any possible settlement payments. The market is overreacting to the uncertainty, he said. "The stock has gone from a growth stock to a value stock."
Methanex Corp. (MX/TSE) $11.60 ($14.40-$11.05). The Vancouver-based company is Moeschter's selection. It produces and markets chemical-grade methanol and synthetic gasoline. The stock is cheap by standard valuations; for example, it trades at 1.3 times book value. It is a low-cost producer compared with its global competitors and "this is a sustainable advantage."
The company has struck a preliminary joint venture deal in Qatar, which will increase production capacity substantially. It also has an operation coming on stream in Chile. The stock is for the patient investor, said Moeschter.
Agrium Inc. (AGU/TSE) $16 ($21.30-$12.95). The Calgary-based company is Morgan's pick. It is North America's biggest producer of nitrogen based fertilizers and a major producer of other fertilizers.
Morgan said the stock trades at a low price-earnings multiple as the business is out of favor. But the company has "sound growth prospects," particularly from its large fertilizer joint venture in Argentina, said Morgan. It will build a $500-million plant in Argentina and own one-third, with partners YPF SA, a privatized oil company, and Perez Companc SA, "one of the best managed private companies in Latin America."
The stock, he said, is a long-term play on global demand for food and the desire by countries worldwide to increase crop yields.
UAP Inc. (UAP/TSE) $16 ($17.75-$14.05). Based in Montreal, the automotive parts distributor is trading at book value. "The company is perceived as a slow grower," said Moeschter, but it is expanding into industrial parts and "this is not factored into the stock price." There is always a risk of new entrants to the automotive parts distribution sector, "but UAP has a strong franchise."
The money manager has sold CHC Helicopter Corp. (FLY/TSE) $11.50 ($15.50-$5.75), which operates one of the world's largest commercial helicopter fleets. Moeschter said the stock has had a good run but became fully valued at around $14 to $15. "It is being valued as a steady earnings grower, but in fact the growth comes in spurts, making the earnings volatile and difficult to predict."
|
