Some interesting articles from Barrons etc.
EK:
Excellent bullish article on EK
interactive.wsj.com
If u are interested in EK, u must read this article.
Excerpts:
Kodak's New Colors
At last, this company is clicking.
Why the stock is headed higher.
This year, Kodak is expected to earn $1.4 billion, or $4.43 a share, on revenues of about $14 billion. Next year, earnings should rise 17% to $5.19.
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Takeover and Spinoff Rumors? 3Com's Business Is Just Getting Better
By Eric J. Savitz
interactive.wsj.com
Excerpts:
What's up with 3Com? Since the end of July, shares of the troubled networking-products company have begun to show signs of life, climbing almost 30%, from about 24 to just over 30. In part, the rise reflects an odd assortment of rumors. First, the whispering had Intel buying 3Com. Next, the rumor-mongers had 3Com spinning off part of the company, or selling a piece to Intel. We don't know if there's anything to the rumors, but we do know this: Business conditions at 3Com seem to be improving.
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The current market cap, a little over $10 billion, isn't much more than the roughly $8 billion in stock 3Com issued to acquire U.S. Robotics.
"But now," Yuen says, "the channel-inventory issue is behind them. A single modem standard has been established. Many of their competitors in the modem business are losing money, leaving little room for them to cut prices further. And on the systems side, 3Com has stopped losing market share to Bay, and may even be gaining some back. Going forward, they should see better inventory turns, and improved gross margins."
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Yuen thinks 3Com should hit the current Street estimates for the August quarter of 19-20 cents a share; he figures 3Com can earn $1.65-$1.75 a share for calendar 1999. Starting in the November quarter, he says, the company should report sequential revenue growth in the mid- to high-single-digit range, something they haven't done for some time now. If they can pull it off, 3Com shares could move substantially higher, even without selling or breaking up the company.
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In the second quarter, according to Morgan Stanley Dean Witter, about 70% of PC hardware, storage and peripherals companies failed to meet Street profit estimates. Compaq, IBM and H-P all say excess channel inventory has been cleaned up. And, indeed, there are modest hints from companies like Intel, Seagate, Micron Technology and others that inventory-related woes may have bottomed in the second quarter.
That has some people moving back into stocks with close ties to the fortunes of the PC business. Jeffrey Lin, an analyst with NationsBanc Montgomery Securities, says he's seeing signs of improving demand in a key segment of the food chain-printed circuit boards. In normal years, Lin notes, PC hardware companies build inventory over the first three quarters of the year, and then reduce them in the seasonally strong fourth quarter.
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The Intel and Compaq recoveries involve their progress against supply-chain problems, not necessarily any improvement in underlying demand, says McNamee. "There's no evidence that Compaq has made its business model more Dell-like. You've gone from a situation where the major vendors had inventory problems to one where they no longer do. But the underlying issues that lead to those problems have not been fully addressed. So I'd expect any period of recovery we see will almost certainly be followed by further inventory problems."
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Tom Kurlak, the bearish Merrill Lynch semiconductor analyst, continues to find new ways to rag on Intel. Last week, he cut his long-term rating on the stock to neutral, anticipating slowing long-term growth and falling average selling prices. Kurlak slashed his long-term revenue-growth projection for Intel to just 9%, from 15%. That's far below the 30% annual growth Intel posted over the 10 years through 1996. Earnings, Kurlak says, will grow even slower -- about 7%. Intel last week slipped 5/16, to 84 15/16; Kurlak argues that at around 30 times his 1998 profit estimate of $2.78 a share, the stock is simply too rich.
Dell Computer last week reported a blowout quarter. For the three months ended August 2, revenues grew 54% to $4.3 billion, while earnings jumped 72%, to 50 cents a share. Gross margin improved to 22.7%, from 22.2% a year earlier; operating income hit a record 11.1%. With component costs falling an average 1% per week throughout the quarter, margins improved despite an 11% year-to-year drop in average prices. Dell now sports a market cap of about $75 billion. That's bigger than Walt Disney or Bell Atlantic or Citicorp; bigger than Compaq or Hewlett-Packard. Does that bother anyone?
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Apparently not. Witness Legg Mason Value Fund, which manager Bill Miller has on target to beat the S&P 500 for the eighth straight year. Dell remains the $5.5 billion fund's largest position, about 9% of assets. Their cost basis: $4.44 a share. Lisa Rapuano, assistant portfolio manager, says Dell has enjoyed a perfect environment, with declining component costs, stumbling competitors and expanding market share. "You can't expect they'll pull out that kind of gross margin and top-line growth every single quarter," she says. "But what's always happened is that analysts always model for lower growth and gross margins going forward, and Dell always outperforms."
However, the analysts have become more aggressive. "My model for Dell has always been way above the Street's," Rapuano says. "But the last several quarters, the Street has been catching up to me. The level of surprise will slow down going forward." Rapuano expects profits of $2.10 a share for the January 1999 fiscal year, and $2.90-$3 in fiscal 2000. Hardly sounds like a value play, at roughly 57 times current year earnings, and about 40 times next year's. So, does the fund plan to sell? Nope. Says Rapuano: "We'd have to find something better."
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Don't Blame Us Witches
Options played little role in Friday's swoons
interactive.wsj.com
Excerpts:
Cataloguers of short-term contrary indicators will embrace the jump in the VIX as advance word that stock-market indexes should manage a bounce early this week. Don Selkin, strategist at Joseph Gunnar, points out that of late, every time the VIX has pierced the 34-35 level, the major averages have put in a short-term bottom.
Even without an index-buffeting expiration week, though, it's instructive to watch individual stocks as players on each side of various options trades jockey to win advantage on expiration Friday. Selkin offers the reminder that in the heavily traded options stocks such as Dell, Intel and Compaq, professional traders who have sold calls and puts to the public do their best to keep the stock's price between strike prices to "screw the buyers." Specifically, the pros want the stock to stay above the strike of the nearest out-of-the-money puts and below that of the closest call, so that both expire worthless and the premiums collected remain in the traders' pockets.
Dell was one such battleground last week. Having closed Wednesday at 117 15/16, it spent most of Thursday morning where options sellers wanted it, below 120, a price at which there was some open call interest. But the options players didn't have this name to themselves. The company's brilliant earnings Tuesday energized enough "real" buying to muscle the stock all the way to 122 1/8 by the close.
Only the broad thrashing of stocks Friday dragged Dell below 120 to 117 1/2.
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Deep-discount brokerage firm Ameritrade is rolling out a new simulated options-trading computer game. Called Darwin, the game contains both a guided tutorial for beginning or experienced options traders and allows players to "trade" against the computer or other keyboard jockeys in a variety of fictional companies modeled on actual ones. The game, to be offered free by the Omaha-based company, has the dual aim of raising investors' familiarity with options and, of course, ushering them into accounts at Ameritrade, whose Web site has a link to Darwin.
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