Radar Trader Newsletter
High Tech Commentary-- Scan List
September 3, 1998
OPENING COMMENTARY FOR SEPTEMBER 3, 1998 - Andrew Vance
I am going to leave the opening commentary to Raleigh this morning since there were a great deal of things I wanted to cover instead. Briefly though, we are not out of the woods and caution is the words of the day. We are in a market of stocks and not a stock market these days. For those of you that remember the Indiana Jones movies, "Choose wisely". If anything, we have indicated that the market is volatile and certain movements are being made that do not make sense. We are still in the middle of the herd mentality stampeding.
POSSIBLE UNDISCOVERED GEM-SPECIAL FEATURE
BRKS(8-1/2, 0) - trading just ¬ above its 52 week low and a far cry from its 52 week high of 41-1/8, I am just mystified. BRKS is tightening their belt like all the other semiconductor suppliers and their continued cost cutting measures may help ease a possible gross margin squeeze in Q4. It is expected they will maintain their 6.50/share in cash if cash flow does not go negative. They are working with some of the leading OEMs as they try to penetrate further into both copper and CMP tools, two enabling technologies with some of the highest potential for growth in this sector. We need double verification of this since I am not a "professional" but, net of cash, BRKS is trading at 1.4X CY00 EPS of $1.45. If this isn't a possible undiscovered gem, I do not know what is. And it is a good takeover prospect as well. So let's recap: $8.50 price with $6.50 cash and a 1.4X projected PE. Where have I screwed up?? Talk about your risk/reward equation heavily weighted to the reward.
TIMELY TOPICS AND STOCKS
I am sure you remember my comments on DY the last few days. I was wondering how it could go down on consistent good news, even after it took a hit for the Mystery/History Theorem. Well, I think I finally got with the program. As you will see by the 3 financial institutions below, it takes a poor outlook on your financial well being along with warnings of lower earnings or trimming earnings to get a rise out of your stocks. The trouble is, I thought these guys made money on the transaction costs related to buying and selling of securities, better known as spreads and commissions. I think there is more here than meets the eye and we might be smelling a rat.
DLJ(34-1/8, +1 _)- Donaldson, Lufkin & Jenrette Inc. revealed that the economic collapse of Russia coupled with tough trading conditions are causing earnings to suffer. Prior to this announcement, DLJ was expected to earn 79 a share, according to the First Call consensus of analysts.
PWJ(35-15/16, +3/16)-Well, Well, this supposed takeover candidate seems to be marching to the beat of a different drummer. Some of the larger brokerages with growing global exposure include Lehman Brothers LEH(42-1/8, +2 «) and Goldman Sachs (should IPO later this year). However, PaineWebber is more concentrated on the U.S. domestic markets and is insulated from global turmoil. Now that might explain things ?!?
MWD(59, +1 3/8)-Morgan Stanley Dean Witter warned that third-quarter net income will be close to $110 million lower than expected due to their losses in bond trading and global markets.
CCI(108-3/4, +2 1/8)--Citicorp announced that Russia-related losses, including trading, will affect the company's after-tax earnings by about $200 million in the third quarter.
Or is it explained away in the following link:
Investors reward banks' disclosures
cbs.marketwatch.com
But then again, the following story from the day before seems contradictory:
FOCUS- Brokerage stocks end flat on profit worries
biz.yahoo.com
On to a more optimistic and definitive pattern in my core competence, the semiconductor sector.
CIBC Oppenheimer is taking a positive stance on the Photomask sector. They cited "compelling" valuations and fundamentals in the Photomask sector and is optimistic about this sector of the semiconductor industry. They consider this sector, which includes PLAB, DPMI and MASK as attractive is in contrast to the weaker core semiconductor stocks. Their view on this sector is:
MASK(11-5/8, +1-1/4) - Reiteration of "strong buy" rating with a conservative price target of $23 to $26 due to the company's push into sub-0.25-micron segment of the business.
PLAB(14-7/8, +3/8)- was reiterated at "buy." With Analyst price target of $24.
ETEC(29, +1 5/8) - maintained "strong buy" with a 12-month price target of $45-$60, citing the company's 75 percent market share, 50%+ margins and "virtually non-cyclical demand."
I agree with these guys for what it is worth but I have higher expectations for PLAB and I find it interesting that they do not mention DPMI(30-1/2, +15/16), which is the #1 or #2 photomask supplier in the industry. Between DPMI and PLAB, you have about 80% of the market. MASK is a far and away third place company, at best. I guess they have nothing but opportunities to take marketshare away from the "Big Boys." And as a matter of record, I think MASK had an initial IPO price of $14 when it went public. Finally, you will see that ETEC made the list again today.
IBM(120-1/2, +2 9/16) announced the world's first copper wired microprocessors today. These CPUs were shipped with copper metallization interconnects instead of aluminum. This appears in the PowerPC chips in its S/390, RS/6000, and AS/400 server families. Initial prototype systems could be available in 1998 with production-ready systems available in 1999.
These 0.18u copper-wired CMOS chips will be manufactured in its foundries for other companies. IBM will also ship copper-wired chips for embedded applications, such as set top boxes with early prototypes available in mid-1999, and volume production in early 2000 projected. This will give them a 1 to 2 year lead over their competitors like INTC and AMD. Intel will probably introduce copper with its 0.13 micron McKinley chip in 2001 and AMD plans to use copper in its K7 chip in 2000. Copper is one of the major the enabling technologies I have spoken about recently. Copper technology involves small die sizes and higher clock speeds that are ideal for embedded applications.
ERICY(23-5/16, -5/8) - announced it had signed a frame agreement, valued at more than $300 million, with Telcel, Mexico's largest wireless network carrier, to construct a nationwide dual-band/dual-mode (800/1900 MHz) network. This may signal acceleration of network build out, as a result of the new 1900MHz PCS license dissemination. ERICY has collected > $7.0B in announced orders YTD, and should continue to do well in relation to continuing positive fundamentals in wireless telecom, deregulation and its established position in certain locations.
TSM(10-5/16, -1/16) - announced early yesterday that it will provide the industry's first 0.25-micron multi-project wafer processing service to its customers. TSM is one of the largest foundry suppliers of manufactured ICs for the fab-less semiconductor companies across the globe. The service allows customers to share the same photomasks for wafer prototyping, and therefore cut costs and reduce development mask and wafer costs by as much as a factor of ten. I think they are stretching those savings just a bit and this announcement. While this is a good announcement, lets not forget it addresses their internal issues with having all that 0.25u capability already installed and with hardly any volume of 0.25u devices running in their expensive facilities which were built anticipating demand that never really materialized.
IFCI(6-5/16, 0) - announced that 99 percent of common-stock purchase warrants had been exercised, resulting in cash proceeds of approximately $7.1 million. IFCI posted a record second quarter, where 123% to $18 million and EPS increased 125% to 9 cents a share. Apparently demand for IFCI telecom infrastructure services and telecom equipment were at record levels. CEO Joseph Kealy said they do not foresee foreign instability having a negative impact on their business.
RST SCAN LIST COMMENTARY FOR SEPTEMBER 3, 1998
15 stocks made the cross over list today covering a broad base of stocks from semiconductors to software, Office supplies to learning centers, networking to graphics, and a pinch of biotech. A few seemed to move without benefit of news. We might be seeing the Mystery to History Theorem come into play once again.
ENMD(20-3/4, +1 9/16) - First we need to make a correction here. The jump in price last Thursday, while everything was tanking, might have been partially due to investors covering short positions in the final hours of trading. ENMD closed up 2-3/8 to 20-3/4 last Thursday. ENMD traded as low as 15-3/8 Thursday and was in negative territory most of the day. Well, that was then and, OOPS, that is where the stock is today, to the fraction.
ATML(7-3/4, +31/32) - Before the market opened on Tuesday, ATML issued a press release concerning Senior Management Purchases of ATML Shares. George Perlegos, President and CEO, purchased 200,000 shares of the Company's stock, explaining that "I have taken this opportunity to reaffirm my personal believe in Atmel's mission and long-term strategy,'' "Despite difficult industry conditions, Atmel continues to broaden our product mix and we will continue to maintain our aggressiveness in growing our business and building shareholder value.'' A quick look at their chart and you will instantly see how far this stock has retreated. This stock is like a horse that was shot dead and dragged around the corral for awhile. ATML designs, develops, manufactures and markets to the world, semiconductors, including non-volatile and embedded memory, logic, analog, microcontroller products and system-level integration (SLI) solutions using advanced CMOS, BiCMOS, Bipolar and SiGe process technologies.
LGTO(44, +4)-SoundView Financial Group added LGTO to their focus list yesterday during market hours. ON the flip side, they dropped PLAT(20-15/16, +1/2) from their focus list. LGTO also announced on Monday that they were the first Enterprise Storage Management Software Provider to receive Baan Certification.
NTAP(46-5/8, +1 3/8)-No recent news on this stock. You have to go back to August 18th for their double release of good news.
Network Appliance Posts $0.19 vs. $0.12 1Q EPS, Revenues Up 72% in First Fiscal Quarter
Network Appliance Introduces Industry's Fastest Dedicated Windows/UNIX File Servers
TXCC(19, +2 1/8) - another stock with absolutely no news worthy of mentioning. What is noteworthy though it the chart over the last 5 days, going back to hellish last Thursday. Stock traded in the low $15s to mid $16s until near the close on Tuesday, where it closed just shy of $17. Then BOOM, today it moved on no news and almost unscathed in the mayhem of the last few days. I never thought that these guys would be a safe haven for funds but they most certainly were. A slight refresher on this company. TXCC specializes in the design, development and marketing of highly integrated digital and mixed-signal semiconductor solutions for the telecommunications and data communications markets. A month ago, TXCC announced a Design-Win with Lucent Technologies' Echo Canceller Group.
DIMD(4-5/16, +1/4) - simply unbelievable that these guys are so low in price especially with the two recent announcements.
Diamond Multimedia Enters Motherboard Market With the Introduction of Two New Micronics System Boards (early 9/1/98) biz.yahoo.com
Diamond Multimedia Announces SpeedStar A50 AGP Graphics Accelerator for System Integrators (early 8/31/98) biz.yahoo.com
CHKPF(21-1/2, +2 ¬) - another stock that seemed to rise more than 11% on no news and no rumors. This competitor of NETA(32-1/16, 0) in the firewalls, Web filtering, identification, authentication, authorization, encryption, extranet technologies and professional services.
LISB(43-11/16, +3 7/16) - rightfully, this financial stock should have gone with the other financial institutions discussed in the beginning commentary but it was kept down below with the rest of the RSL stocks. I believe today's action was in concert with the rest of the group but there is more to this story. On Aug 19th, Astoria Financial Corporation stockholders approved the acquisition of Long Island Bancorp, Inc. The transaction should enhance shareholder value and provide long-term benefits for the combined customer base and the surrounding communities. The transaction, which is subject to approval of the Office of Thrift Supervision, is anticipated to close on September 30, 1998. We might be getting close to this approval and as we all know, the combined resources may indeed be more cost effective than the stand alone entities.
PIXR(34-9/32, +4 13/32) - Cruttenden Roth Upgrades Pixar to a Strong Buy. Anyone with kids knows that Pixar was a "no brainer stock investment" when word of the 1995 Disney movie "Toy Story" was released. There is some controversy surrounding the company's next Disney release, "A Bug's Life". It might be hurt from the earlier release of "Antz" by competitors Paramount and Dreamworks SKG. Last month an analyst from Warburg Dillon Read stated that brand recognition makes a big difference and "Pixar's film 'look' and Disney's marketing clout and brand name are unique and powerful with the consumer." I believe their will be little competition here since we all know that when we give our kids a choice between two things, the answer is always they want both. An as parents, we give it to them. We will wind up supporting both animated features.
OFIS(9-9/32, +25/32) - closed up 9.2 percent after releasing the company's first-quarter earnings report. OFIS reported first-quarter earnings of 5 cents a share, excluding charges. This beat original consensus estimates of 3 cents a share. This did not include the sale of 4 OFIS divisions that were spun off as part of a restructuring program. OFIS reported a first-quarter net loss of $83.35 million, down from net income of $23.8 million in the same period a year earlier, which includes $109.2 million restructuring charge. Out of this $109.2 million charge, OFIS recorded $97.5 million while its four spin-off companies took $11.7 million of the charge. In a nutshell, U.S. Office Products Posted a $2.38 Loss from Continuing Operations (Incl. Charges)
US Office Products beats estimates By Cecily Fraser, CBS MarketWatch (9/2/98)
cbs.marketwatch.com
U.S. Office takes $109.2 mln charge in Q1
biz.yahoo.com
US Office Products Reports Results for First Quarter of 1999 Fiscal Year
biz.yahoo.com
ICST(9-1/2, +11/16) shares up 7.8 percent in addition to earlier gains of 36% on Tuesday. This mixed signal circuit maker announced that first-quarter earnings would fall within analysts' estimated range. First Call consensus estimate for the company is 29 cents per share profit. "We experienced significant recovery in bookings and backlog," according to Henry Boreen, chairman and CEO. This is one of the specialty IC suppliers I have been talking about recently.
SYMC(20-5/16, +15/16) - I was wondering when this stock would make the list. Peter Norton and company never cease to amaze me with their products. Norton Anti Virus pcAnywhere and WinFax Pro are the first three that come to mind. I do not think I could live without some of their add in modules. And I may be in the minority here, which I doubt, but I never have problems loading the software and using the software. I do not even know if they have Free Technical Support since I never needed it. Symantec recently shipped the industry's first Telecommuting Productivity Solution, in the form of pcTelecommute, giving Telecommuters everything needed to work from home (early 9/1/98 press release. biz.yahoo.com
SLVN(22-5/8, +1 1/16) - even with this 5% increase in price, SLVN has been on a downward trend since mid to late July. At yesterday's close, we are back to the Mid January 1998 share price. With no real news, other than old news concerning Sylvan launching On-Campus Testing Centers in cooperation with Microsoft for certification of IT training programs, we might finally have seen the bottom. Keep in mind that June through August were extremely lean times for the SLVN Learning Centers for the school kids that were on Summer vacation.
AND NOW A WORD FROM THE RADAR ROOM:
AEIS(7-3/4, -3/8) - After the close of the market yesterday (9/2/98), AEIS announced it would acquire Fourth State Technology, a privately held spin off of SEMATECH over six years ago. AEIS has signed a definitive agreement to purchase the assets of Fourth State Technology, Inc., a process control company whose products are used to monitor the RF power process, collect data and provide an analysis of data for process control and improvements. The acquisition is expected to close today, Sept. 3, 1998. The present AEIS instrumentation product family will be integrated with the product family manufactured by Fourth State Technology. Fourth State Technology's RF Instrumentation products are some of the industry's top RF power monitoring and data collection systems. Deloitte and Touche LLP, financial advisors to Fourth State Technology, anticipate that the business combination will provide immediate leadership for the industry in advanced RF process control.
This acquisition is the latest move in a global expansion into the RF market by AEIS. This past June, AEIS announced the acquisition of RF Power Products, a manufacturer of RF power systems for OEMs in the semiconductor, flat panel display, thin film disc media and analytical instrument markets. The RF Power Products acquisition is scheduled for completion in October 1998.
This is all well and good for a company that IPO'd at $10 and fell to $3 only to reach the mid to upper $30s before systematically retracing to its present levels. Three major semiconductor equipment companies make up a majority of their sales so AEIS is going to suffer along with these companies until the recovery occurs in this sector. However, AEIS seems to be getting all its ducks in order to exit this downturn in a dominant position.
Advanced Energy Industries, is a manufacturer of power delivery systems that are
critical in the manufacturing of semiconductors, data storage media, flat panel displays, and other products using thin-film technology. Within its comprehensive product portfolio of direct current (DC), low/mid-frequency and radio frequency (RF) solutions, the company sells hundreds of different products critical in applications ranging from compact disks, digital video disks, flat panel displays, the most popular logic semiconductor devices, among many other applications. (courtesy of AEIS)
TECD(39-7/16, -1/16)-Tech Data Corp. could perform well this morning on the company's positive earnings surprise. The company reported net income of $27.7 million ,or 55 cents a share, excluding a one-time gain, compared with year-ago net income of $21.5 million, or 47 cents a share. Analysts anticipated a profit of 51 cents a share.
TLTN(13, +3/4) Teltrend Inc posted a profit of 33 cents a share for its fourth quarter, 3 cents above the 30-cent consensus estimate and compared to the 30-cent profit in the year-ago period. Sales were $27 million, up 46 percent from same period last year.
ETEC(29, +1 5/8) Etec Systems, the principal supplier of direct write systems used to create photolithography mask and reticle patterns, posted an earnings surprise for its fourth-quarter. ETEC 80 cents a share, compared with 54 cents a year ago. First Call estimates were looking for a profit of 77 cents a share. News was after the market closed yet price was up $1.625 for the day. Hmmm !!! Buy on mystery, sell on history, I wonder.
VLSI(8 13/16, -3/16)- share price of VLSI could deteriorate this morning due to a post market close warning by the company. VLSI warned that third-quarter revenue and earnings will be lower than analysts' current estimates. They expect revenue to run 5 percent to 10 percent lower than the $137.8 million second quarter numbers. Current consensus estimate is 13 cents a share. The IC manufacturer will take a charge for its previously announced work-force reduction.
INTV(18 13/16, +2 1/16)-InterVoice Inc. jumped 12 percent on based on its positive outlook. Company officials said second-quarter earnings expect to run between 29 cents and 31 cents a share, beating current consensus estimate of 23 cents and last year's second-quarter profit of 14 cents. INTV expects to report revenue of $33 million, compared with $29.3 million for the year-ago period.
PCTY(10-11/16, -5 9/16) stock fell over 30% yesterday as Party City said it sees third-quarter losses of 15 cents a share to 18 cents a share. First Call estimates expected the company to lose 9 cents a share.
XON(64, -2 3/8) - broke a double bottom at $63.00 and this may change its trend to the negative as XON moves below the support line. The next support level is in the 55 to
57 area. This sector is low but it may not have reversed up yet.
ADPT(10-13/16, -11/16) - might break a triple bottom at $10.00 will may put this on a sell signal. Some TA professionals believe the overall trend is bearish and relative strength is negative. None would recommend bottom fishing at this time..
TLAB(43-3/4, -2 _)-CIEN(28-15/32, -5 5/32) - these stocks were to track real close now that the new exchange ratio was agreed upon. However, Tellabs rescheduled Shareholder Vote to mid-November from the originally scheduled special meeting on September 20th. The postponement may be to accommodate the SEC review of the revised proxy but it will also give both sets of shareholders enough time to review the new material. The postponement, which is further out than it should be provide TLAB management and shareholders to get a clearer picture of CIEN's FQ4:98 and year end performance prior to the shareholder vote. Do we detect a bit of uncertainty surrounding CIEN's short-term financial performance and management's protective stance in an attempt to protect its shareholders? If so, good for them.
Prosearch 5.0* Top Stock Report 09/02/98
4> ENMD - ENTREMED INC COM .DRE
Price= 20.8 ( 81) AvgVl= 274.8 ( 93) 1-Dy = 108.1 ( 90)
5> ATML - ATMEL CORP COM .DCO
Price= 7.8 ( 25) AvgVl= 1518.9 ( 98) 1-Dy = 114.2 ( 96)
9> LGTO - LEGATO SYSTEMS INC COM .DSO
Price= 44.0 ( 94) AvgVl= 684.7 ( 97) 1-Dy = 110.0 ( 93)
13> NTAP - NETWORK APPLIANCE CORP COM .DPE
Price= 46.6 ( 95) AvgVl= 202.9 ( 90) 1-Dy = 103.0 ( 74)
15> TXCC - TRANSWITCH CORP COM .ESE
Price= 19.0 ( 78) AvgVl= 294.7 ( 93) 1-Dy = 112.5 ( 95)
22> DIMD - DIAMOND MULTIMEDIA SYS COM .DCS
Price= 4.3 ( 13) AvgVl= 377.5 ( 94) 1-Dy = 106.1 ( 86)
27> CHKPF - CHECK POINT SFTWR TECH COM .INT
Price= 21.5 ( 82) AvgVl= 791.5 ( 97) 1-Dy = 111.6 ( 94)
28> LISB - LONG ISLAND BANCORP INC COM .BSB
Price= 43.7 ( 94) AvgVl= 226.0 ( 91) 1-Dy = 108.5 ( 91)
36> PIXR - PIXAR COM .FST
Price= 34.3 ( 92) AvgVl= 248.4 ( 92) 1-Dy = 114.7 ( 96)
41> OFIS - US Office Products Compan COM .OFS
Price= 9.3 ( 31) AvgVl= 431.1 ( 95) 1-Dy = 109.1 ( 92)
45> ICST - INTEGRATED CIRCUIT SYS COM .ESE
Price= 9.5 ( 33) AvgVl= 269.2 ( 92) 1-Dy = 107.8 ( 90)
49> SYMC - SYMANTEC CORP COM .DSO
Price= 20.3 ( 80) AvgVl= 815.3 ( 97) 1-Dy = 104.8 ( 82)
64> SLVN - SYLVAN LEARNING SYS INC COM .EDU
Price= 22.6 ( 83) AvgVl= 687.9 ( 97) 1-Dy = 104.9 ( 82) |
