*AV*--Newsletter
Radar Trader Newsletter
High Tech Commentary-- Scan List
September 11, 1998
OPENING COMMENTARY FOR SEPTEMBER 11, 1998 - Andrew Vance
There is really nothing much to say in this Morning's commentary other than cautious behavior paid off today by sticking to value or watching from the sidelines. For those that actually follow the positional trading section of this newsletter, you will see that the stocks have either held their own or performed well during these uncertain times. I guess it is better than chasing a few falling knives like CIEN and REXI these days.
Today is "supposed" to be an up day for the market and I almost believe that, even though it is a Friday. I hate Fridays since they have historically been a disappointing day for most of the stocks I follow. However, it couldn't get any worse than yesterday. You never, know though and maybe I should trust my instincts on this matter.
This following headline and a few snippets caught my attention after the market closed yesterday.
NASDAQ Falls With Broad Market, But Biotechs Hold
(Reuters) - Nasdaq stocks tumbled further as fears about the future of President Bill Clinton added more uncertainty to worries over the economy and sent U.S. stocks plunging. The few winners included biotechnology stocks, as well Ascend Communications and 3Com Corp., both of which closed up on takeover rumors.
Sun Microsystems closed higher after stating it believed its bookings would be in line
with estimates.
TIMELY TOPICS AND STOCKS
QNTM(14-7/8, +1/16) - will be discussed below but is timely since they announced operational changes that are expected to reduce expenses by approximately $60 million annually. This will include a workforce reduction affecting 113 employees and a reduction in product complexity by offering fewer combinations of head/media and motor sources.
CIEN(16-5/16, -3 7/16) - traded down and close to 4X ADV as Ciena loses yet another contract. CIEN dropped another 15% on top of the 30% lost on Wednesday (DTI telecom contract). At these prices, it is doubtful that the planned merger with Tellabs. will take place. The Digital Teleport contract was given to Pirelli, Italy. CIEN also fell earlier this year when AT&T wouldn't consider a key Ciena product. CIEN is in a freefall with no bottom in sight, it seems.
WCOM, a customer that accounted for nearly half of CIEN revenues last year, may now use commercial offerings from three CIEN rivals. This will not help the viability of the proposed merger with TLAB. An official at WCOM said in an interview that WorldCom has bought fiber-optic products from three companies that compete with Ciena, a fact that is not widely known. It is not known just how much this will eat into CIEN revenues and whether it is indicative of falling out of favor with WCOM.
WorldCom has provided the base for CIEN, providing $184.5 million of its $373.8 million in total revenue as of last October. Investors beat down CIEN stock today on reports that their troubles are causing arbitragers and investors to bet once again that the merger won't go through under current terms.
VALE (2 7/16 +1 15/32) - up 151% two to three days ago when it announced that HydroChem Industrial Services will acquire all of its industrial cleaning service operational assets, subject to finalizing the definitive agreement, completing due diligence and obtaining regulatory and Valley stockholder approval. The purchase price is approximately $29.8 million, plus the assumption of Valley's bank debt and certain other liabilities. With 7.9 million VALE shares outstanding, deal worth approx. $3.77 per VALE share. The deal is expected to close in 4Q.
BGEN(54-3/4, +3 1/8) - up after BGEN agreed to a deal with Genzyme General (GENZ) to distribute Biogen's Avonex multiple sclerosis relapse treatment in Japan, pending regulatory approval. I know this was discussed here a day or two ago.
RDRT(7-1/16, -1/64) - made the list today but for those that can't wait, RDRT will supply magnetoresistive recording heads for Western Digital's 3.4 GB Per 3.5-Inch Platter Desktop Program biz.yahoo.com
Year 2000 issues - Mutual-fund companies are investing time and money in year 2000 compliance. At the turn of the century, computers may register the date as 1900 instead of 2000 and possibly lose valuable account information in the process. Mellon Bank (MEL), parent of the Dreyfus and Founders funds, is investing $95 million to resolve its Y2K problem while Charles Schwab (SCH) is spending $35-$45 million. Fidelity Investments has nearly 500 workers assigned to the project.
CIBC Oppenhemier began coverage of telecommunications stocks. Their analyst expects the industry prosperity to continue, and says that the telecommunications industry is in the early years of a 20-year growth cycle. Oppenheimer estimates overall industry revenue growth of 8% and EPS growth of 10% over the next five years.
Intel says it'll beat estimates and Oracle beats estimates on database sales
cbs.marketwatch.com
RST SCAN LIST COMMENTARY FOR SEPTEMBER 11, 1998
14 stocks made the cross indexed RST Scan List with only two of them going negative for the day. TECH(-1/8) and RDRT(-1/64). I consider this a monumental success since the markets were dramatically off today. All of the stocks should be familiar to the readers here. As a matter of fact, it looks as if XYLN and XIRC are starting to come back into rotation for me. We were stopped out of both of these stocks weeks ago, in order to protect profits and now we find them almost as attractive as they originally were. Granted, it would be nice to see XIRC in the high teens but XYLN more than makes up for it, being down more than $10 from where we first stopped out. This is a very important thing to drive home. The good positional trader does not look for the Grand Slam Home Run, hoping to reach the upper decks. XYLN and XIRC were two very good investments that were brought to the attention of this readership for positional trades that yielded very high returns. We applied a very good stop out strategy that allowed us to exit at a good size profit and now allows us to get back in and ride them both up again. Perfect illustration of what a good positional trader looks for.
APCC(33-5/8, +1 1/8) - stock traded 3X ADV today with no news to speak of other than a management position announcement. Like you, I am getting a wee bit tired of the positive action of high volume and some nice price performance with no news. I would bet we see news in a day or two. Then the Mystery-History Theorem may be proven out once more. Rising up 3.5% on a bad day is good, but providing close to a 2.5 point trading range for the day made this a most excellent stock to have taken advantage of Last time we mentioned this stock was on Sept 8th when it made the list at 31-1/4, being up over a point at that time. Prior to that we spoke of it in the middle and at the end of August. Looking back, we can say we are net even if we go back to the middle of August. However, there were trading ranges since that time that would have allowed a significant amount of points to be made by taking a chunk out of the trading ranges.
Key closing point, it that the positional trader would be net even at worst since Mid August if nothing was done. Therefore, you would have SURVIVED the mayhem in the market that occurred starting Aug 28th. That is a significant point to be made. Net even and not behind the 8-ball.
SUNW(47-3/8, +1 «) - up more than 3% on a bad day at just under 2X ADV for this workhorse in the workstation sector. Most of the news stories today dealt with the MSFT/SUNW legal bantering and MSFT anti trust lawsuit. I will provide a link to those stories and let you browse to your hearts content. The most interesting story summarized below. We are definitely dealing with a quality company here.
Sept. 10, 2:47 pm EDT - Sun Sees Bookings In-Line With Estimates
(Reuters) - SUNW has had strong orders or bookings so far in its first quarter, in line with analysts' expectations. The CEO characterized them as "good bookings, strong bookings,'' at a Fall Technology Conference in Boston. He further stated that they seem to be growing somewhat at the expense of their competitors relative to the weakness in their competitors strategy and their products. Sun will have another strong quarter for its workstation business, an area that their competitors have somewhat abandoned.
The company will try to cut its selling, general and administrative costs (28% of revenues) to lessen the impact of the ongoing Asian financial turmoil.
The CEO sated that said many corporations have been showing more interest in Sun's Solaris OS and less interest in rival MSFT's Windows NT operating system, relating to scalability. A scalable computer system can be enlarged without changing the basics.
He noted that Windows NT has 30 million lines of code compared to 13 to 14 million for Solaris. SUNW unveiled technology to make its computers and workstations compatible with networks running Windows NT. ''Project Cascade,'' Sun's code name for software using technology developed by AT&T Corp., will allow computers
running Sun's Solaris operating system to link easily to systems running Microsoft's Windows NT for corporate networks.
Sun makes courtroom stand on Java Says Microsoft intentionally limited language's potential cbs.marketwatch.com
September 10, 2:00 am EDT - Sun Says Microsoft Tried To Hijack Java
(Reuters) - A top executive at Sun Microsystems Inc accused software giant Microsoft Corp of trying to ''hijack'' Sun's Java programming language with a ''divergent'' product. biz.yahoo.com
ORCL(22-1/8, +5/16) - if ever a stock were crawling to greatness, this would be the one. However, for those that have been patient, today could be a turning point. As usual, there are a host of news stories on ORCL but the most important headline is: Oracle Posts 1Q EPS of $0.20 vs. $0.01(After $0.14 Charge) Very hard to top that that headline but apparently the news has been blasted everywhere. I am glad we spoke of this prior to these announcements because we have the best chance for a pop today, given the news and the general feeling of a decent positive reversal in the market. I have provided numerous links which represent less than 50% of all the news items found. Many are redundant. However, there has definitely been a media blitz on this stock last night.
September 10, 4:30 pm EDT - Oracle Demonstrates Market Leadership With Key First Quarter Deals
(PRNewswire) - Continuing to lead as the provider of choice for business-critical applications, Oracle Corp. announced strategic deals with world-class companies in the first quarter of its fiscal year ending August 31, 1998. Oracle's integrated technology solutions, including applications, database and development tools, helped Oracle's numerous customers meet key business objectives and strengthen their competitive advantage. biz.yahoo.com
September 10, 5:42 pm EDT AFTER THE BELL - Oracle, Adoberise
Sept. 10 (Reuters) - Stocks of technology companies Oracle Corp. and Adobe Systems Inc. rose in post-session trading Thursday after both companies reported quarterly earnings that beat Wall Street expectations. biz.yahoo.com
Sept. 10, 10:50 pm EDT - FOCUS-Oracle Net Rises On Strong Database Sales
(Reuters) - Oracle Corp., the world's largest database software company, reported a 30-percent rise in quarterly earnings on surprisingly strong sales of its mainstay database software. biz.yahoo.com
September 10, 6:10 pm EDT - Intel, Oracle Reassure Wall Street
NEW YORK (AP) -- Intel Corp. and Oracle Corp., two of the most prominent technology companies, announced surprisingly strong financial results late Thursday that sent a double dose of reassurance to a shaken Wall Street. Intel, the world's largest maker of computer microprocessor chips, said it would report unexpectedly high third-quarter sales due to strong demand from computer makers in the United States and Europe. The late-day announcement came as Oracle, the largest maker of corporate database software, reported stronger-than-expected profits for the quarter ended last month. biz.yahoo.com
Oracle trounces estimates - Database Company Earns 20 Cents In First Quarter, Beats 16-Cent Projections cnnfn.com
Oracle beats estimates Update: 5:06 PM ET Sep 10, 1998 Tech Report
(CBS.MW) -- Shares of Oracle Corp. (ORCL) could get a boost Friday from the database software giant's positive earnings report. cbs.marketwatch.com
QNTM(14-7/8, +1/16) - trading at close to 2X ADV, this stock has been holding its own. I found the RDRT(7-1/16, -1/64) deal with WDC(10-1/4, 0) most interesting yesterday and worth considering for down the road. QNTM announced changes to its operations that are expected to improve asset utilization and reduce expenses $60 million (annualized). Quantum expects the move to include a workforce reduction affecting 113 employees and a reduction in product complexity by offering fewer combinations of head/media and motor sources. The company will adjust its hard disk drive product roadmap and modify its disk drive business operating model to aggressively extend their leadership in the desktop space. The company will focus attention on developing lower-cost storage solutions for the next-generation cost effective personal computers and hopes to continue building momentum in the performance segment of the desktop disk drive market with its Fireball product, which is its most successful line of high-performance, high-capacity 3.5-inch drives.
September 10, 8:31 am EDT - Quantum Announces Moves to Strengthen Desktop Hard Drive Business biz.yahoo.com
LGTO(49-3/8, +7/16) - no news but picking up a few sixteenths along the way.
AVNT(14-1/16, +3/16) - trading close to 5X ADV, something has to be up with these guys. Looks like a repeat performance of yesterday with little price action. Well, on a bad market day, I guess going up under ¬ should be viewed as a positive. But wait !! We do have news. AVNT will exceed Wall Street expectations for the quarter. Gee, I wonder how everyone seemed to know that the prior few days of high volume. I know we have spoken about AVNT becoming an attractive takeover target previously, so these numbers make it even more attractive. The $1 trading range today was not all that impressive since AVNT opened up +3/4 and settled back down thereafter. The only good trade would have been a short at the open and covered in the mid 13s. Even though there has been just modest gains, I would still be very careful. Window dressing to herald a sale vs. Selling into weaker hands after the stronger players position themselves.
After the market close yesterday (6 pm), Avant! Corp. (AVNT) said third-quarter results will exceed Wall Street analysts' estimates. The consensus estimate of analysts surveyed by First Call is 35 cents a share. Then again, what about the following story released late Wednesday night:
Sept. 9, 11:21 pm EDT - Avant sees Q3 EPS exceeding expectations
biz.yahoo.com
NETA(34-1/2, +1 5/16) - we spoke of this company favorable on 9/03 (32-1/16, 0) and as recently as 9/08 relative to the Cybermedia acquistion. We have seen a 2 « rise in the price within this last week, with almost half of it coming today. Well, the Cybermedia deal closed today, Bears Stearns initiated coverage on NETA on Wednesday with an "attractive" rating, and also announced on Wednesday the availability of PGP Enterprise Security 3.0 which is an integrated security suite of tools.
Sept. 10, 8:01 am EDT - Network Associates Acquisition of Cybermedia Closes
McAfee Software Division Expands Comprehensive Product Line biz.yahoo.com
September 9, 8:31 am EDT - Network Associates Brings Encryption to the Enterprise with PGP Enterprise Security 3.0
Robust New Central Management Tools to Support World's Most Widely Used Desktop Encryption Standard
(PRNewswire) - NETA announced the immediate availability of PGP Enterprise Security 3.0 -- the first and only integrated security suite to combine easy-to-use email, file, folder, and disk encryption with a complete set of central security policy and management tools. The new suite joins the world's most widely used desktop encryption applications with a robust set of server and management tools to deliver unprecedented scalability, manageability and ease of use to any corporate environment. biz.yahoo.com
TECD(45-1/4, -1/8) - one of the few negatives on the list today with just a short news blurb that Tech Data will distribute Larscom's Network Access products that will allow customers to economically integrate legacy equipment into Broadband Networks
COMS(27-5/16, +1 15/16) - at one point, this stock was up 3-1/2 points as implied volatility on September at-the-money options on 3Com and Ascend climbed as high as 90 percent and 85 percent, respectively, amid takeover rumors. 3Com and Ascend Communications were rumored to be possible targets of Intel Corp.
The Wall Street Journal reported that the company will spend $100 million over the next two years to form joint ventures in China, which 3Com expects will eventually be "very significant" to its revenues. The pop in price still might just be speculation that Intel will make a bid for all or part of 3Com's business. What we have here is a Corollary for the Mystery-History Theorem "buy on the rumor, sell on the news" even though there is little to no reliable proof that any deal is forthcoming from the companies. Motley Fool thinks "a possible agreement could be in the works for 3Com's network interface card (NIC) unit, which has had its nose bloodied lately by Intel's aggressive pricing strategies." However, this would raise antitrust concerns since the combined operation would control an estimated 70% of the market for NIC devices.
RDRT(7-1/16, -1/64) - given the announcements by QNTM, mentioned above, I think there is some slight positive to the RDRT story even though WDC is probably the #3 Hard disk supplier, at best.
Sept. 10, 4:19 pm EDT - Read-Rite Supplying Magnetoresistive Recording Heads for Western Digital's 3.4 GB Per 3.5-Inch Platter Desktop Program
(PRNewswire) - RDRT announced today it will be ramping volume production this month of its magnetoresistive (MR) recording heads for Western Digital's desktop hard drive program supporting 3.4 GB per 3.5-inch platter. biz.yahoo.com
XYLN(15-7/8, +1/8) - no news released today and we already mentioned this stock at the beginning of this section. However, we would be remiss if we did not go back a few days and mention the Tuesday company Press Release
Xylan Reports Continued Share Repurchase Program
(BUSINESS WIRE)--Sept. 8, 1998--Xylan Corp. reported that its board of directors has authorized the repurchase of an additional 1 million shares of its Common Stock. biz.yahoo.com
XIRC(22-1/4, +1 11/16) - same here with no real current news but nice price performance.
Sept. 8, 2:09 pm EDT - Xircom Ships RealPort CardBus Ethernet 10/100+ Modem
32-Bit Solution With Built-in Connectors Incorporates Highest Performing Notebook Communication Technologies Available biz.yahoo.com
SMTC(16-3/4, +1/2) - no news but an interesting story is linked below from a few days ago, titled "Semtech's Reversals of Fortune" fnews.yahoo.com
EGRP(19-5/16, +1/8) - performed a recent poll of 616 customers The results find them Bullish on the future success of online Internet investing. Greater than 80% of those surveyed believe many people will be investing online within the next five years. Over 60% of those surveyed see the internet as their vehicle for obtaining investment information. The major reason for the growth of online investing has a great deal to do with individual empowerment, since it will free them from their dependence on impersonal financial institutions and brokers churning accounts. I have provided an interesting link to a story of interest.
Sept. 10, 9:03 pm EDT - Improved Web stock broker systems not yet perfect
biz.yahoo.com
AND NOW A WORD FROM THE RADAR ROOM:
It looks as if there will be some real action is going forward with LOR(13, -5 1/16), QCOM(44-1/2, -5), IRIDF(33-3/4, -3/4) and GSTRF(10-3/4, -7 1/8) surrounding the loss of 12 satellites that were going to be launched into orbit. All 4 companies are inter related with LOR having a 42% stake in GSTRF, IRIDF a competitor of sorts with GSTRF, and QCOM a provider of components for the wireless and satellite communications industry.
Yesterday's events were a double debacle. First there was the loss of the 12 satellites due to the Russian rocket that was to launch the 12 satellites. You would think they would want to go first class with this and hop a ride on the Shuttle. Second, the precipitous drop in price for 3 of the stocks and no real positive action on the fourth.
According to some reports, the satellites were fully insured. If so, no one loses money except for the operational losses associated with the delay in getting replacement units in orbit. Even that does not seem to be a real issue since the schedules can be accelerated even though the other launch vehicles have smaller payload capabilities. Now, if they weren't fully insured, after even a 20% deductible, the insurance will pay for a majority of the loss incurred. Based on some numbers, I think they were oversold today on herd mentality, fears, and perception, not reality.
True, QCOM was a stakeholder in GLSTF but QCOM will make it up in different businesses and in replacement business for the new systems. LOR is one of the world's leading satellite communications companies, with substantial interests in both the manufacture and operation of geo-synchronous and low-earth-orbit satellite systems. The hold a 42% stake in GSTRF and are probably going to be the ones to replace the satellites. Wait a second ! . They are getting more business out of this??
Here's the deal, $180M in satellites go up in smoke. Let's say a 20% deductible which is $36M to be assessed to the company, which is GSTRF. LOR owns 42% so they take a hit for $16.0 Million on paper. LOR had a market cap of $4 Billion prior to this with 220M shares outstanding. A drop in the bucket for these folks, it seems. And they will probably build the replacement satellites. Even at a 50:1 P/E ratio, which is higher than the industry average, the paper loss in earnings would be 7 cents a share. This would reflect in a 3-1/2 point drop in price. As you can see, there was an over-reaction here. Furthermore, the most recent short interest data I can come up with shows over 13 Million shares shorted. Don't you think this is a good time to cover your shorts??? And if so, how come we could not stabilize the price somewhat.
IRIDF, which I spoke about in this newsletter previously, was fairly stable before the afternoon reversal of fortunes. With the explosions they re-established their front running status in this arena. Their one month delay is minor now, given the GLSTF "minor" setback. As I said, IRIDF may have increased their 6 month lead in this area. IRIDF have problems on the ground and not in the air. Therefore, why hasn't IRIDF benefited today from the GSTRF temporary setback.
I think the operative word is temporary and, to say the least, we had a nice over reaction in all of these stocks that some of us will benefit from, down the road. However, there are others that believe that equipment makers like Qualcomm (QCOM), emerging companies like CD Radio (CDRD) and even Motorola (MOT) stand to lose billions of dollars of stock market value as investors flee any company whose business orbits earth. I am not one of them, though.
Prosearch 5.0* Top Stock Report - 09/10/98
Some of the price data was corrupted so I just am providing the list of stocks
4> APCC - AMERICAN PWR CONVRSN CORP COM .ELE
6> SUNW - SUN MICROSYSTEMS INC COM .DCS
7> ORCL - ORACLE CORP COM .DSO
16> QNTM - QUANTUM CORP COM .DPE
17> LGTO - LEGATO SYSTEMS INC COM .DSO
19> AVNT - AVANT CORP COM .DSO
20> NETA - NETWORK ASSOCIATES INC COM .INT
22> TECD - TECH DATA CORP COM .DLD
26> COMS - THREE COM CORP/3COM CORP COM .DPE
30> RDRT - READ RITE CORP COM .DPE
36> XYLN - XYLAN CORP COM .DSE
42> XIRC - XIRCOM INC COM .DCS
51> SMTC - SEMTECH CORP COM .ESE
52> EGRP - E TRADE GROUP INC COM .INT
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