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NEW YORK (Dow Jones)-The following companies were mentioned during the Jan. 31 airing of Louis Rukeyser's Wall Street:
DQE Inc. (DQE); Pulitzer Inc. (PTZ); Liberty Corp. (LC);
Young Broadcasting (YBTVA); Standard Motor Products (SMP);
AOL Time Warner (AOL); Coca-Cola Co. (KO); Pepsico Inc.
(PEP); Procter & Gamble (PG); American Express Co.(AXP);
Energizer (ENR); Genuine Parts (GPC); Sybron Dental
Specialties (SYD) Energizer Holdings (ENR); Genuine Parts
(GPC); HJ Heinz Co. (HNZ), Kellogg Co. (K) and Campbell Soup Co. (CPB)
Fiscal stimulus should help the economy over the next year, according to Mario Gabelli, Gabelli Funds chairman. In addition, stocks in certain sectors are going to benefit from legislative reform. Reform of the Telecom Act, utilities regulation, energy policy and tort reform for asbestos-related companies will boost stocks in these areas, Gabelli predicts. Utility company DQE Inc. is likely to benefit.
Gabelli sees takeovers in broadcasting and newspapers as the Federal Communications Commission changes regulations. In that area, Gabelli likes Pulitzer, Liberty Corp., Young Broadcasting.
Standard Motor Products, which has never produced asbestos but is the target of asbestos-related lawsuits, may get a boost if legislation limiting asbestos liability is enacted.
Gabelli is fond of AOL Time Warner and bought stock in the company Friday, noting that he thinks "Parsons is going to get it right, (AOL) has some wonderful assets there," and adding that "spinning off cable makes sense."
He owns all of the stocks mentioned and said his firm will "probably" manage money for all of them and provide them with investment banking services.
At this time, he said, making gold 2% to 4% of one's portfolio "makes a lot of sense" given the weakness in the dollar.
Dollar weakness, he added, is likely to benefit companies like Coca-Cola Co., Pepsico, Procter & Gamble and the movie industry.
He is selling companies "that have to compete against China," he said, noting that he's concerned about companies that don't have flexibility in their work force.
Other picks include: Energizer, Genuine Parts, Sybron Dental Specialties, HJ Heinz Co., Kellogg Co. and Campbell Soup Co.
Pfizer (PFE); Barclays PLC (BCS); France Telecom (FTE)
Most global markets are "trading sideways with a lot of volatility," according to Nick Sargen of JP Morgan Private Bank, and geopolitical uncertainty could delay a recovery.
There are opportunities in the U.S., he noted, noting that "the key is who has pricing power." One company whose pricing power is its strong suit is Pfizer, whose shares Sargen owns.
Globally, the U.K. market is oversold, making Barclays an attractive stock, and in European telecommunications he recommends France Telecom.
Darden Restaurants (DRI); Fox Entertainment (FOX); Novartis
AG (NVS)
Although Kim Goodwin of State Street Research is concerned about business spending, "in a sideways market there's still a lot of opportunity."
Among those opportunities are Darden Restaurants, for whose stock she has a $27 price target, and Fox Entertainment, which she says has 25% upside potential.
Novartis AG, she said, has "a great pipeline," though she would hold off on buying just now since a better buying opportunity may arise if Novartis makes a bid for Roche (RHHBY). Goodwin owns these stocks through State Street's funds.
American Express (AXP); Amgen (AMGN); Smith International Inc. (SII).
Financial companies are among those who will rally once there is economic expansion, said Frank Gannon, portfolio manager at SunAmerica, so American Express is a good option in that area.
Gannon is also partial to is Amgen. He owns both stocks in his funds.
He's selling energy stocks which are risky "given the price of oil," and recently cut his position on Smith International Inc.
NEW YORK (Dow Jones)--The following companies were mentioned during the Jan. 31 airing of Wall $treet Week With Fortune:
Yahoo (YHOO); UnitedHealth Group Inc. (UNH); Coventry
Health Care (CVH); Blockbuster Inc. (BBI); Hollywood
Entertainment (HLYW)
Although it's seen as "one of the survivors in the Internet business," Yahoo's accounting has raised concerns for short-seller James Chanos, President of Kynikos Associates.
It's Yahoo's stock options Chanos is concerned about, noting that the company's stock option issuance expense is equal to its revenue. Chanos is also short on HMOs UnitedHealth and Coventry Health.
"I think that what we're seeing is an area that is going to be under increasing regulation by the government, increasing scrutiny, and I think it's going to be a very, very easy area for politicians to point to corporate malfeasance and win kudos, because they really can't rein in the spending," he predicts.
His other short recommendations, Blockbuster and Hollywood Entertainment, are headed for the "perfect video storm," with video-on-demand coming down on rental companies in urban areas, as well as a downpour of illegal downloading from the Internet. -By Michelle Rama; Dow Jones Newswires; 201-938-4046
SUNW
SOURCE: Form 4
ISSUER: SUN MICROSYSTEMS INC
SYMBOL: SUNW
FILER: FISHER ROBERT
TITLE: Director
TRANSACTION: Sale 640,000 01/29/03 $3.26
OWNERSHIP: 577,600
The Form 4 is filed with the Securities and Exchange Commission by any
insider buying or selling their company's shares. This form must be
filed within two business days of the transaction.
Insider data source: Washington Service (info@washserv.com or 202-778-1384)
(END) Dow Jones Newswires
02-03-03 0016ET
>>>BearMove:
I am long MVL, from the summer of spiderman, do you see weakness after the movies are released like last summer or since they have DD, Xmen2 and Hulk,coming out so close together that it wont have time sell off.
Also, any projections on DD??
VM <<<
Any weakness is a buying opportunity. MVL not only has the movies, they also have growth and earnings. Its hard to find growth in this market. MVL will see a 100%+ growth rate this year.
>>>Still in LU Bearmove? What are your plans with this one? TIA.<<<
Bought more Fri. I'm building a position by cost averaging.
Bullish stocks..
AAI ACG ACS AGN ALA AMT AMZN ANF AQI.C ASKJ
BMRN BRL CALVF CECO CFC CKFR CLKS CMX CYTC DGIN DOR DYN EBAY ECLP ELN EXLT FAX FCX GDT GETY
GPRO HAR HLIT LU MACR MCTR MEDI MSTR MUSE MVL
MWA.C NFI NGX.C NYB PD PNR STJ WCS WED.C WPI
XMSR
Per...StockTA.com
5-Day RSI Buy/Sell Signals
January 1, 1997 to January 31, 2003
Nasdaq 100 (NDX) 5-Day RSI Close: 33.6
http://www.vtoreport.com/rsi.htm
Noted researcher sees fresh sell-off ahead
By Thom Calandra
01/31/2003 10:42
SAN FRANCISCO (CBS.MW) -- A pioneering market technician says a fresh bout of intense stock market selling is on its way.
"Lowry's Reports"' Paul F. Desmond is revered for his examinations of supply and demand forces that shape stock market activity. His work on identifying bear-market bottoms and new bull markets coined the term "90-90 downside days" and won the prestigious Charles Dow award.
Desmond's work demonstrates that severe downside days, in which 90 percent of all volume and total points gained and lost on the New York Stock Exchange (NYA) are in the red, must precede a bear-market bottom.
Essentially, Desmond says the three-month party is almost certainly over for stock-market optimists.
None of the rallies that lifted the spirits and net worth of investors in September 2001, and July and October of last year, followed a series of intense selling days, he says. "Downside days serve to exhaust the desire to sell, and drive prices down to the kind of bargain levels that attract sustained investor demand," Desmond says.
"It looks like we are in for a new round of 90 percent downside days," Desmond tells me.
Buying demand, an indicator that measures the so-called breadth of the stock market, last week sank to its lowest point in almost six years. Just as ominous: Selling pressure -- when investors become frustrated "with a prolonged lack of gains and begin to aggressively dump stocks in a desire to beat everyone else to the exit" -- is soaring.
Investors -- and fat-cat executives -- eyeing their "disgust meters," need look no farther than entertainment company AOL Time Warner (AOL) . If I owned the shares -- and I don't -- I would by now be wondering if this 1990s wunderkind is the next WorldCom, or Enron, or Tyco.
"I am struck by the stubbornness of the various analysts quoted in today's Wall Street Journal Heard on the Street column," Bernie Schaeffer of "Schaeffer's Investment research" told me Friday morning. "There is certainly a parallel here to WorldCom, on which most of Wall Street did not bail until the stock plunged below $5."
Schaeffer, a longtime market technician who catalogs investor sentiment, the options market and the financial press, says the popular AOL theme seems to be, " 'AOL is a value as long as there are no more shocks to the system.' This is despite a reported loss larger than the GDP of Chile and the tried-and-true cockroach theory on Wall Street that negative revelations beget further negative revelations."
Slowly, market observers are beginning to see AOL as it should be seen, as not as the flash-in-the-pan might want to be seen in Harry Potter's Mirror of Erised.
"If a company that has both 'Harry Potter' and 'The Lord of the Rings' in its arsenal of properties can't figure out how to make a profit, and how to clean itself up, then it suggests that something more than bad management and bad decisions is afoot," says Joseph Duarte, a Dallas fund manager and "author of two books" on stock-market strategy. "Ted Turner's resignation suggests that all is not well, and that it could be worse than anyone expects it to be."
Back in Desmond's world, the few industry groups showing strong so-called "power ratings," the term Lowry's uses to rank sectors by their level of investors' buying demand, include precious metals and non-ferrous metals shares and the defensive areas of electric utilities and drug companies. See: "Small-stock disaster ahead."
I fully expect that Desmond, when the stock-market's relentless fall from grace has run its course in several years' time, will gain recognition as one of the most prescient financial prognosticators in modern history. "Read my clips: Noted researcher sees series of severe losses."
Desmond team offers subscribers data on indicators that measure buying and selling demand, the relative strength of stocks, NYSE moving averages and an exhaustive range of proprietary gauges. The Florida-based "firm" has been serving research to Wall Street clients since 1938.
Best bet for coming storm
What's actionable in the increasing wreckage of the North American stock market? In the view of this writer, any investment with a pure exposure to hard assets, especially livestock, certain crops, gold and silver.
On Jan. 9, I explained the story of Cresud SA (CRESY) , a deeply undervalued Argentine rancher and holder of cattle and land. The shares were neglected at $5.80 each, and now, at $7.80 in U.S. trading, Cresud's stock still sells for about the equivalent of the company's tangible book value.
Shares of Cresud Sociedad Anonima Commercial Inmobiliaria Financiera y Agropecuaria, as the company is called, are still dirt cheap. Read my clips: "Argentine farmer poised for growth."
The only other must-have investment for the coming storm is gold, which, like commodities, has been turning heads as its price logs daily and weekly gains. At present, the easiest way to buy the metal, and its industrial soul-mate, silver, is through shares of Central Fund of Canada (CEF) , whose shares trade on the American Stock Exchange.
Central Fund is a repository for precious metals. It holds 261,000 ounces of gold and 13.06 million ounces of silver. The company is a closed-end fund whose shares sell at a roughly 18 percent premium to the $368-an-ounce price of gold. Central Fund recently completed a private placement of $15 million.
"This enlarges the fund by 10 percent, and more importantly, another 22,400ounces of gold and 1.12 million ounces of silver are going underground again, into the CIBC vaults, for CEF shareholders, never to see the light of day again in my lifetime hopefully," Ian McAvity, a director of the company and a co-founder, tells me. "That is true physical investment demand of the sort we need for the
precious metals markets."
Central Fund shares are flirting with $5, their highest point since May. At 10 a.m. New York time Friday, spot gold was down $2 at $367.88 an ounce.
Taking my QQQ short home. Also taking my BLTI long home.
Good luck Joe. I'm sure glad I covered my short on Thurs. At this point I'm more interested in going long. Careful buddy.
Or window dressing...
BLTI day high
OSUR
OraSure Technologies (Nasdaq: OSUR) is a pharmaceutical concern that developed
the OraQuick test with Abbott Laboratories. This new technology, which can
determine the presence (or absence) of HIV in around 20 minutes, was recently
approved by the Food and Drug Administration. Yesterday, OSUR applied to the FDA
for a waiver for the OraQuick product. The waiver would allow the test to be
distributed to certain sites in the United States, including clinics and
doctors' offices. OSUR shares have risen more than 16 percent today on above
average volume. The stock has hurdled the 6.50 level, which provided short-term
resistance since mid-November. Options players have failed to take an interest
in OSUR; in the front three-month series, there are currently only 2,143 open
calls and 167 open puts. Short sellers, on the other hand, have sold nearly 1.7
million OSUR shares short, causing a short- interest ratio of 12.5 times.
Click the following link to see the Daily Chart of OSUR Since September 2002
With 10-Day and 20-Day Moving Averages:
http://www.schaeffersresearch.com/wire?ID=7028 .
Reporters Bob O'Brien and Ray Hennessey are scheduled to talk about these hot stocks shortly on CNBC-TV, as they hand out their Stock Plays of the Week:
Company Company News
Fleetwood Wins our "Same As An
(FLE) Alabama Divorce"
award
- -
Caterpillar Inc. Wins our "Reading,
(CAT) 'Riting, and 'Recking"
award
- -
McDonald's Corp. Wins our "Celebrity
(MCD) Spokesmodel" award
- -
Yup....love it
BLTI.....
Composite Indicator
Trend Spotter (TM) Buy
Short Term Indicators
7 Day Average Directional Indicator Buy
10 - 8 Day Moving Average Hilo Channel Buy
20 Day Moving Average vs Price Buy
20 - 50 Day MACD Oscillator Buy
20 Day Bollinger Bands Buy
Short Term Indicators Average: 100% - Buy
20-Day Average Volume - 118730
Medium Term Indicators
40 Day Commodity Channel Index Buy
50 Day Moving Average vs Price Buy
20 - 100 Day MACD Oscillator Buy
50 Day Parabolic Time/Price Buy
Medium Term Indicators Average: 100% - Buy
50-Day Average Volume - 92724
Long Term Indicators
60 Day Commodity Channel Index Buy
100 Day Moving Average vs Price Buy
50 - 100 Day MACD Oscillator Buy
Long Term Indicators Average: 100% - Buy
100-Day Average Volume - 78236
Overall Average: 100% - Buy
Price Support Pivot Point Resistance
5.92 5.69 5.86 6.03
Last day of the month window dressing. Monday will most likely see selling.
QQQ....Short at $24.44
BRCM is surging....
I've added to my BLTI long. Volume is so impressive here. 30-Day Avg. Volume: 94,000
FDP thru 50day MA. Worth a watch here...
Out of tech into healthcare-drugs? I think so...
BETHLEHEM, Pa. (Dow Jones)--OraSure Technologies Inc. (OSUR) applied to the Food and Drug Administration for a waiver for its OraQuick Rapid HIV-1 Antibody Test, which would allow the test to be used at certain sites in the U.S. including outreach clinics and physicians offices.
In a press release Friday, the company said with an approved CLIA, or Clinical Laboratory Improvements Amendment, waiver the OraQuick test, which provides HIV-1 test results in 20 minutes, would be available for use by sites in the U.S. that are CLIA-waived.
On Nov. 7, OraSure received FDA approval to make and market the OraQuick test in the U.S. for the detection of HIV-1 antibodies in finger-stick whole blood samples.
But, because the test is categorized as moderately complex, it is restricted for use only in the nearly 40,000 laboratories in the U.S. certified under CLIA to perform moderately complex diagnostics tests.
U.S. Health and Human Services Secretary, Tommy G. Thompson, urged OraSure to submit an application for a CLIA waiver in order to expand the potential use of the test, the company said.
The company's shares closed Thursday at $6.20, down 10 cents, or 1.6%, in Nasdaq trading.
-Jenny Park; Dow Jones Newswires; 201-938-5400
(END) Dow Jones Newswires
01-31-03 0732ET
BLTI volume really coming in now.
BLTI is breaking out.
Bought BLTI as it breaks out thru $6 on above average volume. New highs are within sight.
BIOLASE Fourth Quarter EPS to Reach High End of Consensus Estimate
Earnings' Results to be Released on February 12, After the Market Close
Webcast and Earnings' Conference Call Scheduled for February 13
SAN CLEMENTE, Calif., Jan. 21 /PRNewswire-FirstCall/ -- BIOLASE Technology, Inc. (Nasdaq:BLTI), a medical technology company focused on pain-free medical and dental procedures, today announced that it will release its financial results for the fourth quarter and year ended December 31, 2002 on Wednesday, February 12, 2003 after the market close.
BIOLASE will also host an investment-community conference call on Thursday, February 13, at 11:30 a.m. EST (8:30 a.m. PST) to discuss its achievements and to answer questions. To participate in the live call, please dial (888) 335-6674 from the U.S. or, for international callers, please dial (973) 935-2101, approximately 10 minutes before the start time. A telephone replay will be available for two days by dialing (877) 519-4471 from the U.S., or (973) 341-3080 for international callers, and entering reservation number 3708922.
To listen to the conference call live via the Internet, visit BIOLASE's web site at www.biolase.com. Please go to the web site 15 minutes prior to its start to register, download, and install the necessary audio software. A replay will be available on BIOLASE's web site for seven days.
"Preliminary figures indicate that we finished the year on a strong note with impressive top and bottom lines," stated Jeffrey W. Jones, President and CEO of BIOLASE. "Continued demand and increasing sales worldwide of our Waterlase(TM) dental laser have resulted in our reaching the high end of the range of the Consensus Analyst Estimate for the fourth quarter, which is currently between $0.02 and $0.05. We look forward to discussing our detailed, fully audited results on the upcoming conference call."
About BIOLASE
BIOLASE Technology, Inc. ( http://www.biolase.com ) is a medical technology company that manufactures and markets advanced dental, cosmetic, aesthetic and surgical products, including Waterlase Hydrokinetic(TM) surgical cutting systems, LaserSmile(TM) and other advanced laser and non-laser products for the medical market. The Company's products incorporate patented and patent-pending technologies in the pursuit of painless surgery. BIOLASE is a leading provider of painless hard and soft tissue dental laser technology.
Dow surge is a trap.
XMSR surging pre-market.
SANTA CLARA, Calif.--(BUSINESS WIRE)--Jan. 31, 2003--Applied Materials, Inc., the world's largest supplier of wafer fabrication solutions to the semiconductor industry, today announced that it expects its orders for the first fiscal quarter ending January 26, 2003 to be below the target provided during its fourth fiscal quarter earnings conference call on November 13, 2002.
First quarter orders are now expected to be approximately 35 percent below the fourth quarter level, compared with the previously announced target of 20 percent below the fourth quarter level. New orders for the Company's fourth quarter of fiscal 2002 were $1.56 billion.
"Due to ongoing economic weakness and geopolitical uncertainties, customers deferred capital expenditures, causing a larger order shortfall than expected," said James C. Morgan, chairman and chief executive officer of Applied Materials.
The Company announced on its November 13, 2002 earnings conference call that its target for the first fiscal quarter of 2003 was for revenue to decrease at least 20 percent from fourth quarter results of $1.45 billion. The Company also announced on its November conference call that it expected to remain profitable operationally but would incur a small loss due to a restructuring charge associated with the reduction in force announced on November 4, 2002 and other costs. The pre-tax restructuring charge is now expected to be approximately $100 million.
AMAT....
Jan 31, 2003 (financialwire.net via COMTEX) -- (FinancialWire) James Morgan,
CEO of Applied Materials, Inc. (NASDAQ: AMAT) has acquired 560,000 shares and
stock options for $2.6 million, and simultaneously told 165 employees in Austin
that they should pick up a guitar and begin strumming on the famed Sixth Street
strip for tips.
The semiconductor company has 14,000 employees worldwide.
The Austin layoffs are inaddition to the 1,750 pink slips the company said in
November it would be handing out, and the company reportedly plans an unpaid
early "Spring Break" for all of its employees in February.
This way, any of those laid-off that get a gig on Sixth Street will have a
ready-made audience.
The company had already mandated shut-downs in November and December, and is
pinning its hopes on a worldwide economic recovery this year.
Clickable links for FinancialWire news are at http://www.financialwire.net. For
FinancialWire audio news, click on partner ON24 at http://www.on24news.com
URL: http://www.financialwire.net
The Sox is in trouble..
http://www.marketswing.com/L3charts/SOX.htm
More charts of interest...
http://www.marketswing.com/L3charts/regular.htm
Date:1/30/2003 10:52:36 AM
Post #of
4565
Analysis - Wednesday, January 29, 2003 8 p.m.
At the lows this morning the Dow was down 134 points points,
reaching its lowest level on a print basis since the current decline began
from the January 13 print high of 8869. The Dow then bounced back to
close
up 21.87 for the day, with the Nasdaq up 15.93.
As most subscribers are aware, the Bear Market low for the Dow last
year fell on 10/10/02. That day the Dow reached an intraday low of
7165.94.
On our update that evening we stated the following: "Today's action in the
Dow can be classified as a key reversal day. This is defined as a day
when
the Dow makes a new intraday low then rises above the prior intraday
high
for the day, and closing above the prior day's close. This is normally a
bullish pattern, suggesting that some sort of low has been seen. This
pattern unfolded today. Unless the Dow falls below 7197 on a print basis
and more importantly 7165 intraday, it must be considered as possible
that
some sort of bottom was seen today." That day did in fact mark the
bottom,
and the Dow then rose 1911 points to an intraday high of 9076 on
12/02/02.
On our update of 12/2/02 we stated that the Dow had completed
another key reversal day; this time a bearish one, suggesting that some
sort of high had been seen. December 2 did in fact mark an important
high,
and the Dow subsequently fell 862 points to an intraday low of 8214 on
December 30.
The Dow today completed another "key reversal day," this time a
bullish one. This suggests that we may well have seen some sort of
bottom
today. Like anything in this business, this pattern is not infallible. If
the Dow falls below 7945 on a print basis, and more importantly, 7916.89
intraday from here, the bullish signal from today's key reversal day will
be cancelled. However, at this point, we believe this is a reason to
suspect that some sort of low has been seen.
There are a couple of short-term issues which concern us somewhat
here, primarily the status of some of our short-term Gann Cycles. Those
short-term cycles suggest that if we do see a further rally from here, it
probably will not last for more than a day or two, before another brief
pullback comes in. As long as that pullback holds above 7916.79 intraday
in
the Dow, we would look for still higher prices to follow.
While today's key reversal day suggests there are reasons to be
somewhat optimistic from here, officially we will continue to hold at 70%
cash for now.
Jerry Favors
The Bank of New York ADR index lost 0.91%, to end at 74.98. Regionally, the bank's index of Asian ADRs fell 1.72%, Europe declined 0.69%, and Latin America fell 0.07%.
Wayne Yu, Far East ADR trader with the Bank of New York, noted the cautious mood that's dominated the market for U.S. listed shares of foreign companies. Investors who are long in such a market would "be stuck in a situation" if there's a major international event. That's because there may not be enough liquidity for sellers to make a quick exit.
"The global markets are waiting to see what goes on" with the geopolitical situation," Yu said. The markets are waiting "to see if there's a disruption in oil supplies and exports."
Asian ADRs came under pressure amid concerns that American consumers would shun that region's products, which become more expensive in the U.S. as the dollar falls. The Japanese yen, for one, gained 0.62% against the dollar, to trade at Y119.095 to the dollar.
Dow Jones Newswires
01-30-03 1746ET
>>>Bearmove is that guy paid by the word? I gave the same conclusion yesterday when the stock was still under $10 in one short pargraph (g).
Zeev<<<
I have no idea Zeev. After reading it I decided to cover and take my small profit. I'm now looking to go long.
Thanks, ZRAN does look attactive down here.
Per-Share Data
Book Value (mrq) $11.24
Earnings (ttm) -$0.06
Earnings (mrq) $0.17
Sales (ttm) $5.25
Cash (mrq) $4.37
I see Yhoo says 15% of the float is short. Lets see what Fri brings.Good luck to you.
>>>ZRAN
ZERO Debt
Cash at just over 1x yearly revs
26% estimated growth rate
Should now earn .85 for Dec. '03<<<
Where did you come up with a 26% growth rate? Is that going forward?
FOOL ON THE HILL
Court Victory! Stock on Sale?
In a rare instance, a court's decision actually awarded a clear-cut benefit to a company. A federal appeals court yesterday gave Rambus shareholders every reason to believe their company may now own a few percentage points of Infineon's computer memory output. Rambus stock is now selling at a substantial discount to intrinsic value.
Rambus
By Tom Jacobs (TMF Tom9)
January 30, 2003
It's not often that you own a stock that jumps 57% in a day to head the Nasdaq gainers. So, go ahead and crow if you hold shares of chip designer Rambus (Nasdaq: RMBS). Shares vaulted $4.25 yesterday to close at $11.69 -- a finish not seen since October 2001, and then only briefly since June of that year.
The cause? A startlingly clear victory in Rambus' federal patent-infringement appeal against chip maker and Siemens (NYSE: SI) spinoff Infineon (NYSE: IFX) may finally lead to what Rambus investors have long dreamed of: millions of dollars in royalties on all the consumer PC memory produced.
Here's the page-turning story of the court decision and its importance (whether Rambus is a buy, sell, or hold today). You should know I own shares; though at an average price of $19.00, I'm not buying Mumm's and Beluga caviar. I promise to save most (but not all) unseemly crowing and gloating for our Rambus discussion board. But permit me one out, loud and proud, "Go Rambus!"
That felt good.
Navigating the royalty stream
In 2000, Rambus sued Infineon in federal court seeking royalties on the chip maker's sale of two of today's three dominant computer memories -- SDRAM (synchronous dynamic random access memory) and DDR (double data rate) DRAM. Rambus alleged that its patents covered those memories, and that Infineon infringed on them by making and selling them without a license or royalty agreement -- agreements Rambus had or would obtain from other memory makers Samsung, Toshiba, Hitachi (NYSE: HIT), and NEC (Nasdaq: NIPNY), but not Infineon, South Korea's soon-to-be-ailing Hynix, or the last U.S.-based DRAM maker, Micron Technology (NYSE: MU).
The money was big. Infineon was one of the top 10 DRAM makers in a market worth over $30 billion in 2000. Even after that number more than halved in 2001, royalties of 1% or 2% add up fast, are very high margin, and for profitable companies, can convert to free cash flow at giddy rates. So, like any other intellectual property company that lives or dies on licensing and royalties, Rambus went for what it believed was its rightful share.
The same month that Rambus sued Infineon, Micron sued Rambus to preempt the scrappy upstart from pulling an Infineon. Unlike Infineon, which at least made RDRAM and paid royalties, Micron bet the company on DDR SDRAM, and apparently decided to fight Rambus to the death rather than deal.
Short-lived humor
Rambus investors enjoyed referring to Infineon as "Infringeon," but that became gallows humor when the trial court judge and jury hanged Rambus on all points in 2001, finding the company guilty of fraud and making it pay Infineon's attorneys' fees. Rambus stock, which in early 2000 jumped 600% in weeks into the split-adjusted $100s, fell from the $40s to the single digits.
Along the way, writers -- including Jack Robertson of the electronics industry newsweekly EBN --appeared determined to reveal their ignorance of law and business with uninformed personal attacks against Rambus couched as journalism. Robertson should have just switched to commentary, and he could've been as uninformed as I am.
Rambus was the company everyone loved to hate. Except its investors.
Darkest before the dawn
In June 2002, the specialized federal appeals court heard the parties' oral arguments. It was fabulous theater. Infineon's appellate lawyer, Ken Starr (known more for years of Supreme Court appeals than for his technical patent law expertise), entered with a train of private firm attendants and the time clock running. Rambus had made the prosaic decision to hire a top patent appeal lawyer.
Where the gallery usually echoes, it was standing room only. Robertson grinned front and center, while I sat a few rows back, waiting in vain for Fool fans to ask for autographs. I had to hand it to Starr. He argued a tough case with rhetorical brilliance, while the other guy stuck calmly to mind-numbing details. Of the three judges, the two experienced ones and authors of many major opinions asked penetrating questions, while the newest appointee sat mum.
But two weeks later, any happy handicapping of the appeals court gave way to further gloom when the Federal Trade Commission (FTC) voted unanimously to sue Rambus for anticompetitive conduct -- conduct underlying the jury's fraud verdict in the Infineon case.
Sticking to knitting
Meanwhile, Rambus' business developed. Yes, RDRAM appeared to lose to DDR SDRAM to become the consumer PC's next-generation memory, but it found a solid niche in performance workstations. Sony (NYSE: SNE) put RDRAM in the best-selling PlayStation2, and it appears set for the PlayStation3. In a semiconductor depression, with average selling prices of DRAMs below many makers' costs, Hynix is on a deathwatch, and Micron is in critical condition. Only more diversified Samsung appears healthy.
Yet all the time, Rambus generated free cash flow, developed and patented new advanced technologies, obtained its first licensee for one of them, and signed a favorable five-year, $200 million licensing deal with Intel (Nasdaq: INTC). If Rambus didn't have to spend those pesky legal fees, it would've performed even better.
Of course, if your business is licensing and royalties, and you don't defend your patents, you die.
That was then; this is now
But now the sun is shining. Yesterday, the two experienced judges on the appeal panel issued the majority decision reversing all of the trial court's decisions against Rambus, affirmed all decisions in its favor, and sent the case back to trial court. It even vacated the judge's award of attorneys' fees to Infineon. The newer judge dissented.
By reversing the jury's verdict that Rambus committed fraud in dealing with the industry standards-setting body, the court weakened -- some would say flattened -- Micron's pending case against the company and the FTC's suit (though the FTC felt compelled today to issue a press release strongly to the contrary). But for investors, the key was the court's decision reversing the trial court judge's interpretation of certain language in Rambus' patents.
The court has reinstated Rambus' case against Infineon and armed it with almost foolproof offensive weapons.
Where to?
We shouldn't count Infineon royalties too soon, though. The company is free to ask for a rehearing by all the judges on the court. It must do this as a prerequisite to any request that the Supreme Court hear the case. I'll make some predictions.
First, it costs less to pay lawyers than tens of millions in back and future royalties, so while I'll bet Infineon is today exploring a settlement with Rambus, it may choose the reasonable business decision to continue its few legal options... in vain. Why in vain?
1. The appeals court won't grant a rehearing. Two of its most experienced and knowledgeable judges -- the ones the others look to -- issued the majority decision, and a newcomer dissented. Not going to happen.
2. Should Infineon ask, the Supreme Court won't take the case. There's no constitutional issue or split among the circuit courts requiring a referee.
3. Infineon and Rambus will settle the case quickly, within 90 days and certainly within six months.
4. Micron will eat its own young before it settles its case, but Rambus might well win a motion for summary judgment (decision without a trial). The trial judge in Micron's case has stayed proceedings pending the appeals court decision. While Micron has behaved like a company that would sooner go bankrupt than agree to pay Rambus one farthing, its financial position has worsened considerably. I won't predict a settlement because this company appears hell-bent on going out of business. It's the headstrong youthful execs running the company, no doubt.
5. Despite the FTC's position today, its anticompetition case against Rambus will wither and die or at least become a bothersome fly. The government has recently moved for a decision without a trial, but the appeals court appears to have decided several crucial issues common to the FTC case in Rambus' favor, and they would likely carry weight.
I could be wrong about all of these. There are no guarantees.
Buy, sell, or hold?
It doesn't get much more exciting than this, but emotion must give way to valuation. If Infineon settles quickly and starts paying royalties a quarter later, I estimate that Rambus' intrinsic value today (using a discounted cash flow model) rises from the high single digits to somewhere between $20 and $30 -- assuming a discount rate of 11%, low single-digit dilution from stock options (Rambus has a bad history to overcome), and double-digit growth rates. Some may estimate higher, but I'm not adding anything for a possible Micron settlement. Given Micron's health, that might be like getting blood from a stone.
As long as the appeals court decision leads to Infineon royalties sometime in 2003, Rambus stock at yesterday's $11.65 close is selling for anywhere from 45% to 60% under intrinsic value. Now there's a margin of safety.
Some fun, eh? Have a Foolish weekend, and for more Rambus fun, you can learn the history of the company and its legal wranglings from The Motley Fool's Fabulous World of Rambus:
FTC Sues Rambus, June 2002
The Quiet Tech Risk, June 2002 (watching the appeal oral argument)
Rambus Loses Round One, May 2001 (trial court bad news)
Legal Fees Sap Rambus Earnings, April 2001
Rambus Under Siege, March 2001
Is Rambus' Advantage Sustainable? Jan. 2001 (the business, part deux)
Is Rambus a Rule Breaker? Nov. 2000 (the business)
Rambus Captures Samsung, Nov. 2000 (the key license and royalty deal)
Rambus, Intel on the Outs? Oct. 2000 (Intel's support crucial)
Rambus Scores NEC Deal, Sept. 2000
Micron Sues Rambus, Aug. 2000
Dueling Fools on Rambus, Aug. 2000 (what a Bull I was!)
Rambus is King of the Hill, July 2000
Rambus Rides Again, June 2000 (Toshiba and Hitachi agreements)
Do You Believe in Rambus? April 2000
Changed my mind. Covered RMBS at $12.52 to take my profits. Will watch
Taking my RMBS short home.
By Kopin Tan
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--You've heard the drumroll for years. Now get ready for the curtain to rise.
U.S. option exchanges on Friday will start the process of electronically linking their markets, when they begin trading 14 option classes on a long-anticipated order-routing network that connects the five different exchanges.
Despite the buildup, the immediate impact on option investors may be somewhat muted, traders and exchange officials said. For years, the Securities and Exchange Commission had pushed for Linkage, as the platform is commonly called, arguing that connecting the different markets will allow trades to be executed at the best possible prices.
But trading rules put in place since already ensure that. For instance, current "best execution" practices require that option orders be filled at the market's best prices, or traders could be called upon to explain the lapses. "And (specialists) and market makers already work very hard to make sure customers get best execution of their orders," said Edward Provost, an executive vice president at the Chicago Board Options Exchange.
So the biggest difference may be felt among professional traders, like specialists and market makers on trading floors and at the all-electronic International Securities Exchange.
"It gives the trading floor the ability to electronically and effectively access their counterparts at other exchanges, without the normally labor intensive, and quite frankly costlier, procedures they go through today," Provost said.
For option investors, however, Linkage may nonetheless help ensure there are even fewer trade-throughs, or orders that for one reason or another aren't filled at the market's best prices, traders and exchange officials said.
Meanwhile, as exchanges get ready to flick on the switch, traders at the various exchanges have been preparing for the launch, attending classes to familiarize themselves with the new network.
The rollout of the Linkage network is divided into two phases. The first involves briskly traded options on 14 stocks like Apple Computer, Bank of America, Eastman Kodak, General Motors, Hewlett-Packard Co., Nokia Corp. and Procter & Gamble Co. It covers option orders up to a certain size that are currently eligible for electronic execution. On Feb. 25, the rollout will be expanded to include 20 most heavily traded options, like Microsoft Corp. and the Nasdaq 100 Tracking Stock, or QQQ.
The second phase of the rollout is scheduled from April 25 to early June and will cover larger option orders that are now often manually filled.
In Thursday's option trading:
- Stocks fell after its two-day run-up, and while some traders attributed the decline to weak earnings news from companies like AOL Time Warner and data showing a fourth-quarter economic slump, the uncertainty surrounding a war with Iraq remain a major worry for most investors.
Cautious investors seeking downside insurance sent the ratio of equity puts traded to calls to 0.72 at the CBOE, compared with readings of 0.64 and 0.46 the previous two days. But the put/call ratio for index options remained low at about 0.98, according to Track Data Corp.
Investors also looked for places where they might sell options to earn income.
AOL Time Warner's options traded heavily after the troubled media giant reported a 2002 net loss of $98.7 billion, the largest annual corporate loss in history. Traders noticed investors selling short-term calls to generate whatever income they could while setting a target price beyond which they would be willing to sell stock.
With AOL off $2.02 to $11.94, the February 12.50 calls traded 12,177 contracts, compared with open interest of 11,303 contracts, and slipped $1.35 to 40 cents at the American Stock Exchange.
AOL's March 12.50 calls and puts also traded actively, with much of the volume accounted by a straddle seller - an investor selling both March 12.50 calls and March 12.50 puts. As seasoned traders know, selling straddles can be very profitable if the stock price remains little changed, although the losses mount if the stock price moves sharply in any direction.
Here, the straddle seller likely expects AOL to hover near $12.50 after its 14% tumble Thursday. At the American Stock Exchange, the March 12.50 calls were at 75 cents as 13,261 contracts traded, compared with open interest of 1,676 contracts. The March 12.50 puts rose 60 cents to $1.15 as 14,643 contracts traded, compared with open interest of 1,888 contracts.
-By Kopin Tan, Dow Jones Newswires; 201-938-2202; kopin.tan@dowjones.com
(END) Dow Jones Newswires
01-30-03 1531ET