Computer Stocks Vintage 1989

Investing in initial public offerings (IPO) of technology stocks can be frustrating and profitless. Since 1983, 3 out of 4 of the computer-related IPOs showed less profit than the Standard & Poor’s (S&P) average. New offerings tend to arrive at the peak of a market, which makes them overpriced from the outset. If investors buy at a time when no one wants technology stocks, then there is a good chance that money can be made. In 1986, when demand for technology stocks was down, the 50 computer IPOs beat the S&P by an average of 29%. Relative to other securities, technology stocks now have recovered to precash levels, a positive development for the IPO market. In addition, prices on even the good companies probably will not be high. The top 5 IPO prospects for 1989 are: 1. MIPS Computer Systems, 2. Apple Computer’s subsidiary, Claris, 3. Santa Cruz Operation, 4. Sybase, and 5. Radius.
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Shaffer, Richard A.

Full text: [Forbes] Apr 17, 1989

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Carpet Tile King

Ray Anderson started Interface Inc. (LaGrange, Georgia) as a joint venture with UK’s Carpets International PLC in 1973. He took control of the UK company in 1983 and now leads the world market in carpet tiles, 18- and 19 1/2-inch carpet segments that stick to the floor via a patented fiberglass backing that works like a suction cup. With aftertax profits averaging 5.5% of sales for the last 5 years, profits from the carpets should reach $26 million for 1989. Following a shaky start (Anderson opened Interface for business at the beginning of the 1973 oil embargo and the recession that followed), the nationwide boom in office buildings began and Interface’s sales exploded. Meanwhile, the UK’s strong sterling had weakened Carpets International’s fortunes, so Anderson began buying back Interface’s equity from the cash starved UK firm, eventually buying out the entire firm. Interface went public over-the-counter in 1983 and has seen its shares double to the recent price of $16 per share.
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Lappen, Alyssa A.

Full text: [Forbes] Apr 17, 1989

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An LBO Outfit That Goes For The Long Pull

In March 1989, Louis Marx, Jr., and his publicly held firm, Prospect Group, bought the Illinois Central Railroad (IC) for $435 million. Unlike most firms, which put as little equity as possible into a deal, Prospect puts 15% to 20% cash into a company so that it can meet its debt service and expand if necessary. While Marx does not attempt to convince the firms he takes over that they are synergies among Prospect’s holdings, he does make use of transferable experience. In 1986, Prospect bought 414 miles of track in Louisiana and Mississippi from IC and developed an operating company by cold-calling customers and providing ontime service. Today, MidSouth Railroad has a market value of $97.6 million. Prospect, which now owns all of IC and is ready to transfer its railroad experience into profits, feels that IC’s old parent company was more interested in its food business and did not make efforts to realize the large railroad’s potential.
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Berss, Marcia

Full text: [Forbes] Apr 17, 1989

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Milken’s Shadow Hovers over Fred Carr

Inclusion in Michael R. Milken’s inner circle of junk bond buyers helped Fred Carr build First Executive Corp. into the US’ 15th-largest insurer. However, the link also has brought Carr unwanted notoriety that ties his name to various federal probes of Drexel Burnham Lambert Inc. Further, it has hurt First Executive’s sales and stock price, while prompting concern among investors and customers. Ironically, such concerns are surfacing as Carr engineers a boom in profits and cash flow. Milken, who faces a 98-count federal indictment for securities crimes, raised capital for First Executive and held stock in 2 companies in which First Executive was a major shareholder. Although Carr now deals with other junk bond underwriters, he still relies heavily on junk: it makes up 51% of his $17-billion portfolio. There are rumors of bids for First Executive, but Carr himself may take the firm private. A buyout would cost at least $1.4 billion.
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Kerwin, Kathleen

Full text: [Business Week] Apr 17, 1989

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Jim Kinnear Is Pumping New Life into Texaco

Texaco Inc. Chief Executive Officer James W. Kinnear says his firm has become a new company. Earnings in 1988 grew due to strong refining profits and Kinnear’s restructuring efforts. However, Texaco is not yet out of danger. According to certain analysts, the firm continues to trade at only 60% of its breakup value. Texaco has been takeover bait since it found itself on the wrong side of an $11-billion judgment in a court battle with Pennzoil Co. The outcome forced a drastic overhaul of Texaco’s operations and management. The most novel part of Kinnear’s restructuring has been a deal signed with the Saudi Arabian government in 1989. He folded 60% of Texaco’s US refining and marketing operations into a joint venture with the Saudis, bringing in $812 million in cash, 22.5 million barrels of crude inventories, and a steady flow of oil for 3 of Texaco’s refineries for the next 20 years. To compete with rivals over the long term, Texaco needs some major oil discoveries.
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Ivey, Mark

Full text: [Business Week] Apr 17, 1989

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Banc One Frustrated by Lackluster Stock Price

Banc One Corp. executives are out to boost the value of their company’s stock. Like other regional banks around the country, Banc One’s performance record is not being reflected in its stock price, and company Treasurer George R.L. Meiling said he wants to see that change. “That’s a herculean task I’ve set for myself,” Meiling said. “I think we’ve got a record to be damn proud of, and yet we’re still selling at only 80 percent of the market multiple. That is frustrating. Performance is performance is performance, whether you’re selling hamburgers or making loans.” (excerpt)
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Jackson, William

Full text: [Business First] Apr 17, 1989

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BLUE CHIPS OR BLUE CHUMPS?

Dishonored Guests: Marriott, the big Washington-based innkeeper, agreed to pay the state of Pennsylvania $5,000 in fines. The state alleged that Marriott improperly changed the rules of its “Honored Guest Awards” frequent customer program, making it harder for its lodgers to earn some gifts . . . Kissin’ Cousins: Merger talks earlier this year collapsed between two big financial planning trade groups, but that hasn’t stopped their local chapters from burying the hatchet. Boston and three other regional chapters of both the International Association for Financial Planning and the Institute for Certified Financial Planners work together in areas such as education and ethics. However, there’s no word yet on whether the local folks will tackle one of their biggest consumer problems: choosing a single credential. The most pitiful of blue chips? Navistar International, previously known as International Harvester. A $10,000 stake in the company’s stock 20 years ago is now worth a measly $4,000. Some other well-know companies struggled, too. The stock price of venerable Sears, Roebuck gained only 5.6 percent annually and IBM, 7 percent annually. A similar stake in Eastman Kodak, another American success story, gained only 5.8 percent a year over two decades.
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Hank Gilman, Globe Staff

Full text: [Boston Globe (pre-1997 Fulltext)] Apr 17, 1989

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Great Lakes Chemical Corp.

Great Lakes Chemical Corp. has more than tripled its earnings over the past 2 years. A net of at least $7 a share looks attainable in 1989. In 1988, earnings were a record $103.3 million, or $5.93 a share, on $616 million of revenues. Total net income increased 86%, while per-share net climbed 77.5% and revenues rose 23%. Great Lakes has agreed to acquire 51.5% of Octel Associates, a British specialty chemicals producer. Octel, with $400 million in sales and $90 million of pretax earnings in 1988, also manufactures other specialty chemicals based on bromine, chlorine, and sodium. The Octel acquisition will add about $1 a share to Great Lakes’ earnings on a full-year basis, or perhaps slightly more than 50 cents a share in 1989. Great Lakes is the world leader in both bromine-based chemical products and products based on furfural chemicals. The company is essentially debt-free, having only $15 million of industrial revenue bonds on its books. The company will have no trouble borrowing the $180 million needed for purchasing control of Octel.
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Byrne, Harlan S.

Full text: [Barron's National Business and Financial Weekly] Apr 17, 1989

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Good Show General Cinema’s

General Cinema Corp.’s bottling operations were sold to PepsiCo in March 1989 for $1.75 billion, or about $14 a share. Investors have long admired General Cinema’s skill at corporate portfolio management and awarded its shares a generous price-earnings multiple. From its origins as a drive-in theater chain in the 1920s, General Cinema now includes 60% of Neiman Marcus Group, an almost 20% stake in Cadbury Schweppes, and 1,400 theaters in the US. For more than 25 years, the firm’s earnings have grown by 19%, compounded annually. Revenues have jumped to $2.3 billion from a 1960 level of $8 million. General Cinemas will probably sell the theaters and may buy the rest of Cadbury. Its operating margins have dropped from almost 16% in the early 1970s to about 4% in fiscal 1988.
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Kozelka, Rita

Full text: [Barron's National Business and Financial Weekly] Apr 17, 1989

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Back In Vogue? J.C. Penney’s Stress

In fiscal 1988, sales at J. C. Penney, the US’ 4th-largest retailer, fell 1% to $15.3 billion. Through an aggressive stock buyback plan, however, earnings per share actually rose to $4.96 in 1988, up from $4.77 in 1987. The company has altered its basic retailing strategy, changing from a low-rent general merchandiser into an apparel retailer with an emphasis on fashion. The discontinued lines had estimated margins of 14.6% to 33.2%, while the new apparel lines boast margins over 40%. The delegation of more authority to buyers and store managers will allow more locale-specific merchandising. The addition of specialty catalogs should further increase catalog sales, which were up nearly 20% in 1988. Penney hopes to add one million square feet of selling space in the normal course of store expansion, the first gain in 5 years.
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Palmer, Jay

Full text: [Barron's National Business and Financial Weekly] Apr 17, 1989

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First Chicago Posts 11.8% Decline in Net Income Series: 6

Noninterest income fell to $249.5 million from $269.6 million. Contributions from its venture capital subsidiary declined to $22.8 million from $54.9 million. The drop was offset by a nonrecurring gain of $48.1 million related to two leasing transactions. President Richard Thomas said that when Illinois opens its borders to full interstate banking in December 1990, it is “likely to be more of a nonevent than is expected.” The nation’s largest banks on the East Coast and West Coast really don’t have the capital to be aggressive acquirers in the Midwest, he said. He also said that, given First Chicago’s stock price, the company is in a better position to make acquisitions now than it was a year ago. But the company will not pay high prices for acquisitions. Its appetite for banks outside the Midwest region is not keen, and for now its emphasis will be on continuing to expand its business in the greater Chicago area.
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LISABETH WEINER, Midwest Bureau

Full text: [American Banker (pre-1997 Fulltext)] Apr 17, 1989

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Stocks Are Mixed in Quiet Trading As Investors Await Report on Prices

As expected, the euphoria over Friday’s rally — the biggest in six months — didn’t carry over. After a short-lived rally attempt, the Dow Jones Industrial Average inched ahead 0.73 to close at 2337.79. On Friday, the industrials surged 41.06 points. Yesterday’s dullness might have been discouraging for traders and investors, but it shouldn’t have surprised them. Stocks had rallied Friday because the producer-price index suggested March inflation was milder than expected. But even before Friday’s trading was over, the focus turned to the consumer-price index, or CPI, report due this morning, which could just as easily reignite inflation fears and depress stock prices. Others warned not to be seduced by brief market rallies based on economic reports. Standard & Poor’s Corp. in tomorrow’s issue of its Outlook newsletter, says that while Friday’s economic news was encouraging, “considerable uncertainty remains and there’s the risk that by actively adding to your stock holdings at this time, you will leave yourself open to being whipsawed.” S&P recommends shifting some funds into certificates of deposit, whose one-year yields around 10% are “tempting no matter how promising stocks appear.”
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By William Power and David Wilson

Full text: [Wall Street Journal] Apr 18, 1989

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Software development falls behind;Programmers hustling to fill gap

WordPerfect: This Orem, Utah, maker of the popular word processing program WordPerfect completed its original program with the wizardry of eight programmers, who took six months. That was November 1982. Its latest version of the same program, WordPerfect 5.0, shipped last May, took 35 programmers two years. “By the time that came out, we felt like we were crawling across the desert on our hands and knees and barely made it to the oasis before we died,” says [Peterson]. “It was that hard.” Development of hardware (the science, the machines) is racing ahead so fast that software (the art, the programs) is two years behind. Now that gap is about to widen. Last week, Intel Corp. introduced a new generation microprocessor, the i486. Serving as the brain of a computer, i486 chips will start showing up in PCs and workstations by the end of the year. Those computers will be two to four times faster than the fastest PCs on the market right now – PCs based on Intel’s 80386 line of microprocessors and sold under brand names such as IBM, Compaq, Wyse and Tandon. Software creators can’t keep up. Top companies, including Lotus Development Corp. and Microsoft Corp., already have announced delays getting software out for the 80386 generation of PCs and watched those announcements slam their stock prices. Software firms are even farther from being ready for i486 PCs.
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Kathy Rebello

Full text: [USA TODAY (pre-1997 Fulltext)] Apr 18, 1989

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U.S. inflation news provides lift to N.Y., Toronto stocks

Stock prices in New York and Toronto roared ahead in heavy mid-day trading today, influenced by U.S. government reports suggesting inflationary pressures eased slightly during March. Prices on the Vancouver Stock Exchange bucked the upward trend as gold slipped to $383.80 US an ounce from $386.20 US in New York. Silver was off four cents to $5.79 US.
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Full text: [The Vancouver Sun] Apr 18, 1989

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Doman takeover rumors cited at Bennett trial

Neil Winchester, the Toronto Stock Exchange’s manager of market surveillance, testified he wrote a letter to Doman Industries on Aug. 26 expressing concern that Doman’s stock price had been rising sharply on heavy volume. Doman Industries chairman Herb Doman, 56, is also charged with conveying information relating to both the buying and selling of Doman stock by the Bennett brothers. Trading in Doman shares was halted on the Toronto exchange at 11:13 a.m. and Doman issued a news release announcing the cancellation at 1:35 p.m. When trading resumed on Nov. 7, the share price plunged to $7 1/2 .
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DAVID BAINES

Full text: [The Vancouver Sun] Apr 18, 1989

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Doman takeover rumors cited at Bennett trial

Neil Winchester, the Toronto Stock Exchange’s manager of market surveillance, testified he wrote a letter to Doman Industries on Aug. 26 expressing concern that Doman’s stock price had been rising sharply on heavy volume. Doman Industries chairman Herb Doman, 56, is also charged with conveying information relating to both the buying and selling of Doman stock by the Bennett brothers. Trading in Doman shares was halted on the Toronto exchange at 11:13 a.m. and Doman issued a news release announcing the cancellation at 1:35 p.m. When trading resumed on Nov. 7, the share price plunged to $7 1/2 .
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DAVID BAINES

Full text: [The Vancouver Sun] Apr 18, 1989

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McClatchy Stock Rises on Speculative Buying

McClatchy Newspapers stock rose sharply Monday on speculation that a large stake held by its chairman, Charles Kenny (C.K.) McClatchy, who died Sunday, would be sold and possibly lead to the sale of the company, analysts said. The stock gained $1.75 a share to close at $19.25, its highest closing price since becoming publicly traded in February 1988. The stock was initially sold to the public at $16.50 a share. McClatchy officials Monday issued a statment assuring continuity in ownership and management. (excerpt)
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Sirard, Jack

Full text: [The Sacramento Bee] Apr 18, 1989

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Stock prices close mixed

Investors returned to earth yesterday after a burst of optimism sparked by a U.S. government report that the producer price index rose 0.4 per cent in March, said Toronto analyst Joe Ismail of Moss Lawson and Co. Ismail said the market interpreted the data as suggesting the U.S. economy might be slowing down. That pushed Toronto up 22.16 points and New York up 41.06 points Friday. In Montreal, 5 million shares changed hands, compared with 5.88 million the previous session. The utilities index dropped 4.84 to 1503.56, mines 3.63 to 1906.38, industrials 1.6 to 1535.21 and banks, 10.72 to 1735.19. Oils rose 1.48 to 1617.96 while forest products were unchanged at 3060.22.
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Full text: [The Gazette] Apr 18, 1989

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Stock prices mixed as investors wait

On renewed takeover rumors, Minneapolis-based Honeywell rose 1 3/4 to 73. Cray Research, another Minneapolis company, was up 1 to 54 7/8 after Control Data Corp. of Bloomington announced it was closing ETA Systems, Cray’s only U.S. competitor.
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Full text: [Star Tribune] Apr 18, 1989

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Another Boeing Stock Split in Offing?

As Boeing’s stock soared to new high of $71.875 a share yesterday, analysts predicted another split may be in the offing, along with a dividend increase, at the company’s annual meeting next Monday. The stock last split 3-for-2 in June 1985, when the stock was at $68.75 a share. The dividend last was increased to 40 cents, from 35 cents, last summer. Companies often split their stock to lower the price so it is more attractive to a broader range of investors and to get more shares into the marketplace. At the end of last year, Boeing had about 153 million common shares outstanding, of 300 million authorized. (excerpt)
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Lane, Polly

Full text: [Seattle Times] Apr 18, 1989

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