Recap of Saturday, September 8

The Informer

Quentin Hardy, senior editor:  (PALM) Palm, Handspring and Sony are in trouble.  Microsoft has a new operating system coming out that looks pretty good.  Also, Hewlett-Packard and Compaq are getting together.  They have the two leading share in Microsoft handheld.  It's gonna be a big force against Palm.

Lisa DiCarlo, senior editor:  I don't think we should dump Palm.  I agree with Quentin, they are going to run into trouble.  But Quentin, what about a merger between Palm and Handspring?  Or Palm and Research in Motion?

Quentin Hardy:  There's a lot of bad blood between Palm and Handspring.  Research in Motion only has about 400,000 subscribers.

David Asman:  Quentin, are you saying Palm is just going to die?

Quentin Hardy:  Palm will just morph into something else and follow the trend.

Bob Lenzner, national editor:  So, what happens to our Palm Pilots?  How do we get them fixed?

Quentin Hardy:  Well, you can board them into a Microsoft pretty easily.

David Asman:  Bob, what have you got for us?

Bob Lenzner:  Telecommunication Convertible Bonds, companies that have gone to very low levels where they're paying the interest on the bonds. 

David Asman:  You have a lot of fancy jargon there.  Bottomline, is it easy to buy bonds?

Bob Lenzner:  Sure it is.  Some good ones are NTL, the largest cable operator in Great Britain, Nextel, and Level 3 Comm.  But these bonds are not for the weak at heart.  They're risk-takers that in the long run will do good.

Jim Michaels, editorial vice president:  I think bandwidth will be good.  It'll be used.  But be ready for some heartburn, too.  Some of these companies may go bankrupt.  But eventually, these things are going to pay off.

Quentin Hardy:  A quick footnote on Nextel, they just retired a whole bunch of debt and the market doesn't seem to have noticed it at all. 

Jim Michaels:  We're all hearing about the Hewlett-Packard Compaq merger, but I've got a merger that nobody's paying attention to. The difference here is investors can actually make some money off of it.  Chevron and Texaco are merging in the coming week and when that happens Chevron's stock will change from what it is today.  It's gonna have a better P. E. (potential earnings) ratio, which should be worth another $15-$20 to the stock.  This is the stock to have in a bad market.

Lisa DiCarlo:  Any idea if they'll have problems with the FTC?  I know they're grappling over the value in the stake in the shell refinery.

Jim Michaels:  They've agreed to most of the government's stipulations.  The arbitrators say the merger is going through.

Bob Lenzner:  The beauty of it is they're getting $11 a barrel per share.  Eleven times 24 is 250.  You're buying a stock at 80 that has $250 underneath it.

David Asman:  Lisa, what have you got for us?

Lisa DiCarlo:  Believe it or not,  Xerox (XRX).  It's up 80 percent since the start of the year.  They've gotten rid of low margin businesses.

David Asman:  But it's still only a half of what it was last year.

Lisa DiCarlo:  That's right and that's a good thing.  They're focusing on printing, production, competing with a company called High Level out of Germany; really giving HDP a run for their money.

Jim Michaels:  This stock has disappointed too many times.  It just seems like they can't pull it off no matter how many times they've tried. 

Quentin Hardy:  I'm with Jim on this.  When they're talking about selling $500, 000 printers...the CEO did a nice job of retiring debt.  Just on Thursday they spent $600 million buying a high end printer company. They're gonna race this thing down. 

Lisa DiCarlo:  Analysts are expecting $0.42 a share next year which makes their stock at $9.  That's really cheap. 

Makers & Breakers

Advance PCS (ADVP)

Greg Kuhn, Kuhn Capital Management:  Advance PCS deals with online pharmacies and this is where the next boom will be.  We had tech, now it's medical services.  And it's all based on where the demographics are in the United States.

Jim Clash, associate editor: Breaker
I don't dislike the company but it's run up 60 percent this year so far, and it's trading at 70 times earnings. 

Greg Kuhn:  Here we go, P. E. vigilantes.

Jim Clash:  I'm not against health care but I would buy a mutual fond here instead of one or two individual stocks.  It's just too risky in this market.  I'd look into something like a Vanguard Health Fund.

Jim Michaels, editorial vice president: Breaker
We're talking about a multimillion dollar capitalization for a company that's just an organization.  It might be worth something or it might not be worth anything. 

Greg Kuhn:  There was a study that measured the biggest winning stocks in history over a 50-year period.  They found that the best started with a P.E. at 35 times earnings. 

Caremark RX (CMX)

Greg Kuhn:  This stock is in the same field, pharmacy benefits.  Looking forward, this is streamlining the way individuals can get what they need.
Jim Michaels: Breaker
This isn't economics anymore.  This is politics.  Nobody knows what's going to happen.  These companies can be squeezed out.

Greg Kuhn:  All you need to do is look at the earnings growth of a company.  It doesn't have to be that complicated. 

Jim Clash: Breaker
This stock is trading at 65 times earnings versus the market's 26.  It's very risky.  You might have this study from 50 years ago but how many companies didn't make it?

eFunds Corporation (EFDS)

Greg Kuhn:  How many times have you gone to a bank three thousand miles away, withdrew money from your checking account and it gives you your balance instantaneously?  eFunds has a lot do with that. 

Jim Michaels: Breaker
I like the fact that this stock's market cap is relatively modest and I like what they're doing with the company, but at what price are we to buy this stock?

Greg Kuhn:  You have to look at the valuation.

Jim Michaels:  But no stock is good or bad in and of itself.  You have to look at the price.

Greg Kuhn:  You're looking at the wrong thing when you look at valuation. 

Jim Clash: Breaker
That's is what Henry Blodget and Mary Meeker said when we had the big internet bubble.   eFunds has a problem with their earnings.  They have a reservoir from the deluxe company that spun it off.  They make their earnings look higher.  I'm not buying this stock in this volatile market.