TheStreet.com's WEEKEND BULLETIN
June 26, 1999
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Market Data as of Close, 6/25/99:
o Dow Jones Industrial Average: 10,552.56 up 17.73, 0.17%
o Nasdaq Composite Index: 2,552.65 down 1.34, -0.05%
o S&P 500: 1,315.31 down 0.47, -0.04%
o TSC Internet: 568.44 down 7.62, -1.32%
o Russell 2000: 443.11 down 0.05, -0.01%
o 30-Year Treasury: 87 25/32, up 4/32, yield 6.151%
For the week:
o Dow Jones Industrial Average: down 303, or 2.8%
o Nasdaq Composite Index: down 10.79, or 0.4%
o S&P 500: down 27.37, or 2%
o TSC Internet: down 4.1, or 0.7%
o Russell 2000: down 1.94, or 0.4%
Companies in Today's Bulletin:
Alterra Healthcare (ALI:AMEX)
In Today's Bulletin:
o Stock Mart: Stock Mart: Alterra Healthcare
o Editor's Letter: The Bias Will Tell the Tale
o Evening Update: Georgia-Pacific and Chesapeake Will Combine Tissue Operations
o Bond Focus: Long Bond Snaps Five-Day Losing Streak
Also on TheStreet.com:
The Coming Week: It's Not Just the Fed: Wall Street Has Its Eyes on Data
The big FOMC decision will command a lot of attention, but you ignore the NAPM and jobs reports at your peril.
Biotech/Pharmaceuticals: Elan's Upcoming Earnings Filing Has Shorts in a Lather
The filing could answer some much-debated questions about the Irish drug company.
Europe: German Cabinet Warms to Reforms
New finance minister Hans Eichel leads the country into uncharted territory, curbing government borrowing and balancing the budget.
Wing Tips: At American, Nothing Special in the Air
Labor strife at the AMR unit keeps getting worse.
Stock Mart: Stock Mart: Alterra Healthcare
Spencer E. Ante
In 1981, Bill Lasky and a partner had a vision for a new form of health care.
Working as a regional manager for a nursing home company, he realized that a lot of the residents didn't need so much care and attention. So the two converted a house in Glendale, Wis., into a small group home for elderly people who needed some assistance but didn't require around-the-clock care. Almost 20 years later, that single-family residence has become
, the largest U.S. provider of assisted-living centers for frail and mentally impaired seniors.
Alterra, formerly known as Alternative Living Services, operates 369 assisted-living residences in 25 states that house around 16,000 residents. The company owns 77 of these, leases 179 and manages or owns equity stakes in the rest. Typically, assisted-living communities provide units that are similar to apartments, but with no kitchens, and a staff that helps people bathe, dress and take medicine. The units don't come cheap -- around $1,500 to $3,500 month -- but aren't as expensive as nursing homes. Alterra is also the country's largest operator of freestanding Alzheimer's care residences.
"They are the best-managed assisted-living provider, period," says Chris Bonavico, portfolio manager with
Transamerica Investment Services
, which is long Alterra. "And quality of management and service is a very rare thing in this industry."
Alterra's solid rep is reflected in its impressive revenue growth. In the first quarter, Alterra reported revenue of $83 million, up from $46 million in the same quarter a year ago. Last year, the company reported revenue of $244 million, up from $131 million in 1997. What's more, Bonavico says Alterra's facilities have high gross margins, around 40%.
But Alterra hasn't filled up its facilities as quickly as it had expected. And some investors find that scarier than a group therapy session with
When Alterra reported weaker-than-expected first-quarter results on May 5, its shares plummeted nearly 50%, to 11 7/8 from 22. It earned 24 cents a share, but the
analysts' consensus was 31 cents a share. The company also warned that 1999 and 2000 earnings would be lower than expected. CEO Bill Lasky blamed the disappointing news on the company's decision to quicken buyouts of joint-venture partners, some which are experiencing operating losses. The stock closed Friday at 11 15/16, off 1/16.
Alterra officials couldn't be reached to comment.
But some analysts think the stock was beaten down too much, and at these levels they consider it undervalued. Alterra's price-to-earnings ratio is just under 11, well below the roughly 25 for its industry and about 35 for the
. What's more, the company trades just above its book value of $8.32 a share. Its price-to-sales ratio is 0.94. Value hunters look for stocks that trade less than one times sales.
"I think it's a tremendous value at this level," says Andrew MacPherson, an analyst with
Volpe Brown Whelan
who rates the stock a buy. Volpe has a price target of 32 on the stock and hasn't performed underwriting for Alterra.
Some insiders like the stock, too. On May 7, Alterra director Robert Haveman bought 75,000 shares for around $1 million.
Alterra also is making efforts to broaden its business. It wants to offer pharmaceuticals and medical equipment to its residents through a joint venture with institutional drug provider
"I think that's a huge opportunity," says MacPherson, who notes the plan is slowly rolling out. "The amount of money that flows through these facilities is enormous."
But its core business also offers plenty of opportunities. According to U.S. Census figures, the number of people over age 75 should increase by more than 24% to 16.3 million between 1990 and 2000. Because of this aging population, analysts say the assisted-living market will continue to experience 10% annual growth for the next 20 years.
"They're definitely headed in the right direction," says MacPherson.
Adds money manager Bonavico, "I just can't imagine it stays down here at five to six times cash flow."
Editor's Letter: The Bias Will Tell the Tale
meets this week, and just about everyone and their dog knows that
& Co. have intentions to raise rates. The consensus: a quarter-point hike. The market has slowly digested that news, with long-term rates edging higher and stock prices edging lower.
In fact, the market has grown steadily more sullen as it anticipates that the Fed is, perhaps, just getting started. So the only surprise to look for is the possibility that the Fed is not just getting started.
Are there any hints of that? A few, it turns out. Energy prices, problematic earlier in the year, have started to settle. There's still a ton of capacity waiting for action in that sector. Food prices remain fairly meek. Same with other commodities. And, as even Greenspan has noticed, the Net is bringing an entirely new level of pricing efficiency into the market. One reader recently emailed me about his ability to get palm pilots at incredibly low prices, thanks to the Net's ability to search out the best price at the best time. The Net's ability to keep prices from rising is an aging but still powerful concept.
And the Fed has other concerns. While Asia may have receded to the background, the difficulties with
European Monetary Union
and the looming Y2K reckoning have surfaced as new challenges for the Fed. The latter factor may loom larger than any other single thing. Because of concerns about Y2K complications, the Fed may not want to be playing the tough guy come the end of the year.
The thing to watch is not whether or not the Fed moves, because it's going to pull the trigger. But what about the bias toward tightening? Sure, folks like
are arguing for a handful of moves. Perhaps the Fed will choose to take a more cautious approach heading into the end of the year. The bias will tell the tale. A big chunk of this market is in the short zone. And a shift in bias would change things dramatically as people seek to cover both in the bond and stock markets. Keep your eyes peeled.
, long a slammer of Net mayhem, has finally gotten religion on the subject. As you may recall from earlier columns, the
is a fave read, but also a bit of a contrarian indicator of late. Its big cover on the death of oil earlier this year pretty much marked the bottom for the black stuff. Its bellyaching about the stock market has coincided with rising prices. Its moaning about Kosovo preceded the "peace" accord. So while I'm excited to see dead trees waken to the Net, I'm concerned about the
recent track record. We'll see...
Received more than 600 emails on
James J. Cramer's
suggestion of a
truth serum watch for the boom in rumormongering. We are on the case, and look for something soon that will address this issue. I will do my best to get back to everyone who mailed in comments and suggestions -- much appreciated...
Tough break for
hoops. My man
gets the broom. Next in line looks like ex-
Dukie Tommy Amaker
, I love the U.S. Women's Soccer team...
Favorite stories of the week include:
great scoop on
Ryan Jacobs leaving the
Internet Fund. Also,
nice scoop on
on the strange cancellation of
on the tricks of the
insider shareholder trade.
with a fun story on
woes after its recent IPO.
Gary B. Smith
Evening Update: Georgia-Pacific and Chesapeake Will Combine Tissue Operations
agreed to combine their tissue operations. Georgia-Pacific's
unit will contribute the assets of its commercial tissue business and is expected to own about 90% of the partnership. Chesapeake will contribute the assets of its
unit for a 10% interest and an initial cash distribution of about $730 million. Chesapeake said it plans to use much of the distribution to repurchase 4 million to 7 million of its outstanding shares.
In other (summer-Friday, super-light) postclose news:
filed to offer $250 million in Class A shares.
filed for a 3.4 million-share offering.
Bond Focus: Long Bond Snaps Five-Day Losing Streak
Treasuries posted their first gains in over a week Friday, but the gains came on extremely light volume and analysts attributed them mainly to short covering.
The bond market is vulnerable to another move higher in yields next week, when the
meets and may issue a statement on the likely future course of official interest rates, and two key economic reports bring the outlook further into focus, market watchers added.
The benchmark 30-year Treasury bond ended the day up 6/32 at 87 27/32, trimming its yield a basis point to 6.15%. It was the long bond's first gain since June 17. Shorter-maturity note yields also shed a basis point or so.
While a few important economic reports were released, analysts said short covering ahead of the weekend was the main reason for the move. "Sentiment remains persistently negative," said Bill Sullivan, chief money-market economist at
Morgan Stanley Dean Witter
. "Any improvements have represented short covering and faded quickly, and today is no exception."
Describing today's action as "technically traded but very thinly traded,"
Stone & McCarthy Research Associates
Treasury market analyst John Canavan said that while key technical levels held in the bond market yesterday and overnight, "the path of least resistance remains to the downside." Typically for a post-Memorial-Day Friday, tracker
measured volume down 36.7% relative to an average second-quarter Friday at 3 p.m.
Bolstering the notion that short covering was responsible for much of today's move, Treasuries wound up with relatively small gains at the end of the day, after trading up pretty sharply in the morning. The long bond traded up as much as 18/32 at around 9 a.m. EDT.
From the day's slate of economic indicators, the only one that may have encouraged some buying of Treasuries was the May
existing home sales
report, Sullivan said. The second consecutive drop in the pace of sales to 5.04 million from 5.25 million in April is "a hint that one interest-rate-sensitive sector of the economy is beginning to show some effect from the recent rise in open-market yields," he said. Economists surveyed by
had expected the pace to hold up at around 5.23 million.
Treasuries are likely to keep biding time till Wednesday, when the fun starts. The Fed, meeting in Washington on Tuesday and Wednesday, is widely expected to announce at the meeting's conclusion a 25-basis-point hike in the fed funds rate, from 4.75% to 5%. Because Fed Chairman
telegraphed the move so clearly in congressional testimony on July 17, the focus has shifted to what if anything Fed policymakers will say in the statement they will presumably release to announce the rate change.
Will they revert from a bias in favor of a higher fed funds rate to a neutral bias and announce it? Will they retain the tightening bias and announce it? Or will they say nothing about a bias (in which case traders will assume the tightening bias remains in place)? Most analysts say the market is priced more for the second or third possibilities than for the first, holding out hope for a relief rally if a neutral bias is announced, Canavan said.
Does it even matter what the Fed says? At some level, it doesn't, Sullivan said, adding that he wouldn't be surprised to see Treasury prices move very little on Wednesday regardless of what the Fed says (unless policymakers shock the markets with something other than a 25-basis-point hike).
The economic data are going to determine whether the Fed hikes the funds rate again in August and beyond, Sullivan said, so it's the economic data that has the real potential to reprice the bond market, starting with Thursday's June
Purchasing Managers Index
There will doubtless be reams of analysis of the Fed's words on Wednesday, but in the final analysis, Sullivan said, "It will all be peripheral to where the market winds up on July 2."
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