TheStreet.com's WEEKEND BULLETIN
July 17, 1999
John Dessauer's Investor's World Online
Top global investment advisor, John Dessauer¿s investing system has earned 928.5% gains over the last 17 years. FREE REPORT tells you more about it and 11 stocks he's buying now.
Market Data as of Close, 7/16/99:
o Dow Jones Industrial Average: 11,209.84 up 23.43, 0.21%
o Nasdaq Composite Index: 2,864.48 up 25.11, 0.88%
o S&P 500: 1,418.78 up 9.16, 0.65%
o TSC Internet: 638.73 down 10.98, -1.69%
o Russell 2000: 465.26 down 0.54, -0.12%
o 30-Year Treasury: 90 31/32 up 9/32, yield 5.894%
For the week:
o Dow Jones Industrial Average: up 16.14, or 0.1%
o Nasdaq Composite Index: up 71.42, or 2.6%
o S&P 500: up 15.50, or 1.1%
o TSC Internet: down 26.11, or 3.9%
o Russell 2000: up 7.28, or 1.6%
Companies in Today's Bulletin:
J&J Snack Foods (JJSF:Nasdaq)
Quest Diagnostics (DGX:NYSE)
In Today's Bulletin:
o Stock Mart: Stock Mart: J&J Snack Foods
o Wrong! Dispatches from the Front: Feeling Great, Staying Long
o Evening Update: MacDermid Posts In-Line Results; ITI Tech Issues Warning
o Bond Focus: Fed Hopes and China Fears Lift Bonds
Catch the premiere of TheStreet.com on the FOX News Channel July 17! Join host Brenda Buttner and TSC regulars like Jim Cramer, Herb Greenberg and Dave Kansas. Saturdays at 10 a.m. ET and again on Sundays at 1 p.m. ET.
Also on TheStreet.com:
The Coming Week: Earnings Will Keep Rocking, but the Week Belongs to Greenspan
Microsoft and other earnings heavyweights notwithstanding, the market will key on the Fed chief's Thursday Humphrey-Hawkins testimony.
Tech Savvy: A Sweet Victory for Microsoft
A Connecticut jury's decision makes it one down, two to go for the software giant.
The Invisible Mouth: Industrial Production: A Brake and a Gas Pedal
The Mouth looks at today's industrial production report: Capacity growth continues to decelerate, and production growth continues to accelerate.
Wing Tips: Airlines Abuzz With Earnings and Merger Speculation
US Airways issues another earnings warning, and AirTran writes a comeback story.
Stock Mart: Stock Mart: J&J Snack Foods
Going shopping with a bargain hunter can be exhausting. Investing in a company whose CEO is a bargain hunter, however, can be considerably more lucrative.
J&J Snack Foods
has built a posse of profitable snack foods by acquiring niche-branded food companies at good prices and growing them to dominate their categories in supermarkets, ballparks, fast-food restaurants and school cafeterias. J&J's soft-pretzel business, which includes the
brand, has about 70% market share, while its
frozen carbonated drinks are now available in more than 90% of the country and are getting some extra fizz from a marketing and distribution agreement with
"They throw off a ton of cash and have made some good strategic acquisitions, which in turn have thrown off more cash," says Mitchell Pinheiro, an analyst with
Janney Montgomery Scott
, who rates J&J shares a buy. (His firm hasn't done any underwriting for the company.) "And almost all of their lines are pretty well protected from competition."
In February, J&J bought the
Camden Creek Bakery
cookie business, which had annual sales of $5 million. And it's not done yet. Gerald Shreiber, J&J's chairman and president, says he's still on the hunt for other good acquisitions. There's a "good chance" of a purchase by the early part of the company's next fiscal year, beginning in October. Shreiber says the company is looking into two or three possibilities now, one of which has annual revenue of as much as $125 million.
Even without any acquisitions, J&J shares look cheap, say analysts. "For a company that's had the type of growth they've had and is dominant in the soft-pretzel and frozen carbonated-drink market, they sell for an incredibly low P/E," says R. Bentley Offutt, an analyst with
in Hunt Valley, Md., whose firm hasn't done any underwriting for J&J. "The stock looks unusually cheap in comparison to specialty food companies."
J&J's shares have been held back by the general malaise of the food and small-cap sectors, as well as a relatively low corporate profile, analysts say. It's gotten a tad more exposure in the last few months, since it was recently added to the
At Friday's closing price of 24 1/16, off 1/16, J&J trades at a P/E of 18.6 times trailing earnings. It also has a price-to-sales ratio of 0.78 and a price-to-book ratio of 1.8, both low.
"The company is selling at a significant discount to other food stocks," says Renie Knecht, who does equity analysis and helps manage funds at
David L. Babson & Co.
, which holds 574,650 J&J shares, or about 6.3% of the company. The
S&P Food Index
, which includes larger branded food companies like
, trades at about 23 times trailing earnings, according to data-tracker
But analysts and investors say they've been impressed by how J&J has integrated and grown other product lines -- which, in addition to pretzels, include
Italian ices and
Funnel Cake Factory
funnel cakes -- and say there's potential for more growth.
"They obviously know what they're doing," says Martin Whitman, manager of the
Third Avenue Value fund, which owns about 328,000 shares, or 3.6%, of J&J. "They haven't had a down year and are very good about new products."
The prime example: ICEE, the slushy sweet staple of every good mall rat's diet. In December 1997, J&J acquired
, adding the brand's Eastern markets to its existing West Coast business. "With the national franchise they gained, they were able to open an enormous new client base that they haven't had before," says Offutt. ICEE now dominates the market for frozen carbonated beverages, competing only with
, which is sold in the
string of convenience stores.
In February 1998, J&J and Coca-Cola signed an agreement to integrate marketing for ICEE and Coke brands. Following that agreement, Coke and
began tests of the drinks, marketed under the
name, in restaurants around the country. Shreiber, the chairman, says Frozen Coke is available in between 2,200 and 2,300 Burger Kings, with "several hundred" being added each month. Earnings from the Burger King/Coke deal are small for now, but investors say they're expecting a future payoff.
"There's significant growth potential after the purchase of ICEE and the alliance with Coke," says Knecht at David L. Babson. The Coke agreement has potential to do more than increase ICEE sales. Shreiber and other investors (with his immediate family, Shreiber owns about a third of J&J shares) are hoping J&J can use Coke's marketing muscle to promote other J&J brands. The company is trying to boost the profile of its brands, supporting Superpretzels with a TV and billboard ad campaign. That pared second-quarter profitability, though net income still rose 58% in the quarter.
For the fiscal third quarter ended June 30, Shreiber says he's comfortable with "the northern part" of analysts' estimates, which he says range from 54 cents to 59 cents a share. (J&J consistently beats the
consensus.) Earnings are expected next week. For fiscal 1999, analysts expect earnings growth of 16.7%, slower than the 38% seen in fiscal 1998. But, says Janney Montgomery's Pinheiro, "There's value there."
Wrong! Dispatches from the Front: Feeling Great, Staying Long
James J. Cramer
What a week! Another great week! I'm not looking through it. I'm exercising my calls that I am long that hit the strikes, and I'm going to come in longer on Monday than I am today.
It drives me crazy that I can be this complacent and continue to make money. Last Sunday night I was so nervous that this market would go away. And yet it hung in there, dot-coms and all. The semis rocked, the telcos socked, the cyclicals hung in and the small-caps did fine.
I am sure when I sit down Sunday night to write I will have all of the positive juices from these records purged from my system and will be the same old antsy self I am every Sunday night.
Until then, though, doesn't it feel great to be long?
See you on
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at
Evening Update: MacDermid Posts In-Line Results; ITI Tech Issues Warning
posted first-quarter earnings of 39 cents a share, in line with the three-analyst
estimate and ahead of the year-ago 32 cents.
In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):
Earnings/revenue reports and previews
said it sees second-quarter earnings of 45 cents to 47 cents a share before a charge to write off patent litigation costs. The two-analyst estimate calls for 47 cents. In the year-ago quarter, the company made 38 cents.
recorded second-quarter earnings of 48 cents a share, 2 cents higher than the three-analyst prediction and above the year-earlier 32 cents. The company also said it will buy back up to $50 million in stock.
reported second-quarter earnings of 39 cents a share, excluding a tax gain, topping the single-analyst estimate of 32 cents and moving ahead of the year-ago 29 cents.
Mergers, acquisitions and joint ventures
said it might lose the rights to run games in 15 grocery stores being sold by
Bond Focus: Fed Hopes and China Fears Lift Bonds
The bond market ended the day modestly higher, thanks to comments by a
official suggesting interest rates won't be hiked again in August, and to a bit of nail-biting over the rising tensions between China and Taiwan.
The benchmark 30-year Treasury ended the day 15/32 higher at 91 5/32, shaving 4 basis points off its yield to 5.88%. Shorter-maturity notes outperformed -- befitting a Fed-inspired rally, befitting a flight-to-quality rally, and especially befitting a rally driven by both of those forces. At the short end of the Treasury curve, the two-year note rose 3/32, slashing its yield by 6 basis points to 5.47%.
"It was mostly the
comments," said Matt Frymier, a note trader at
Banc of America Securities
in San Francisco. "They sort of took the Fed out of the picture."
President Al Broaddus is quoted in today's
on the subject of the June
Consumer Price Index
, released yesterday.
The CPI, the government's broadest measure of inflation, was unchanged in June. It was also unchanged in May. This came as a great relief, since in April, the CPI rose 0.7%, its biggest increase since October 1990. The April number triggered a selloff in the bond market, as traders priced in the possibility that the Fed would go on a rate-hiking binge in order to bring the inflation rate under control.
"I'm enormously comforted by this most recent number and the one before it," Broaddus told
veteran Fed reporter
. "I was worried by the number in April. I knew it might be an anomaly, but now it's clear that it was."
Broaddus isn't currently a voting member of the Fed's monetary policy committee, the
Federal Open Market Committee
. But he's viewed as one of the most hawkish Fed officials -- one of the least tolerant of inflation risk -- so his free-and-easy sentiment counts double. "What are the dovish people thinking?" Frymier cracked.
At the same time, the simmering dispute between China and Taiwan stoked a bit of demand for Treasuries, especially the short-term variety, even as the dollar, the world's safe-haven currency, meandered. Taiwanese
, who's fending off a reelection challenge from a nationalist party, tried to outflank them earlier this week by suggesting that Taiwan and China were separate countries, as opposed to separately governed parts of the same country. That angered Beijing, which made a point to disclose for the first time the known fact that it has the neutron bomb, the
New York Times
currency strategist and
, noting that the last time Taiwan held elections, in 1996, China lobbed missiles over the island, rates the prospect of a conflagration "highly unlikely. As long as China sticks to saber rattling, they will have the world" -- which doesn't recognize Taiwan as a nation -- "on their side."
But on top of the friendly CPI readings, evidence that U.S. economic growth slowed moderately during the second quarter, and the flare-up of concern about Latin American finances earlier in the week, the Chinese tension made for just one more reason to buy Treasuries today, Chandler said.
Looking ahead to next week, the focus is on Fed Chairman
congressional testimony on the economy and monetary policy. It's slated for Thursday, and this afternoon the hour was pushed back to 11 a.m. EDT.
Market participants are hoping for a signal about the next FOMC meeting on Aug. 24. Many were surprised when, at the last meeting on June 29-30, the Fed dropped its official bias in favor of raising rates.
Camps have formed along the following lines: People who think the Fed won't hike again in August point to the recent benign inflation numbers and the neutral bias. People who think they might say it's future inflation readings the Fed's going to be thinking about.
"The inflation numbers have been better than expected but the demand-side data hasn't softened at all,"
senior economist Joe LaVorgna said. "That's why they hiked in the first place. The issue is where the economy's headed, and I think the future there is pretty bright."
TO VIEW TSC'S ECONOMIC DATABANK, SEE:
Chat with John J. Edwards III on AOL's MarketTalk at 3:30 p.m. EDT, Monday, July 19. MarketTalk is hosted by Sage Online. (Keyword: PF Live)
Copyright 1999, TheStreet.com