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Why Time May Have Passed Data Transmission by, and Bets Against Brazil


Overpriced commodity?

That's the ironic twist that may be doing in

Data Transmission Network


. The Omaha company is in the biz of providing real-time quotes on commodity products to farmers and investors. Now, with free real-time stock quotes showing up on the Internet --

Infospace and

Media General


, to name just two sites -- the bread and butter of Data Transmission's revenues may be in jeopardy. This is a company whose stock trades at more than 100 times trailing earnings, yet its earnings growth has stalled and sequential revenue growth, largely the result of price increases, is barely creeping ahead.

What's more, much of Data Transmission's biz requires subscribers to use the company's computers, prompting one short-seller to crack that the company is "using yesterday's technology" to deliver information that is readily, and more cheaply, available elsewhere. The company's customers must be figuring it out: Subscriptions for the first six months grew at a meager 4%.

Adding to Data Transmission's woes: Falling commodity prices are putting a crunch on farmers. The number of farmers, in fact, is even shrinking.

To get out of the jam (and keep the stock elevated) the company recently retained

Salomon Smith Barney

to find a buyer. Says the short-seller, whose target for the stock is 10, "good luck."

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After several tries, Data Transmission execs couldn't be reached.

Battling Brazil:

The banks won't be the only victims of Brazil. One not-to-be-named source with an impeccable record as it pertains to this column is betting against


(XRX) - Get Xerox Holdings Corporation Report




will hurt

CKE Restaurants



Morgan Stanley

analyst Howard Penney doesn't think so. "Your theory on CKE does not seem to hold much water. I say that because MCD's latest promotion will not be as successful at driving traffic as the TBB promotion in May. There were three weeks in May where MCD's same-store sales increased 20%-30%. If a strong MCD promotion were going to impact margins it would have already happened.

"CKE will release earnings Sept. 9, and the results will beat expectations on a number of different measures, especially margins. Look for positive EPS revisions after the quarter."

But then there was this, from Jim Moore, of Peoria, Ill., who writes: "Here in Peoria I can tell you first-hand that CKE has more than just coupons to worry about with regards to their


acquisition. All anyone has to do is drive by nearly any


(formerly Hardee's) during the lunch hour and it is clear CKE has its work cut out for it. While McDonald's,

Burger King

and even

COP's Steak & Shake

have long lines each day for lunch, there is no waiting at Carl's. Parking lots look a little thin also.


: -- packed to the gills. Go inside a Carl's, plenty of room to sit where you want.

"Maybe CKE should take a look at its menu. I sense CKE will have the same problems Hardee's had, but worse. Hardee's at least had more people for lunch."

There has also been plenty of chatter about

CHS Electronics


, and the

collar (buying puts and selling calls) that a company controlled by CEO Claudio Osorio has put on CHS stock. Most questions regarded why a collar is so bad, and why Osorio would profit from the decline. One broker, who specializes in dealing with execs and is familiar with collars, says, "In a collar, an investor actually buys an in-the-money put -- an insurance policy protecting the stock against, say, a decline of any more than 10% of the spot price. To pay for the put, he sells an out-of-the-money call.

"For example, for a $50 stock, an investor wishing to protect himself against any decline greater than 10% will buy a put struck at $45. Instead of paying for the put, he simply sells a call at, say, $60. So, if the stock falls below $45 by expiration, he is paid the difference between $45 and the current price. If the stock moves up above $60, however, he forfeits any additional gain in the stock -- not the most bullish message for an officer to send the public about his stock."

Meanwhile, readers continue to add to the

discussion here on

The Learning Co.'s

(TLC) - Get Taiwan Liposome Company Ltd. Report

decision to sell off, or factor, its receivables to a third party.

Analyst Randy Befumo, of

Legg Mason Fund Adviser



Randy Befumo, the former


) writes: "I would argue the real problem is not how long customers take to pay for the goods, but how full the distribution channel is. If TLC has been making its numbers by progressively stuffing the indirect channel (a la



CPQ in '96/97), there will eventually come a time when the channel will just not take more product and all of the extra revenue growth the stuffing created will unwind, causing significant negative revenue growth for two or three quarters.

"The prefactoring DSO count is the best leading indicator (although imperfect) for how much TLC product is out there waiting to be sold. The revenue recognition is aggressive, but the real economic problem is that by filling the channel the company has pulled future sales forward, robbing Peter to pay Paul."

David Hamilton, of Burlington, Ontario, adds: "You're right in saying that after factoring the accounts receivables the company can get the cash. What you should point out, though, is that when a company factors their receivables, they only get a percentage (90% to 95%) of the face value of the receivables. This compensates for the time value of money and the credit risk associated with the receivables.

"Factoring is in essence a way to generate cash -- selling an asset below its value to have the money to spend today. Although many companies do it, it isn't a good sign to see most of the receivables factored. It implies that a company is burning cash. More companies go bankrupt from a lack of cash rather than cumulative losses."

Finally, this column's recent hit rate prompted Dan Block to ask whether I could post the results of how the stocks mentioned in this column have done. Truth be known: I don't keep score; too many companies, too little time. (Usually I do a year-end back-of-the-envelope tally to show my genius/dope ratio.) What I do know is that many items that the column has suggested could go down


gone down. And quite a few this column has mentioned will go up ... have gone down. (Remember, I'm a reporter, not a stock picker.)

Meanwhile, Mark Ballast notes that this column has had been on somewhat of a hot streak, and asks, "Can ya stay hot?"

Don't ever confuse brains with a bear market.

Herb Greenberg writes daily for

. In keeping with the editorial policy of


, he does not own or short individual stocks. He also does not invest in hedge funds or any other private investment partnership. He welcomes your feedback at Greenberg also writes the monthly "Against the Grain" column for


As originally published this story contained errors. For details please see our

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