2 Laser Firms Could Lose Luster, Short-Sellers Say
Has the laser industry gotten ahead of itself? That’s what some analysts believe. While laser is still considered on the cutting edge of medical technology, with a number of companies showing great promise, it hasn’t been proven effective or safe for all applications.
Yet the mere mention of the word laser is enough to get stocks rolling. Witness the swift rise of Malvern, Pa.-based Surgical Laser Technologies, whose stock has been selling at a fat premium to its initial offering price since going public last month. But some short-sellers believe that the company could soon face scrutiny by the Food and Drug Administration and shareholders. That’s because at least one person has died from complications related to the use of the company’s laser, a fact that wasn’t disclosed at the time of the offering. Although the company doesn’t deny the death, it says it was caused by doctor error and was an isolated incident.
Also on the shorts circuit: Minneapolis-based GV Medical, whose laser catheter is used to pierce plaque in coronary arteries. The shorts have raised questions about the product’s safety and effectiveness compared to other clot-busting methods. President James Grabek downplays both issues but acknowledges that sales have already started to slow. The company recently announced layoffs because of high inventories. Its stock is now near its 52-week low of $6.
While on the subject of shorting: Another company that is attracting the bears is Glenview, Ill.-based Zenith Electronics. Robert Holmes, president of Gilford Securities in Chicago, believes that Zenith shares could fall by half in coming months, “by eighths and quarters,” if its strategy as a television manufacturer fails.
Holmes thinks that it will. He cites possible cash problems and hurdles related to capitalizing on high-definition TV. The Bush Administration has indicated that it plans to cut funds earmarked for HDTV development. Holmes started shorting the stock when it was $17.50 one month ago, after the company put its profitable computer business up for sale. The stock closed Friday at $12.375.
Holmes’ firm was one of the first to advocate shorting Baldwin-United in the early ‘80s, long before the company filed for bankruptcy and its stock collapsed. More recently, he was shorting Texas Air as it rose into the high teens. It closed Friday at $12.25, and he’s still short.
As for Zenith, the most bullish scenario, he says, would be for the company to be acquired. But last year the company hired an investment banker to search for possible buyers, he points out, and couldn’t find any.
Gold diggers: Like most gold stocks, Newmont Mining has been rocketing higher during the past month. But unlike the rest, it has also been the subject of takeover speculation. Several analysts reject that possibility. “Unfeasible” is the way one put it, in part because of a standstill agreement that prevents Hanson Trust’s Consolidated Gold Fields unit from selling its 49% stake in Newmont to someone else. Not only that, says Donaldson, Lufkin & Jenrette analyst John Tumazos, but Newmont is trading at 30 times its most recent 12-month earnings, and “no mining company in the world can afford to pay” what it would take to buy the company.
His guess? He thinks that Hanson will skirt the standstill agreement by copying what Carl C. Icahn did with his chunk of Texaco stock: He sold it as a block trade through a dozen brokers at prices below Texaco’s market price at the time.
What are some of the Big Board’s worst stocks right now? According to Joe Barthel, a technical analyst at Hopper Soliday & Co. in Great Neck, N.Y., potentially serious losers include Hexcel Corp., Fleetwood Enterprises, Rohr Industries, TransTechnology Corp., Morgan Products, Hitachi Ltd. and Zenith. Barthel bases his opinion on a variety of technical factors.
His “short-sale ideas,” as he calls them, performed poorly during the market’s two-year rally, and his forecast is for stock prices in general to go lower. “If they were weak in a strong environment, they’ll be weaker in a weak environment,” he says.
