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July 28, 2005
Altera/LaFountain kafuffle, Thurs., July 28, 2005, 9:20 AM
I received the following mail, which got me riled:
"Bill, I am surprised you didn't pick up on this story from today's NY Times...it is quite unbelievable. Looks like corporate America is no better than Wall Street."
An Analyst Receives a Time Out From Altera
By GRETCHEN MORGENSON (Published: July 27, 2005)
For the 25 years that Tad LaFountain has been a technology stock analyst on Wall Street, he has often written negatively about the strategies or prospects of the companies he followed. Not once did a company retaliate, he said.
Until now.
Mr. LaFountain, who follows 21 semiconductor companies at Wells Fargo Securities in New York, said yesterday that he was dropping coverage of the Altera Corporation, an industry giant, because its executives had told him they would not take his phone calls, would not let him ask questions on analyst conference calls and would no longer give him the information he needed to analyze its business....
The truth is I don't know of Tad LaFountain, but I can't imagine Wells Fargo would employ a dimwit in that position, in the heart of Silicon Valley. I wonder what they had to say?
On the other hand, when an analyst came down on Donald Trump a few years ago, I thought he had every right to react the way he did. Wall Street, I believed at the time, had a vested interest in Trump's casino demise. So, there are two sides, always.
What the market needs is truly independent analysis. Although improvements have been made in the past two years, we, the owners of capital, do not get enough of that. But we also need Wall Street analysts like LaFountain who give us a balance of buy-hold-sell opinions.
So when a former number-one rated Wall Street analyst is refused what a publicly-traded company has an obligation to give him or her, which is the same info provided to the industry peers of that analyst, then the owner of capital is the real loser.
And, to the independent members of the Board of Directors of Altera Corporation, that is unacceptable.
I say correct this wrong, or resign on principle. That is, if you have any.
And to the spokesperson for Altera Corporation, Anna del Rosario, who is not an executive officer of the corporation (according to the info sheet), I say you should be ashamed of yourself. This topic is not one to be handled by a "spokesperson". Where is the CEO, John P. Daane? In hiding?
If you don't think the public has taken this issue to heart, you ought to reconsider. For proof that the owners of capital are (to be kind) displeased, just check out the Yahoo Message Board. These comments speak volumes.
As for me, I think I'll add to the negative reaction. It doesn't bother me in the least that the majority of Wall Street houses have recently upgraded their opinions of this stock, or that 85 pct of the total issued Altera stock is held by institutions and mutual funds.
I looked over the ALTR charts, and the financials, and now advise readers that this is a potential pig of a stock in more ways than one. The short sellers I believe are going to outperform.
Altera (NDQ: ALTR $22.12) has a Dec-05 22.50 put option that last traded at $1.50.
There is also a Dec-05 22.50 call option that last traded at $1.45.
I'd write the call, and buy the put, for a net cost of 5 cents plus commissions. That might be an emotional reaction, but I'd be surprised if I'm home alone.
I'd wait to see how strong the Nasdaq and NYSE opens today -- equity futures indicate a strong opening -- before entering my order. I'd try to catch any market strength at its peak.
In a couple weeks, or say after ALTR hits the skids following this kafuffle, and a pull-back in equity markets generally, I'd close out the call-write, and apply the proceeds to the cost of the put.
If the stock happens to move higher this summer, I'd buy another put at the higher price because I believe that ALTR is ultimately headed south.
Here is the Daily and Weekly data charts for ALTR, which indicates that the stock ought to be sold here. You will also recall that I have indicated my negative opinion recently on the industry group.
Here too is the ADVFN-supplied financial data on Altera Corp. It's not a bad performance, but the growth rates do not justify a PE over 31.
For those who are interested, here are some interesting articles re Tad LaFountain.
http://www.my-esm.com/ww/1084ww.html
http://www.my-esm.com/ww/1072ww.html
As this is an important event, journalists should look into this NYT story and add to it.
If anybody has a copy of LaFountain's last research report on ALTR, I'd be pleased to re-publish it, or link to it, here.
Posted by Posted by Bill Cara on July 28, 2005 09:20:55 AM | Category: 45 Info Technology
Hi Bill,
You suggested one strategy to trade the stock is to write the call and buy the put. I can see how you'll make money if the stock drops, but what if it goes up? You may have to buy the stock at the current price, which may be a lot higher than the strike price) so you can sell it at 22.50 to the call buyer.
Why not just buy a put? Is the writing of the call used to finance the put purchase? Thanks.
Posted by: hobster at July 29, 2005 4:00 PM [link]