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Diebold, Kronos and Palm are stocks on the move

Like its fiercer sister Katrina, Hurricane Rita was unable to blow the U.S. stock market around very much. The Standard & Poor's 500 Index was down only 0.3 percent in the six trading days ended Sept. 28.

There has been plenty of action in individual stocks, however, much of it unrelated to the storms. Here's a rundown on some of the biggest moves in the past few days among U.S. stocks with market values of $1 billion or more.

The move that interested me most was a drop in Diebold Inc. (NYSE: DBD), the North Canton, Ohio, maker of automated teller machines and other self-service delivery systems. The stock has fallen to less than $34.51 from $48 at the beginning of September.

I have owned Diebold in the past and sold it when I thought it was getting fully priced. Now that it is down about $22 from its peak, I am interested again.

The drop came as Diebold cut its profit forecast and said that its chief operating office has left the company. Profit for 2005 will be about $2 a share, the company said. Previously, analysts were looking for $2.53.

I believe that electronic identification technology can be used for lots of things besides getting cash from your bank when the bank is closed.

Diebold valuation

It could be a useful solution to the voting-fraud problem, for example. In the future I can even picture a pharmacist putting medicine into a machine, which will dispense it to the proper user once identification is presented.

Diebold's valuations are attractive to me: 13 times earnings, two times book value (assets minus liabilities per share) and one times revenue. The stock offers a 2.4 percent dividend yield.

Engineered Support Systems Inc. (Nasdaq: EASI), based in St. Louis, provides military vehicle loaders and logistical services for soldiers. It has jumped to $41.05 from about $34 in mid-September as it attracted a takeover offer from DRS Technologies Inc. of Parsippany, N.J.

It's too late now to make easy money in EASI. I hope, however, that larger defense contractors will continue to gobble up smaller ones. That might buoy the price of small defense stocks, including some that I own such as Alliant Techsystems Inc. (NYSE: ATK), Allied Defense Group Inc. (Amex: ADG), Curtiss-Wright Corp. (NYSE: CW) and Armor Holdings Inc. (NYSE: AH).

Kronos, DuPont

Kronos Worldwide Inc. (NYSE: KRO), jumped 13 percent in a single day on Sept. 26. The Dallas-based maker of titanium dioxide pigments jumped because market pundit Jim Cramer recommended NL Industries Inc. (NYSE: NL), which makes whiteners for paint and paper.

NL uses Kronos's pigments and owns about 36 percent of the company. Valhi Inc. (NYSE: VHI), whose chairman, Harold Simmons, holds the same position at NL Industries, owns 57 percent and the public owns the remaining 7 percent.

NL Industries, which also is based in Dallas, rose 12 percent on Sept. 23, the day of Cramer's recommendation, and 19 percent on Sept. 26. It took one more trading day for traders to push up the price of Kronos.

Cramer noted that Hurricane Katrina had knocked out a titanium dioxide plant owned by DuPont Co. (DD), which produces about 5 percent of the world's supply. The plant will be unusable for at least several months, he said. That should enable NL to raise prices.

On valuation grounds, neither Kronos nor NL appeals to me very much. For example, both sell for 3.1 times book value.

If I had to own a titanium dioxide producer, I'd rather have DuPont at 15 times earnings and 1.4 times revenue.

Palm, Calpine

Palm Inc. (Nasdaq: PALM) of Sunnyvale, Calif., makes hand-held computers and the Treo mobile phone and personal organizer. Its stock sold for more than $36 on Sept. 12 and now fetches only $28.

Palm stock fell 18 percent on Sept. 23 when it forecast a .01 cent shortfall in second-quarter earnings. That's right -- one penny. Analysts had been expecting 66 cents a share for the quarter, and Palm said it looked like the number will come in at 65 cents.

The fact that coming up .01 cent short can wreak such havoc shows that the official "consensus" earnings estimate for a company is often a polite fiction -- really more of a minimum expectation than a genuine forecast.

Palm had net losses in 2001 through 2004. In the fiscal 2005 year ended in May, the company earned $66 million on sales of $1.27 billion. In the past five years, its sales have increased at less than a 4 percent annual clip.

Palm shares sell for 19 times recent earnings and 18 times estimated 2005 earnings. At the current price I'm not interested. I would take a hard look if the price fell to $22.

Calpine Corp., based in San Jose, Calif., is the largest U.S. owner of gas-fired power plants. Unfortunately, it went deep into debt to obtain that status and is in a nasty fight with its lenders. It sued Bank of New York Co. in September, saying it will suffer irreparable harm unless the bank unfreezes a $400 million account.

This month Calpine stock has dropped to $2.46 from $3.07, a 20 percent drop. I like to try to catch a falling knife once in a while, but Calpine's debt is discouraging. Long-term debt is $15.8 million as of June 30, short-term debt is $1.9 billion, and total debt is more than four times equity.

Dorfman is a columnist with Bloomberg News

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