Publish date:

TheStreet.com's DAILY BULLETIN

March 3, 2000


Market Data as of Close, 3/2/00:

o Dow Jones Industrial Average: 10,164.92 up 26.99, 0.27%

o Nasdaq Composite Index: 4,754.51 down 29.57, -0.62%

o S&P 500: 1,381.76 up 2.57, 0.19%

o TSC Internet: 1,164.11 down 35.42, -2.95%

o Russell 2000: 584.04 down 4.31, -0.73%

o 30-Year Treasury: 101 18/32 up 10/32, yield 6.144%

Companies in Today's Bulletin:

Eclipsys (ECLP:Nasdaq)

Shared Medical Systems (SMS:NYSE)

Applied Materials (AMAT:Nasdaq)

RoweCom (ROWE:Nasdaq)

In Today's Bulletin:

o Banking: Five Things You Need to See Before Buying Bank Stocks
o Wrong! Rear Echelon Revelations: Writing His Market Thesis
o Evening Update: Eclipsys Launches $2 Billion Takeover of Shared Medical Systems
o Bond Focus: 30-Year Races Higher on Buyback Chatter

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Also on TheStreet.com:

The Risk Arb: Does Qwest Know Something U S West Doesn't?

One of the many problems with the Qwest-U S West-Deutsche Telekom menage-a-trois is a total lack of communication.


Semiconductors: Highflying Semiconductor Stocks Have More Room to Fly, Says Analyst

A key red flag, equipment spending, hasn't been raised. Still, it's late in the game to catch more upside.


Internet: SEC Settles 'Pump-and-Dump' Case Against Law Student, Associates

The case signals that stock manipulation isn't just for the pros anymore.


Internet: At RoweCom, CFO's Hiring Puts Numbers in the Spotlight

And investors don't necessarily like what they see as the new executive cuts estimates sharply.


Banking: Five Things You Need to See Before Buying Bank Stocks


Peter Eavis

Senior Writer

3/2/00 6:40 PM ET

Bank stocks have made so many false recoveries over the past year that an increasing number of investors have given up expecting a real one. That'd be a mistake, since the five ingredients needed for a lasting rally could be in the offing.

Bank stocks have made several efforts to climb back to the highs posted last April. Six attempts of varying intensity have failed, even though banks are operating in what is meant to be the perfect economic environment of good growth without inflation.

In fact, bank stocks are now close to the bombed-out levels they sank to during the severe financial markets turbulence of 1998's third quarter, according to the

KBW Banks Index

. This yardstick is now 29% off its 1999 peak.

As a result, investors in financial stocks now look at their sector with despondency, with few willing to stick their necks out and predict a recovery after so many fizzled rallies. But recoveries don't just come out of the blue; they need definite causes. And there are five things that have to happen -- probably not all at once -- before financial stocks go up, and stay up.

1. All Fed Up

By far the biggest factor weighing on bank stocks is the fear that the


is going to continue raising interest rates to keep the economy from growing too fast and sparking inflation. Higher rates hurt banks because they reduce demand for loans and increase banks' own borrowing costs. And if higher rates actually cause the economy to slow markedly, a large number of borrowers can default on their loans, forcing banks to subtract such losses from profits.

"The No. 1 thing that has to happen for there to be a sustained rally is for investors to see an end to the Fed tightening," says Andrew Dinnhaupt, manager of the

(PREAX) - Get Report

Paine Webber Financial Services fund. Dinnhaupt expects bank stocks to start ascending two to three months before the end of this tightening phase. If, as many in the market believe, the Fed intends to raise rates two or three more times, its tightening will have come to an end as early as its June 27-28 meeting. Feasibly, therefore, a rally could start around April or May, according to Dinnhaupt's theory.

2. Deals and Deal Makers

Some observers think some high-profile acquisitions could help stir up a rally in the financial-services sector. "A couple of big mergers could move the group," says Adam Levy, an analyst for the


Invesco Financial fund. But the deals would have to be convincing for the market to receive them well since recent takeovers have actually caused the buyers' stocks to dip.

Flurry of False Starts
The KBW Bank Index's rocky road down

Source: Baseline

Currently, the market thinks only a handful of banks could do mergers well. Among the large-cap banks, they are:


(C) - Get Report





Wells Fargo

(WFC) - Get Report


Fifth Third

(FITB) - Get Report


Fleet Boston






While possible predators are few and far between, victims are plentiful. Problems at a number of large banks have knocked their prices right down and made them cheap-looking to stronger institutions. Among the fallen are

Bank One

(ONE) - Get Report


First Union



U.S. Bancorp

(USB) - Get Report



(KEY) - Get Report


National City


. The first four's stock prices are all off around 50% since the beginning of last year, while National City is down 75%.

3. Turnaround Talk

Sentiment toward bank stocks could improve if a dramatic turnaround occurs at a large institution that was responsible from turning investors off the sector in the first place. A small but growing number of analysts think First Union, after a series of disappointments, could start to pleasantly surprise investors. A

Lehman Brothers

bank analyst, for example, upgraded First Union from neutral to outperform Wednesday. (Lehman has done no recent investment banking work for First Union.)

Still, an unexpected early recovery at any of the underperformers could easily be overshadowed by negative announcements from other large banks.

Bank of America

(BAC) - Get Report

, the nation's second-largest institution, remains a worry to some. Like the five laggards listed above, Bank of America's expected earnings power has fallen short, yet, unlike the others, it has not formally revised down its profits outlook in a special press release. Tom Brown, head of


, a New York-based Web site that focuses on shares in financial institutions, points out that Bank of America's 1999 earnings were 18% below the target set in 1998 when


merged with


. (Bankstocks.com has no position in Bank of America, nor does Brown's money-management firm

Second Curve


4. Take This, Tech

A reversal in tech stocks could also help bank stocks get back on their feet. First, if the tech-dominated


index comes down or flattens out, the Fed will be less likely to raise interest rates. Also, many funds have been selling bank stocks and putting the proceeds into better-performing tech companies in a bid to keep up with benchmark indices. And fund investors have been redeeming money from bank stock funds, which forces these funds to sell their holdings to raise cash. For example, estimated net outflows from financial sector funds totaled $5.7 billion in 1999, equivalent to nearly 30% of the $19.6 billion in assets in this group at the start of last year, according to the Boston-based

Financial Research Corporation

. If tech suffers a big setback, these huge money flows out of financials could reverse with a huge impact.

5. New World Order

If the boom in tech stocks continues, then banks may come back in favor if they convince investors they are embracing the New Economy, says Lanny Thorndike, a manager on the


Century Shares Trust. He says Chase is moving in this direction with its

acquisition last year of

Hambrecht & Quist

and its booming venture capital operation. (Thorndike's fund holds Chase shares.) And Wells Fargo is also attempting this shift with its big push into Internet banking.

Wrong! Rear Echelon Revelations: Writing His Market Thesis


James J. Cramer

3/2/00 7:04 PM ET

Chaotic day, wasn't it? Something confused, almost, and inconsistent, but I couldn't get my arms around it. The old-tech names performed quite well, but the new-tech names ran into some profit-taking after a big streak. I thought the profit-taking came from people who anticipated tomorrow's profit-taking and acted on it today.

I hate to be confused about any session. I like to have a thesis in place by midmorning that can explain the action. The only one I saw today was a belief, aided by ancedotal evidence, that the personal-computer business has gotten incrementally better.





(DELL) - Get Report

were strong, and we added to our position in the latter and bought the former.


(INTC) - Get Report

remains strong. And we even detected some spring in


(MSFT) - Get Report

step. Microsoft has been a straight line down during this great


rally and it would be interesting to see what happens if that stock gets any traction from a solid rollout of Windows 2000.

As usual, despite the billions that are pouring into the tech and high-growth mutual funds, there is not enough money put to work in any one session that allows all of tech to ramp. How often has Dell gone down or done nothing in the same session that



ramped or

PMC Sierra



I do think this move might have some legs, though. The valuations, while stretched, still allow for all but the most valued of managers to play.

Frankly, it was a pleasure to be able to buy some stocks 25,000 shares at a time. Most of these other stocks are strictly 2,500 and work -- meaning, the brokers will sell you 2,500 shares on the wire but then you will have to buy the rest over time. Usually it is impossible as the floats are small, the sellers nonexistent and the supply scarce.

Unless they are no good. There's always plenty of supply of the losers. Despite the many changes this market has undergone, that sure hasn't changed.


James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Compaq, Intel, Yahoo!, Microsoft and Dell. 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: Eclipsys Launches $2 Billion Takeover of Shared Medical Systems


Tara Murphy

Staff Reporter

3/2/00 8:08 PM ET



said it launched a $2 billion unsolicited bid to buy

Shared Medical Systems


. Eclipsys said the offer tags Shared Medical at roughly $67 a share, in cash or stock, a 75% premium over Shared Medical's closing price.

Eclipsys said it has tried to hold merger talks with Shared Medical "for some time," but according to Eclipsys chairman and CEO Harvey J. Wilson, the company has been, "unable to initiate a serious dialogue that might lead to the substantive negotiations necessary to make this possible," reported in


. Wilson said he wanted any agreement to be friendly.

Three IPO's are set to make their trading debut's during tomorrow's session. For more on their pricing and underwriting information, check out


Offerings and stock action


In other postclose news (earnings estimates from

First Call/Thomson Financial

; earnings reported on a diluted basis unless otherwise specified):

Mergers, acquisitions and joint ventures

Sun International



Starwood Hotels & Resorts


said Sun's plans to buy the

Desert Inn Hotel & Resort

in Las Vegas from Starwood have been axed. Starwood said that it is putting the property back on the auction block. According to the companies, if the hotel is sold for less than Sun's $275 million offer, Sun will pay Starwood 50% of the deficit, up to $15 million.

US West


said its $36 billion merger plans with



were still intact, but it would not comment on rumors of other possible deals. Yesterday,

USA Today

reported that

Deutsche Telekom

(DT) - Get Report

launched an offer to buy

Qwest Communications



US West



According to

The Wall Street Journal

, Deutsche's chairman Ron Sommer was in negotiations with Qwest. Other reports suggest that U S West was kept in the dark about the earlier negotiations.

Valero Energy

(VLO) - Get Report

said it has entered a $895 million deal to purchase


(XOM) - Get Report

refinery in Benicia, Ca. Valero said the acquisition also includes 80 retail stores and a 260-store distribution chain. Exxon Mobil sold the refinery to meet

Federal Trade Commission

requirements related to its merger.

Earnings/revenue reports and previews



said it expects to meet the fourth-quarter, 17-analyst estimate of 70 cents a share. The supermarket chain attributed the results to strong quarterly sales, which were up 5.7% from the year-ago report. Albertson's said its fourth-quarter same-stores rose 2.8% from last year.

American Tower

(AMT) - Get Report

posted a fourth-quarter loss of 11 cents a share, a penny better than the nine-analyst estimate and in line with the year-ago report.

Hollywood Entertainment


posted fourth-quarter earnings of 31 cents a share, in line with the five-analyst estimate and up from the year-ago 25 cents.

Hutchinson Technology


said it would cut 250 jobs from its workforce and assume a second-quarter charge of $800,000. The company blamed the job cuts on the slow demand for its suspension assemblies for disk drives.



reported a fourth-quarter loss of 4 cents a share, narrower than the two-analyst estimate of a 6 cent loss and down from the year-ago 9 cent profit.



reported fourth-quarter earnings of 18 cents a share, in line with the six-analyst estimate and up from the year-ago 15 cents.



posted fourth-quarter earnings of 9 cents a share, beating the eight-analyst estimate of 4 cents but down from the year-ago 29 cents.


(SBUX) - Get Report

posted a 10% increase in February same-store sales.

Vishay Intertechnology

(VSH) - Get Report

said it expects to report earnings that beat the first-quarter, seven-analyst estimate of 43 cents a share.

Wind River Systems


posted fourth-quarter earnings of 19 cents a share, missing the six-analyst estimate of 21 cents and in line with the year-ago report.

Offerings and stock actions



set a 2-for-1 stock split.

Global Crossing


said it has tapped the head of its Internet business, Leo Hindrey, to replace Bob Annunziata as its CEO. Annunziata will sit on the company's board.

Global Crossing also confirmed its plans to create a tracking stock for its


Web-hosting business, with an IPO set for this summer. Global Crossing CFO Dan Cohrs told


last month that the offering would include less than 20% of GlobalCenter.

Earlier today,


reported that

Deutsche Telekom

(DT) - Get Report

is negotiating a possible acquisition of Global Crossing, which would give Deutsche access to the U.S., Asia and Latin America, people familiar with the matter said. According to the source, the two companies have not agreed on a price.


General Motors

(GM) - Get Report

issued a recall for 900 EV1 electric cars and S-10 electric pickup trucks due to a charger port that could become flammable. The recall represents roughly 2/3 of the electric cars that its has made since 1996.


producers want to boost oil output as soon as possible, Gulf sources told


. According to a source, "there is for sure a goal to increase production as soon as possible in order to bring the market to a rebalanced situation."

Reliant Energy

(REI) - Get Report

said Charles Oglesby, stepped down from his role as CEO of its Wholesale Group to pursue other interest. Oglesby oversaw the $2.2 billion purchase of the Dutch power firm


, which was completed yesterday.

For a look into this evening's after-hours trading action, please check out


The Night Watch.

Bond Focus: 30-Year Races Higher on Buyback Chatter


Elizabeth Roy

Senior Writer

3/2/00 4:51 PM ET

The Treasury market split again today, this time with the benchmark 10-year issue and shorter maturities losing ground, while the 30-year bond rallied. There was no clear fundamental driving force; rather, the market reacted to stock prices, the pricing of a large corporate bond deal and rumors relating to the government's Treasury buyback program.

For much of the morning the market waded in negative territory. Then it caught a bid that analysts credited to falling stock prices, which are seen as the key to an economic slowdown that will allow bonds to rally again. And to a rumor that the

Treasury Department's

weekly announcement of the size of its next bill auctions, at 2:30 p.m. EST, would include details about the buyback program.

The buyback program is one of the ways in which the Treasury Department is dealing with the fact that because the federal government is running a surplus, it no longer needs to issue as many notes and bonds. Rather than only cutting back on new issuance, a measure that impairs market liquidity, it also plans to buy some old securities, which have less liquidity than new ones, back from investors.

So far, the department has said only that it will buy back up to $30 billion of old Treasuries this year, that it will focus on long-maturity issues, that the initial buybacks will be about $1 billion in size and that the program will start by the quickly approaching end of March.

The suspense is heightened,

Zions First National Bank

trader Mike Franzese said, by the assumption that the buybacks will start before March 21, when the

Federal Open Market Committee

next meets, and is widely expected to hike the

fed funds rate

. They will be less disruptive to the markets in general before a rate hike than after, he said.

In any case, no buyback details were included in the announcement, and the bond gave back a portion of its gains.

Also contributing to the action was



pricing of $2.25 billion of two-, three-, six- and 10-year notes. There was demand for Treasuries from participants who had sold them as part of a hedging strategy for the deal, said Roseanne Briggen, market strategist at

MCM Moneywatch

. The Treasury market peaked right around the same time the Raytheon deal priced, at 2 p.m.

Today's economic reports were more or less in line with expectations and had little if any market impact.

New home sales

fell 4.2% in January, to a seasonally adjusted annual pace of 882,000, narrowly missing the


consensus forecast of 889,000. That's down from a November 1998 peak of 995,000, coinciding with the lows in long-term interest rates. But it's up from September's pace of 848,000. In short, new home sales continue to run at too fast a pace to hold out much hope that consumer spending more broadly is slowing enough to satisfy the




employment report

, the most important economic release to roll around each month, is slated for release tomorrow morning.

The benchmark 10-year Treasury ended down 3/32 at 100 24/32, lifting its yield 1.2 basis points to 6.431%. The erstwhile benchmark, the 30-year bond, ended up 9/32 at 101 16/32, dropping its yield 2.1 basis points to 6.139%.

At the

Chicago Board of Trade

, the June

Treasury futures contract finished 10/32 higher at 94 26/32.

Economic Indicators

Also today, the weekly

initial jobless claims

report showed a slight increase in the number of people applying for unemployment insurance benefits, to 275,000 from 269,000. Still, these are very low numbers, indicating a very tight labor market. Five weeks ago, the count hit a 26-year low of 266,000.

And the

leading economic indicators

index rose 0.3% for the third month in a row, powered by building permits, consumer expectations, and the money supply.

Currency and Commodities

The dollar regained a bit of the ground it lost yesterday against the yen and the euro. It was lately worth 107.73 yen, up from 107.15 yesterday. The euro was lately worth $0.9643, down from $0.9734 yesterday. For more on currencies, please take a look at



Currency Watch column.

Crude oil for April delivery at the

New York Mercantile Exchange

surrendered a bit of yesterday's big gain, dropping to $31.53 a barrel from $31.77 yesterday.


Bridge Commodity Research Bureau Index

fell to 212.12 from 212.13 yesterday.

Gold for April delivery at the


fell to $289.7 an ounce, down from $293.3 yesterday.



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