daily06-15-99

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TheStreet.com's DAILY BULLETIN

June 16, 1999

http://www.thestreet.com

746870

Market Data as of Close, 6/15/99:

o Dow Jones Industrial Average: 10,594.99 up 31.66, 0.30%

o Nasdaq Composite Index: 2,414.67 up 16.36, 0.68%

o S&P 500: 1,301.16 up 7.16, 0.55%

o TSC Internet: 504.08 up 1.95, 0.39%

o Russell 2000: 434.01 up 2.48, 0.57%

o 30-Year Treasury: 88 07/32, down 7/32, yield 6.100%

Companies in Today's Bulletin:

Intel (INTC:Nasdaq)

Oracle (ORCL:Nasdaq)

Jabil Circuit (JBL:NYSE)

In Today's Bulletin:

o Mutual Funds: Struggling Stein Roe Jumps Onto Slow-Moving Net Fund Bandwagon
o Wrong! Rear Echelon Revelations: Old Tech May Learn a New Trick
o Evening Update: Oracle Tops Views; Jabil Slammed on Poor Growth Forecast
o Bond Focus: Gains Surrendered Ahead of Key Inflation Report

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http://www.thestreet.com/comment/herbonthestreet/756299.html

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Mutual Funds: Struggling Stein Roe Jumps Onto Slow-Moving Net Fund Bandwagon

By

Joe Bousquin

Staff Reporter

Struggling to counter flat sales and faltering funds,

Stein Roe

is going where many other established mutual companies have feared to tread: Internet fund territory.

The no-load fund company intends to launch the

Stein Roe Internet Leaders

fund later this year. Its preliminary prospectus still has a lot of blank spaces, including what the fund's expense ratio will be. Among its managers will be Stein Roe's busiest young star, David Brady.

It's no secret in the mutual fund industry that most established firms have

shunned pure Internet funds. Just last month, Robert Pozen, president of industry mammoth

Fidelity Investments

, publicly

rejected the idea of an Internet fund even though he said such a fund would snare it $3 billion in its first month. He didn't want to add to "speculation" in Internet stocks, he said.

The four largest Internet funds now in operation have been able to amass more than $2.7 billion in assets, though none of the companies running them are among the heavyweights of the industry. And despite deep pullbacks in Internet stocks lately, these fund are still posting

enviable -- though quickly declining -- year-to-date returns.

Meanwhile, Stein Roe's asset growth has

plateaued in recent years, according to

Financial Data Corp.

, even as investors have poured billions of dollars of new money into mutual funds. The company is in the midst of a restructuring that has seen two of its portfolio managers -- including onetime star Gloria Santella -- leave the firm. Stein Roe had intended to merge Santella's faltering

(SRFCX)

Capital Opportunities fund out of existence, but those plans were foiled last week when the

Securities and Exchange Commission

nixed the proposed merger into the newer (and presumably better-performing)

Growth Investor

fund.

Given that backdrop, Stein Roe's move can be viewed in at least two ways -- as a bold leap by a daring innovator bucking off industry snobbishness, or as a desperate lunge by a fund company willing to do anything to hold onto its assets.

Dennis Gallant, a mutual fund consultant at

Cerulli Associates

in Boston, says it's probably a little bit of both.

"There have been a lot of fund companies sidelined on this effort, leaving money on the table," Gallant says. "This provides

Stein Roe with an opportunity to garner more assets and to be

one of the first into a marketplace that, despite all the criticism, has been a viable and growing segment."

Given its difficulties, Stein Roe faces less risk as far as its brand is concerned than would Fidelity. And a successful Internet fund would have a much bigger impact on Stein Roe, which has just over $6 billion in its mutual funds, than giant Fidelity with $820 billion in assets.

"Despite any issues Stein Roe has, I think you're going to see more mid-tier, direct players willing to make these bets on these new, emerging markets for their potential to bring in more assets," Gallant says.

But that's only if the timing is right. The recent

selloff in Internet stocks --

TheStreet.com Internet Sector

index is off 36.5% from April 12 through Monday's close -- may allow Stein Roe to get into these stocks when prices are low. On the other hand, the firm may be launching the fund after the party has ended.

Stein Roe spokeswoman Marilyn Morrison, citing the

SEC

-imposed quiet period required for all newly registered mutual funds, could not comment on the firm's reasons for launching the fund now.

In naming Brady to the fund's management team, Stein Roe is tapping some of its best talent. Brady has been piloting

(SRYIX)

Young Investor fund to positive cash flows and returns. And he's done it with the kind of down-to-earth modesty -- mixed with money-running acumen -- that makes investors gladly open their wallets.

Only thing is, Brady already has another job -- actually four -- at Stein Roe. Besides the $1 billion, just-for-kids Young Investor fund, he runs its $7 million grown-up clone,

Growth Investor

, with Erik Gustafson. The pair also is teaming up on Santella's old $530 million Capital Opportunities fund. On top of that, Brady runs Stein Roe's $65 million

(SRLFX)

Large Company Focus fund.

That gives Brady $1.6 billion to run. If the Internet Leaders fund attracts the kind of cash that other Internet funds have, he could be running a lot more.

Morrison cautions that Brady shouldn't be thought of as the lead portfolio manager of Internet Leaders. Instead, he, Eric S. Maddix and Steven M. Salopek will "all be looked upon as co-managers of the fund."

Last week, Brady told

TheStreet.com

that the Chicago-based firm was hiring additional staff and analysts to help him with his work load, and he was optimistic about taking on the extra responsibility.

Wrong! Rear Echelon Revelations: Old Tech May Learn a New Trick

By

James J. Cramer

Intel goes on the buy list at

Goldman

(GS) - Get Report

and

Oracle

(ORCL) - Get Report

surprises after the close. Looks like a good

CPI

number could throw gasoline on these tech embers.

Throughout the awful weakness in the Net stocks, the money has been pouring into the semiconductors, except

Intel

(INTC) - Get Report

. Now we shall see what happens when Intel gets on board. Virtually all of the semiconductors are smoking but nobody really believes a semi rally until Intel participates and the Goldman recommendation should take care of that. The action could be explosive because most options players had pretty much figured on a June 55 pinning for Intel. If it can get past 56 1/2, you could see some wild buying in the name as options short-sellers sprint to bring in their shorts, rather than battle the pain.

Of course, a negative CPI means we can't expect a giant rally from the get-go. But at least we know, on a not-so-good number, what can be bought: old tech.

For many of you the question becomes: Will old tech spill into new tech and, therefore, can you start buying the Net? For me, I don't like to overthink things. Why buy a derivative, when there are so many old tech stocks down from their highs to chose from? Sure, the Net managed to stave off another margin-call whacking, but why make the game so difficult?

Random musings:

Jabil

(JBL) - Get Report

just does the number and they clobber it after the close. Seems like an overreaction to me. Tried to snare some in the badlands down 12 but no luck.

*****

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Oracle and Goldman Sachs. 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

jjcletters@thestreet.com.

Evening Update: Oracle Tops Views; Jabil Slammed on Poor Growth Forecast

By

Heather Moore

Staff Reporter

Oracle

(ORCL) - Get Report

recorded fourth-quarter earnings of 36 cents a share, topping the 30-analyst

First Call

prediction of 32 cents and moving ahead of the year-ago 27 cents. The stock popped up 2 1/2 to 27 5/8 in after-hours trading.

Elsewhere in earnings news,

Jabil Circuit

(JBL) - Get Report

shares tumbled 11 to 43 in after-hours trading following its third-quarter report. The circuit board designer posted quarter earnings of 29 cents a share, on target with the 26-analyst outlook and above the year-ago 23 cents. But Jabil said growth rates for the fourth quarter may be lower than anticipated due to last-minute design delays on new products from two customers. The delays could reduce fourth-quarter revenue and earnings by as much as 10%, the company said. Analysts had expected 33 cents for the fourth quarter.

The design delay is "an illustration of dealing with a new product launch for a customer

namely,

Nortel Networks

(NT)

that wants to make sure all their T's are crossed and all their I's are dotted," said Herve Francois, an analyst with

Credit Suisse First Boston

, which has no banking relationship with Jabil.

The one-to-six-week delay is but a "little blip," according to analyst Jim Savage of

Thomas Weisel Partners

, which has acted as an underwriter for Jabil. Savage is cutting his revenue estimates for the August quarter to $550 million from $600 million and reducing his profit estimates to 30 cents from 33 cents a share.

However, he still expects Jabil to earn $1.61 a share in the fiscal year ending August 2000, up from $1.13 in fiscal 1999, and grow revenue to $3 billion from $2 billion. Jabil's new customer,

Lucent

(LU)

, will help fuel growth in fiscal 2001, said Savage.

Prior to the earnings report, Jabil shares had gained 45% for the year.

"Before tonight I was telling people this is a great company, but I wouldn't put new money in it, because the stock was close to our price target of 55," Francois said. Now he is urging them to buy again.

In other postclose news (earnings estimates from First Call; earnings reported on a diluted basis unless otherwise specified):

Earnings/revenue reports and previews

Harmon Industries

(HRMN)

warned it expects to earn about 10 cents a share in the second quarter and about $1.25 in fiscal 1999. The three-analyst estimate called for quarter earnings of 37 cents and full-year earnings of $1.50. The company blamed a subcontractor's performance on a major transit project, which Harmon said led to delays and rework.

H&R Block

(HRB) - Get Report

recorded fourth-quarter earnings of $3.03, topping both the 30-analyst estimate of $2.85 and the year-earlier $2.39.

Isle of Capri

(ISLE)

posted fourth-quarter earnings of 27 cents a share, beating the two-analyst forecast by 4 cents and moving ahead of the year-ago 14 cents.

Natrol

(NTOL)

said its second-quarter earnings will come in equal to or slightly below last year's 15 cents a share, but that its second-quarter revenue will be about 10% higher than in the year-ago period. The two-analyst estimate called for earnings of 16 cents for the quarter.

O'Sullivan Industries

(OSU)

said it will take a $2.1 million charge in the fourth quarter related to retirement costs for Chairman Daniel O'Sullivan.

Winnebago

(WGO) - Get Report

reported third-quarter earnings of 65 cents a share, above both the single-analyst view of 52 cents and the year-ago 31 cents.

Mergers, acquisitions and joint ventures

Lockheed Martin

(LMT) - Get Report

said it will extend to August 31 the deadline for its $45.50-per-share offer to buy up to 49% of

Comsat

(CQ)

.

Pharmacia & Upjohn

(PNU)

agreed to acquire

Sugen

(SUGN)

in a deal valued at $650 million. Pharmacia & Upjohn said each of Sugen's 23.5 million shares will be exchanged for $31 worth of Pharmacia & Upjohn stock.

PhyCor

(PHYC)

said it received a $200 million investment from

E.M. Warburg Pincus

.

Offerings and stock actions

Merrill Lynch

priced

CareInsite's

(CARI:Nasdaq) 5.65 million-share IPO top-range at $18 a share. The company, which develops and provides Internet-based health-care e-commerce and links doctors with suppliers, patients and payers, is a unit of

Synetic

(SNTC)

. Last night, the price range for CareInsite's offering was raised to $16 to $18 from $14 to $16.

National Discount Brokers

(NDB)

said it canceled a planned 2.6 million-share stock offering due to recent weakness in online brokerages.

Miscellany

Able Telecom

(ABTE)

said it hired

Wachovia Securities

to evaluate strategic alternatives.

The

Overseas Private Investment Corporation

approved $200 million in financing to help pay for a controversial natural gas pipeline project in Bolivia being developed by

Enron

(ENE)

and

Royal Dutch Petroleum

(RD)

. The project would run through one of the world's last tropical dry forests.

Kaiser Aluminum

(KLU)

said its CEO, George Haymaker, will retire Dec. 31 and will be replaced by President and COO Ray Milchovich.

Staff Reporter Kevin Petrie contributed to this story

.

Bond Focus: Gains Surrendered Ahead of Key Inflation Report

By

Elizabeth Roy

Senior Writer

After trading higher for most of the day, Treasuries surrendered their gains ahead of the release tomorrow morning of the May

Consumer Price Index

. The report, scheduled for release at 8:30 a.m. EDT, is seen as having the potential to trigger an explosive move either up or down, if it is either much weaker or much stronger than expected.

The benchmark 30-year Treasury bond, which traded up as much as 14/32 at 9:05 a.m., finished the day down 7/32 at 88 8/32, lifting its yield 2 basis points to 6.11%.

It's an indication that traders and investors are afraid the report will be stronger than expected.

The last CPI, for April, triggered a major selloff in the bond market on

May 14 when the increases were twice as large as expected and the largest in years -- the 0.7% increase in the overall CPI was the largest monthly gain since October 1990.

Now, with the

Fed

poised to hike the fed funds rate when it meets on June 29-30, market participants are worried about a second consecutive outsized gain -- one that would puncture the hope that the April number was a fluke. Another such number, analysts say, would virtually guarantee a June 30 rate hike and convert many people to the view that the Fed is likely to raise rates more than once in the months ahead.

"Last month, everyone understood that the data were noisy," said Anthony Karydakis, senior financial economist at

Banc One Capital Markets

. "Now there are no excuses for another outsized move." An outsized move, he said, would be any increase in the core CPI in excess of the 0.2% average forecast.

A reading of that magnitude will make investors worry that the Fed has fallen behind the curve, making more than one rate hike necessary and even encouraging speculation that a 50-basis-point rate hike is possible on June 30, Karydakis said. Treasury prices would at least revisit their lows of Friday, Karydakis said. For the long bond, Friday's closing price corresponded to a yield of 6.16%, the highest in a year and a half.

Of course, that's not the only scenario. The CPI might be in line with expectations or it might be weaker. In any case, the bond market's reaction will be dictated, market watchers say, by what course of action the numbers will dictate for the Fed.

Almost everyone in the Treasury market expects that the Fed will raise the fed funds rate from 4.75% to 5% at the end of the month. It would take an extremely weak CPI -- a down 0.1% or unchanged core -- to remove the air of foregone conclusion from the event, Karydakis said.

However, some people think that even a negative CPI reading won't stop the Fed from hiking on June 30. They reason that in recent speeches, Fed heads have been making the point that monetary policy needs to take a preemptive attitude toward inflation. The Fed "almost has to move at this point because of what they told the market," said Richard Schwartz, a portfolio manager at

New York Life Asset Management

.

Still, a weaker-than-expected CPI will probably trigger a rally in the bond market, taking the long bond's yield as low as 6%, Schwartz says. And so might an in-line report, reflecting relief that it wasn't stronger than expected.

But Schwartz says any rally tomorrow morning will probably fade as the day wears on, as today's did. Fed Chairman

Alan Greenspan

is slated to address the congressional

Joint Economic Committee

on Thursday at 10 a.m., and people will start to worry about what he might say.

Greenspan's testimony "will go a long way toward clarifying the market's thinking" on whether one or more rate hikes is the likelier scenario, Karydakis said.

That's assuming the numbers themselves aren't cause for worry. If they are, Schwartz says the long bond's yield could reach 6.25%. "Tomorrow's number," he said, "is likely to sway sentiment quite a bit in one direction or the other."

TO VIEW TSC'S ECONOMIC DATABANK, SEE:

http://www.thestreet.com/markets/databank/754934.html

746871

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