weekend07-09-99

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TheStreet.com's WEEKEND BULLETIN

July 10, 1999

http://www.thestreet.com

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Market Data as of Close, 7/9/99:

o Dow Jones Industrial Average: 11,193.70 up 66.81, 0.60%

o Nasdaq Composite Index: 2,793.07 up 21.21, 0.77%

o S&P 500: 1,403.28 up 8.86, 0.64%

o TSC Internet: 664.84 down 0.12, -0.02%

o Russell 2000: 457.98 up 3.23, 0.71%

o 30-Year Treasury: 89 20/32 down 4/32, yield 5.998%

For the week:

o Dow Jones Industrial Average: up 54.46, or 0.5%

o Nasdaq Composite Index: up 52.04, o 1.9%

o S&P 500: up 12.06, or 0.9%

o TSC Internet: up 0.52, or 0.07%

o Russell 2000: up 1.47, or 0.3%

Companies in Today's Bulletin:

Maxwell Shoe (MAXS:Nasdaq)

General Motors (GM:NYSE)

Archer-Daniels Midland (ADM:NYSE)

In Today's Bulletin:

o Stock Mart: Stock Mart: Maxwell Shoe
o Wrong! Rear Echelon Revelations: These Are the Good Old Days
o Evening Update: California Jury Orders GM to Pay $4.9 Billion
o Bond Focus: Ford in Charge

Also on TheStreet.com:

The Coming Week: Fully Invested Bears Quake Before an Exuberant Earnings Slate

These valuations can't hold, can they? Guess we'll find out.

http://www.thestreet.com/markets/thecomingweek/763431.html

Easy Money: The Hedge Funds' Young Turk

Almost 70 million people know about Ahmet Okumus. But not many of them are on Wall Street.

http://www.thestreet.com/comment/easymoney/763093.html

Mutual Funds: Stein Roe Loses Fourth Fund Manager in Three Months

Small Company Growth manager Steve Salopek is the latest in a string of departures.

http://www.thestreet.com/funds/funds/763359.html

Wing Tips: East by Northwest: How Chinese Airline Consolidation Could Play Out in the U.S.

The change at Delta would be negative.

http://www.thestreet.com/comment/wingtips/763172.html

Stock Mart: Stock Mart: Maxwell Shoe

By

Suzanne Kapner

Senior Writer

Maxwell Shoe

(MAXS)

is standing atop a pretty pile of money.

Its cash totals nearly $50 million -- that's two-thirds of the company's entire market cap.

Even though that bundle didn't come cheap, Maxwell's stock sure looks like a bargain.

Investors balked when

Jones Apparel Group

(JNY)

bid for

Nine West

in March. The thinking was that with the largest U.S. shoe company under its wing, Jones would no longer need to pay Maxwell to make shoes under its label. With the Jones business accounting for roughly a quarter of Maxwell's sales and earnings in the most recent fiscal year, investors crushed the stock by more than half. On Friday, shares closed up 1/8 to 9, still well off their 52-week high of 23 3/8 last seen almost a year ago.

Last month, Jones, after closing its acquisition of Nine West, agreed to pay Maxwell $25 million to buy back the shoe license. That sum joins $24 million in cash that Maxwell had on its balance sheet as of April.

Now, there's only the question of how Maxwell will take the money and run. That uncertainty has continued to weigh on the stock, despite the fact that with $5.68 per share in cash, investors are only paying $3.32 per share for Maxwell's core business (based on Friday's closing price). That's below book value of $9.50 a share. Maxwell's price-to-sales ratio, another value measure when less than one, is just 0.48.

"The stock is definitely undervalued," says Steven Richter, an analyst with

Tucker Cleary

who rates Maxwell accumulate. His firm has performed underwriting services for the company. "Whenever you have a major change in a company's business and earnings outlook, the company will need to demonstrate they can grow."

The Hyde Park, Mass.-based company didn't return four phone calls seeking a comment. But there are three ways Maxwell might step up the pace.

The first -- and most likely -- scenario is that the company will buy one or more small privately held shoe brands.

"The women's footwear business is highly fragmented

in the tiers below Nine West," Richter says. "I've always thought Maxwell would be a consolidator. Now they have the cash and the leverage to do so."

A share buyback may also be in the works, says one investor, who declined to be named. "It's in their plan," he says, adding that the company could buy back some of the 8.8 million shares outstanding and still make an acquisition.

The third -- and least likely -- possibility is that management will take Maxwell private in a leveraged buyout. Officers and directors owned 11.27% of the company as of February, according to Maxwell's proxy statement.

"These guys are good operators," says the shareholder. "But they're not financial guys. And that's why I don't think they'll do an LBO."

If Maxwell fails to put that cash to work fast enough, the stash along with the depressed share price could make the company an attractive takeover target. Maxwell seems to be aware of this prospect and has taken steps to protect its management should a takeover battle ensue. Most recently, Maxwell agreed to award Chief Financial Officer Richard Bakos a severance package equal to twice his total annual compensation should a change of control occur.

Maxwell's management team, led by Chief Executive Mark Cocozza, has thus far shown that it understands the maxim "if the shoe fits..." In the two fiscal years ended October 1998, they doubled the size of the Jones business. The company's other lines,

Mootsies Tootsies

, which accounted for 48% of the company's sales in the most recent fiscal year, and

Sam & Libby

, which made up 10%, have grown as well, although less rapidly.

For the current fiscal year, Richter, the analyst, expects Maxwell to earn 80 cents on sales of $145 million. That compares with the $1.37 a share the company earned last year on sales of $166 million. The current estimates are also down from forecasts at the outset of this year, before Maxwell divested the Jones business. Still, Richter expects Maxwell to earn $1 a share in the fiscal year ending in October 2000 on sales of $130 million, thanks to streamlining efforts. And that's even if the company makes no acquisitions. It's also a 25% earnings growth rate in an industry that's still smarting from oversupply.

"Given that the industry is turning around and Maxwell could buy another brand," the shareholder says, "the stock should trade around 20 in two years."

Another shareholder, who also asked not to be named, puts it this way: "Everyone wants to know what the catalyst will be," he says, adding that even if there is no catalyst, "with more than $5 a share in cash, what's my downside?"

Wrong! Rear Echelon Revelations: These Are the Good Old Days

By

James J. Cramer

As a bull at heart, I didn't want this week to end. This is one of those sweet spots -- these last two weeks -- that makes up for all of the pain and torture of down markets and tough grinding markets and disheartening markets.

You want to take these two weeks, cut them out and put them in your wallet: a couple of wallet-sized charts that will remind you in the tough days to come, why the real trick is TO STAY IN THE GAME.

Lots of times in the last three years of writing this diary I have had to remind myself that maybe this session or that week or that month -- or even, dread, that quarter -- may not be the period when it is worth playing.

But there will come a time when things will break, when the right stocks will go up and the fundamentals will will out. This is that time. It is a pleasure to see the stocks of companies that I know are doing well go higher. Plain and simple. No mumbo jumbo, just higher prices for good stocks.

That's why staying in the game is sometimes all you should do. If you knock yourself out taking risks when the risks aren't good, you could make great money, but you could get knocked out of the game. Other times, things are all clear. When the

Fed

gave the all-clear after its end of June meeting, it gave you that green light.

I want to remember this period. There will again be bouts of angst and depression and belief that nothing works and all heck is breaking loose. When they occur, I will urge you to look back to these first weeks of July and remember what happens when things go RIGHT!

Random musings:

Happy Birthday, Dad!!!

******

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in any stocks mentioned. 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: California Jury Orders GM to Pay $4.9 Billion

By

Heather Moore

Staff Reporter

General Motors'

(GM) - Get Report

stock skidded to 66 1/8 in late composite trading after a California jury ordered the car maker to pay $4.9 billion to six people who burned when their car exploded in 1993.

Mark Whitacre, the government informant in the

Archer-Daniels Midland

(ADM) - Get Report

antitrust criminal case, was sentenced to 30 months in federal prison for his role in a agricultural-products price-fixing conspiracy. Michael Andreas, son of former ADM chairman Dwayne Andreas, and Terrance Wilson, a retired company executive, were sentenced to two years in prison and maximum fines of $350,000 each for their roles in the scheme to fix the price of lysine, a livestock feed additive.

In other postclose news (earnings estimates from

First Call

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

Earnings/revenue reports and previews

Inprise

(INPR)

said it expects to post a second-quarter loss of 17 cents to 22 cents a share vs. the year-ago profit of 3 cents. The two-analyst view called for a loss of 12 cents. The company cited a drop in revenue, which it said was caused by a longer than anticipated sales cycle for its products.

Morrison Knudsen

(MK)

reported second-quarter earnings of 26 cents a share, including a $8.7 million gain on the sale of two non-core business units. The six-analyst forecast called for operating earnings of 19 cents vs. the year-ago 17 cents.

Mergers, acquisitions and joint ventures

JFF Acquisition

said it will begin a $14-a-share tender offer for all common shares of

TSI

(TSII)

after the company rejected its $12.50-a-share offer.

Miscellany

Chile's

Laboratorio Chile

(LBC) - Get Report

elected Jorge Uauy its new chairman, replacing Alfredo Andonie.

Bond Focus: Ford in Charge

By

Elizabeth Roy

Senior Writer

After trading up as much as half a point and down as much as half a point, driven by little more than flows related to the pricing of the largest-ever corporate bond issue, the benchmark 30-year Treasury bond ended the day very little changed.

With

Ford's

(F) - Get Report

mammoth $8.6 billion transaction out of the way, the focus shifts to key economic data slated for release next week, and what

Fed

Chairman

Alan Greenspan

will say about them in his semiannual

Humphrey-Hawkins

congressional testimony on July 22.

No economic data were released today, and no major reports are due out before Wednesday brings the

Producer Price Index

and

retail sales

report for July.

Still, the week ended on a wild note as Ford sold $1.8 billion 32-year, $4 billion five-year, $1.8 billion three-year floating-rate, and $1 billion two-year floating rate securities between noon and 1 p.m. EDT.

The deal, which dethroned

AT&T

(T) - Get Report

as the issuer of the single largest corporate bond deal, whipped the Treasury market back and forth over the course of the day. "It dominated all the flows in the Treasury market," said Roseanne Briggen, Treasury market strategist at

MCM Moneywatch

.

Over the last few sessions, many traders sold Treasuries short, anticipating that the deal would weigh on them. Sure enough, the market weakened. Then, yesterday, Briggen said, "When word got out that

the Ford deal was very, very, very oversubscribed, people started taking back profitable shorts." They wanted to take their profits before the market shook off the effects of the Ford deal. The long bond peaked for the day at about 9:40 a.m. EDT, up 15/32.

An investor who sold a large block of off-the-run Treasuries, presumably to make room in his portfolio for some Ford paper, helped drag the market to its low of the day at about 12:20 p.m., Briggen said.

It recovered thanks to a buyer of $1 billion five-year Treasuries, presumably a Ford underwriter covering a short hedge, Briggen said. "But the gains eroded on lack of liquidity and some profit-taking by day traders getting out," he said.

The long bond ended the day down 5/32 at 89 18/32, lifting its yield a basis point to 6.01%. The shorter-maturity sectors, where the Ford deal was concentrated, underperformed slightly.

Treasury market participants are fully prepared for the corporate calendar to continue to intrude on their lives. "Corporate supply remains the big story, with a lot more expected to come down the road,"

Credit Suisse First Boston

senior economist Mike Cloherty said. "Basically you've got everyone rushing to get deals in before people start to lighten up positions before year end," when Y2K is expected to make investors far less willing to take new positions in risky securities.

But fundamental concerns are set to move back to center stage next week. The fun starts on Wednesday, and continues on Thursday with the release of the July

Consumer Price Index

, which with the PPI describes the inflation situation.

Friendly readings are expected from both indicators. The PPI is forecast by economists surveyed by

Reuters

to rise 0.1% overall and 0.1% at its core, which excludes food and energy. The CPI is forecast to rise 0.2% overall and 0.2% at its core. "Friendlier data make it somewhat more difficult for

Greenspan to justify significant tightening," Cloherty said. Market participants expect Greenspan to discuss the likelihood that the Fed will raise interest rates for a second time at its next meeting on Aug. 24. But, Cloherty says, the fact that Greenspan is scheduled to speak "limits the degree of rallies" that can take place if the inflation data are better than expected.

And if the data are worse than expected, as the April CPI was? "Inflation fears would come roaring back in," Cloherty said.

"I think the market's a little bit on tenterhooks," Gib Clark, a trader at

Zions First National Bank

in Jersey City, N.J., concurred. "We don't see that much buying going on even at lower levels to think it's basing out." As for the economic numbers, he continued: "Nothing's pointing toward any slowdown. They're still pointing toward a real strong economy. And the stock market's still roaring. Everything to irritate Greenspan. If we get a little whiff of inflation, I think they'll be right back talking about more tightening."

TO VIEW TSC'S ECONOMIC DATABANK, SEE:

http://www.thestreet.com/markets/databank/761836.html

Street Sightings

Chat with John J. Edwards III on AOL's MarketTalk Monday, July 12, at 3:30 p.m. EDT. MarketTalk is hosted by Sage Online.

Get in the trenches with James Cramer... Invest a cool $500,000 without the risk - take TSC's Investment Challenge today and play for prizes, including a trip to NYC and a morning with James Cramer! Register through August 9. Game ends on August 20.

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