weekend08-20-99

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TheStreet.com's WEEKEND BULLETIN

August 21, 1999

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Market Data as of Close, 8/20/99:

o Dow Jones Industrial Average: 11,100.61 up 136.77, 1.25%

o Nasdaq Composite Index: 2,648.33 up 26.90, 1.03%

o S&P 500: 1,336.61 up 13.45, 1.02%

o TSC Internet: 557.17 up 8.03, 1.46%

o Russell 2000: 434.38 up 1.61, 0.37%

o 30-Year Treasury: 10 128/32 up 19/32, yield 5.990%

Companies in Today's Bulletin:

UnitedAuto (UAG:NYSE)

Akamai Technologies

Cisco Systems (CSCO:Nasdaq)

In Today's Bulletin:

o Editor's Letter: Peering Beneath a Quiet Surface
o Stock Mart: Stock Mart: UnitedAuto
o Evening Update: Akamai Technologies Plans IPO After Striking Deal With Cisco
o Bond Focus: Bonds Squeeze Out One More Rally Before the Weekend

TheStreet.com on the Fox News Channel

TSC readers will be familiar with this week's "Stock Drill" guest, CraigEllis of the Orbitex Info-tech & Communications Fund. A participant inTheStreet.com's Net Stock Summit, Ellis will be sharing his favorite stockpicks with TSC's Herb Greenberg and Jeff Berkowitz, Jim Cramer's partner atCramer Berkowitz.

And, we'll go back inside the foxhole with Cramer at the trading desk.He'll tell us and show us why the individual investor is better off makingmost investing decisions instead of paying an expensive broker.

The show airs Saturday 10 a.m. ET and again on Sunday 1 p.m. ET. For moreinfo and how to find Fox News in your area, please see our TSC on Fox page,at www.thestreet.com/tv. Or watch a Web simulcast of the show athttp://www.foxnews.com/nav/stage_channel.sml (look for the "24 HourBroadcast" box).

Also on TheStreet.com:

Truth Serum: Sequent Computer's Long, Cold Wednesday

An Oregon newspaper publishes a (disputed) story, and Sequent ends up on the Nasdaq most-active list.

http://www.thestreet.com/stocks/truthserum/775405.html

Commentary Features: Why Wall Street Is Dead Wrong About AOL

Ponder for a moment what AOL will be worth once Microsoft starts offering free Internet access.

http://www.thestreet.com/comment/cfeatures/775157.html

The Invisible Mouth: A Whole New Error

The Mouth takes on some New Era thinking.

http://www.thestreet.com/comment/economics/775388.html

Internet: Ready to Bid? uBid Hopes So as It Rolls Out Secondary Offer

The stock's fallen sharply since its first day of trading, but the company keeps returning to the well.

http://www.thestreet.com/tech/internet/775243.html

Editor's Letter: Peering Beneath a Quiet Surface

By

Dave Kansas

Editor-in-Chief

8/20/99 5:16 PM ET

It feels like the dog days of summer. Desks emptying early, people racing for a few more long weekends before we scream into September.

But don't mistake that quiet for calm. The thin feeling of trading, coming in the wake of the Net-stock scare earlier this month, has helped ease some tension. But beneath the surface, the market remains nervous. And as September draws closer, we can expect new concerns to surface.

In no particular order, earnings, interest rates and Y2K issues are going to start getting more attention. And with that, the edginess will grow. Given the thin market of late August, the combination of concerns will likely conspire to give us more volatility than expected.

So don't get too wrapped in your beach blanket. The coming days and weeks are bound to offer more intensity than you expect.

Japan:

Back for real? The

Nikkei

is up to more than 18,000, and the mood has brightened considerably throughout the summer. But there are rumblings of tax action, which crushed nascent recoveries in the past. And

The Economist

has offered us a contrarian cover with the title: "Asia's Astonishing Bounce-Back." Given their contrarian covers on

Bill Clinton

(arguing for his departure), oil (arguing that there was too much oil for prices to rise) and the Internet (it's the greatest thing -- right before the latest Net-stock skid), one might want to start worrying a bit more about Japan.

Readers' Gallery:

Had another chance to visit with a subscriber recently. Hank Humphrey, a longtime fan of

TheStreet.com

, invited me to join him at Baltusrol, a club where he plays a little golf from time to time. We managed to get out for 18 holes on the lower course, and suffice it to say it's a good thing he's the member and I'm just a hack -- in more than one way.

Hank has subscribed to

TheStreet.com

since early 1997, making him one of those long-term true believers in our efforts. Like

Chuck Poston of Cincinnati, Hank is retired and enjoying his life. A little golf in New Jersey, a farm in North Carolina and time spent visiting kids and grandchildren. And like Chuck, Hank likes reading

TheStreet.com

not because he is an active trader (he's not), but because he wants to get a true feeling for what's happening on Wall Street. He used to work on the Street, and he says only

TheStreet.com

gives him the same sense of accuracy and information that he once enjoyed while working in the investment business as a pro.

There are a lot of people who simply crave quality information and intelligence. And we're glad they're finding a home at

TheStreet.com

. Among Hank's favorite stories in the past few weeks: a Cory Johnson

column about his family of daytraders and anything by the markets team. For the curious: Hank shot a blistering 84 on his birthday. I was about 30 shots above that. Now that's client golf!

Thanks to Berko:

With

James J. Cramer

on a week of vacation with the family, Berko, his able partner, stepped up and gave

TSC

readers a different flavor for what's happening at

Cramer Berkowitz

. His insights gave us a nifty alternative to the daily filings of Cramer, and we appreciate him stepping up to the plate. Want more Berko? Let me know at

dkansas@thestreet.com.

L'Etoile du Nord,

Dave Kansas

Editor-in-Chief

Stock Mart: Stock Mart: UnitedAuto

By

Mavis Scanlon

Staff Reporter

8/20/99 5:32 PM ET

If anyone can steer a drifting automotive company back onto the highway, Roger Penske can. Or at least that's what investors in

UnitedAuto

(UAG) - Get Report

are betting.

The car-racing and auto-business magnate joined UnitedAuto, operator of 66 new and used car dealerships around the country, in April as chairman. At the time, UnitedAuto's shares had dipped into single digits, a far cry from the $30 they fetched when founder

Marshall Cogan's

enterprise came public in 1996. But since Penske came on board the stock has regained a healthy 30%, easily outperforming a largely flat broader market.

"The initial pop on the stock really has been a vote of confidence for Penske," says Mark Williams, co-manager of the

Principal

(PLLAX) - Get Report

Small-Cap fund, a UnitedAuto shareholder.

Penske Capital Group

, formed in 1997 with

Chase Capital Partners

, agreed in April to take a 27% stake in UnitedAuto in exchange for $83 million. (The stake could rise to 38% upon exercise of warrants.) The funds will help pay down debt, fund acquisitions and provide working capital at the nation's second-largest auto retailer, after

AutoNation

(AN) - Get Report

. Cogan, the former chairman, retains a 13% stake.

Three-Point Turn
UnitedAuto shares rise upon Penske's arrival

Source: BigCharts

"I think you can't overemphasize the reputation of Roger Penske," says Williams, who has been adding to the 63,000 UnitedAuto shares his fund owned as of March 31, according to

Technimetrics

. "Before Roger came on the scene, UnitedAuto was getting wrapped up in the financial problems Marshall Cogan was having, and shares were being discounted."

Indeed, UnitedAuto's stock drooped as low as 5 3/4 in February as the mounting debt burden at Cogan's

Trace International

-- its loans were tied to Cogan's shares in UnitedAuto and polyurethane concern

Foamex International

(FMXI)

-- took an increasingly heavy toll on the company. Investors were also dissatisfied with UnitedAuto's repeated earnings shortfalls: A fourth-quarter charge to close a subsidiary came in at $20.7 million -- more than analysts expected. UnitedAuto also took a $12.6 million fourth-quarter charge to find a new insurance carrier when Trace said it couldn't meet obligations for the UnitedAuto insurance and warranty-service contracts it had taken on.

Penske, meanwhile, had earned a sterling reputation as his fledgling business empire blossomed. He started from scratch, beginning with a car dealership he bought in 1965 after a successful car-racing career. In the 1980s, he bought struggling

Detroit Diesel

(DDC)

from

General Motors

(GM) - Get Report

and grew it into a $550 million company with over $1 billion in sales in the first six months of this year. And just last month, Daytona Beach, Fla.-based

International Speedway

(ISCA) - Get Report

acquired his

Penske Motorsports

in a deal valued at around $700 million, or $45 per share, in cash, stock and debt. Penske had brought the concern public in 1996 at 24.

Now, UnitedAuto shares are benefiting from Penske's reputation -- and from his hard-charging management style, which has brought change aplenty to the company.

Among Penske's first changes was to expand the board to nine directors from seven, adding more auto industry know-how and a general partner from Chase Capital. Then he arranged a billion-dollar financing agreement with

Chrysler Credit

, a division of

DaimlerChrysler

(DCX)

. The deal set up a new $250 million credit facility, with the remaining $750 million to be used for vehicle financing.

Next, Penske raided his own empire for upper-management talent, bringing in executives from Penske Corp. and

Penske Truck Leasing

. And smaller fixed-cost savings are already in place. For example, insurance expense savings will total about $1 million annually and headcount reductions will save over $2 million annually, analysts say.

Doubling its appeal with thrifty investors, UnitedAuto is also attractive by value standards. It boasts a price-to-sales ratio of 0.08 -- value investors typically seek stocks with ratios under 1 -- and its trailing price-to-earnings ratio is 18, well below the

S&P 500's

recent multiple of 29.

Analysts approve. Last week Tom Thomson at

First Union Capital Markets

in Richmond, Va., upped his estimates and target price and reiterated his buy rating. He raised his 12-month price target to 19 from 16. His 2000 earnings estimate rose to $1.20 from $1.05. The

First Call

consensus estimate is $1.19. First Union hasn't underwritten for UnitedAuto.

"This is essentially a new company, with a largely invigorated management team and staff in the dealerships that is quickly adopting the 'Penske culture,'" Thomson wrote last week. Annual revenue could eventually approach the $6 billion mark from its current $4 billion run rate, he says. Revenue for the latest 12 months totaled $3.68 billion.

For its second quarter ended June 30, UnitedAuto reported that earnings rose to $8.6 million from $8.2 million a year earlier, though earnings per share slipped to 35 cents in the latest period from 40 cents a year earlier as a result of a rise in shares outstanding. Revenue jumped 16% to $1.04 billion from $896 million a year ago.

To be sure, the changes instituted by Penske do not make UnitedAuto a bulletproof investment. While sales have boomed lately in a strong economy, the car business is always cyclical, dependent on continued economic growth and low, stable interest rates.

Still, judging by Penske's auto-industry accomplishments to date, eventually UnitedAuto will be one more Penske success story.

Evening Update: Akamai Technologies Plans IPO After Striking Deal With Cisco

By

Tara Murphy

Staff Reporter

8/20/99 8:09 PM ET

Akamai Technologies

said it plans to raise more than $86 million in an initial public offering. The provider of Internet content delivery service plans to use the offerings profits for working capital and general corporate business. Akamai said it forged a pact with

Cisco Systems

(CSCO) - Get Report

earlier this month to develop new content routing and switching. Cisco bought shares of Akamai's Series E convertible preferred stock for about $49 million this month.

Morgan Stanley

,

Donaldson Lufkin & Jenrette

,

Salomon Smith Barney

and

Thomas Weisel

are serving as the deal's underwriters.

In other postclose news (earnings estimates from

First Call

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

Mergers, acquisitions and joint ventures

DBT Online

said it has inked a deal to pay $25 million plus warrants to

Thomson

(TOC)

for

Information America's

online public records business. DBT said the acquisition will cost the company $25 million in cash plus 329,172 DBT warrants with a strike price of $52.50 and duration of 18 months. A spokesperson for the company said that the purchase will negatively affect EPS for 1999 and 2000, but it expects revenues to increase over the long term. Separately, DBT said it has filed a 5.7 million share offering with the

Securities and Exchange Commission

.

Offerings and stock actions

Aether Systems

said it has filed a $75 million initial public offering with the SEC. The real-time data services provider promotes

Reuters MarketClip

service, which offers price quotes and news updates and

TradeRunner

, a real-time wireless trading system to online customers of

DiscoverBrokerage

. According to its red herring, Aether plans to provide similar services to

Charles Schwab

(SCH)

and other online brokers. Aether will use $12.5 million of the offering proceeds to buy

Mobeo

, a foreign exchange data provider to wireless customers.

Merrill Lynch

,

BancBoston Robertson Stephens

, DLJ and

U.S. Bancorp Piper Jaffray

.

Bluestone Software

filed with the SEC for a 4 million common share IPO that could rake in an estimated $55.2 million. The Sapphire/Web creator expects its offering to price between $11 to $13 a share and plans to direct its proceeds toward product development. The underwriters, led by

Deutsche Banc Alex. Brown

, were granted a 30-day option to buy an additional 600,000 shares at the offering's initial price.

Software engineering firm

Cysive

said it has filed a $60 million initial public offering with the SEC. According to its preliminary prospectus, Cysive will use the offering proceeds to help businesses sell their products through the Internet. The deal is being managed by Thomas Weisel,

First Union Capital Markets

and

Friedman Billings Ramsey

.

Miscellany

EchoStar Communications

(DISH) - Get Report

unveiled plans to open its fourth customer service center in El Paso, Texas, creating 2,000 jobs and increasing its staff by 50%. The satellite television company, which currently employs 4,000 people, said it plans to hire an initial 350 inbound sales and customer service representatives for the new facility.

Bond Focus: Bonds Squeeze Out One More Rally Before the Weekend

By

David A. Gaffen

Staff Reporter

8/20/99 4:54 PM ET

The bond market has already switched from meaningful trading to

Fed

-related nail chewing. With the exception of the 30-year bond, which got a bit of a liquidity boost today, the rest of the yield curve isn't too far from where it left off yesterday evening.

Being a summer Friday, just a couple days before the Fed's Tuesday meeting, the expectation was for quiet. The market didn't disappoint -- with trading desks understaffed and those in the office reluctant to take a big position before a potential change in interest rates, volume was way down. Tracker

GovPX

said just $23.3 billion of securities changed hands, or 36% less than the average Friday in the past month.

Lately the 30-year Treasury bond was up 21/32 to 101 30/32. The yield fell 5 basis points to 5.98%, its lowest closing yield since July 22.

The 30-year bond has been the best performer since the July

Producer Price Index

was released last Friday. This bond trades on inflation expectations, so it turned positive because of the friendly PPI, and continued that run with the benign July

Consumer Price Index

, released Tuesday. It's also the market's belief that the Fed will raise the fed funds rate to 5.25% from 5% Tuesday in order to fight inflation.

Not that the rest of the market hasn't done well also. The two-year note yields 5.62% today -- last Friday it closed at 5.70%, and the 10-year has rallied to a yield of 5.87% from 5.98%. The tone changed with the release of the PPI, which was unchanged in July. Economic reports prior to this figure pointed to continued strength in consumer spending, a slight rise in wage pressures, and continued recovery in manufacturing. And though not many were taking it seriously, it had the market buzzing about a potential 50-basis-point rate hike come Tuesday. The PPI and CPI put the market back on firm ground.

"It looks like the market is on favorable footing," said Kim Rupert, senior economist at

Standard & Poor's MMS

. "We're still in a range, but we're trending toward the lower end of the range."

Whether the tone stays positive depends on what kind of statement the Fed releases with the presumed rate hike. In June, when the Fed hiked rates, it moved its directive back to neutral, which indicates no predilection toward moving rates one direction or not.

But the market was expecting a bias toward tightening rates, and that surprise, along with the dovish

statement the Fed released, spurred a prolonged rally from the markets. Since the Fed's been worried about asset prices and the overall effect it is believed that may have on increased consumer spending, they may not want to see this duplicated.

This time out, the market is prepared for a hike, and for the Fed to shift back into neutral, so the relief rally should be contained. However, forceful words from the Fed that highlight their concerns about wage pressures and inflation could put the market back into a funk.

"The market is not expecting further hikes after next Tuesday," said George Simon, Treasury market strategist at

A.G. Edwards

. (This hike is basically a done deal: The fed funds September

contract, an indication of where the market thinks rates are headed, is currently discounting a 88% chance of a hike, down from 92% earlier this week.) "If there is one (Tuesday), it'll be positive for the market, depending on what they say," he added. "And then the focus is still on economic numbers going forward."

The most important economic release next week is Thursday's

durable goods

data. But the market's been chiefly concerned with the price and wage measures, as well as the overall labor market. By default, that means the next red letter on the calendar is Friday, Sept. 3, when the August

employment report

is released.

FOR MORE INFORMATION, SEE TSC'S ECONOMIC DATABASE:

http://www.thestreet.com/markets/databank/775350.html

Dan Colarusso on Discovery Channel

Sunday, August 22

Associate Editor Dan Colarusso will appear in a documentary

about a day in the life of Wall Street at 2 p.m. ET on the

Discovery Channel. Check out Discovery.com for more information.

Value Investing at TheStreet.com

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