TheStreet.com's WEEKEND BULLETIN
September 11, 1999
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Market Data as of Close, 9/10/99:
o Dow Jones Industrial Average: 11,028.43 down 50.97, -0.46%
o Nasdaq Composite Index: 2,887.06 up 35.04, 1.23%
o S&P 500: 1,351.66 up 4.00, 0.30%
o TSC Internet: 626.78 up 15.04, 2.46%
o Russell 2000: 441.19 up 3.42, 0.78%
o 30-Year Treasury: 101 04/32 up 23/32, yield 6.034%
For the week:
o Dow Jones Industrial Average: down 0.5%
o Nasdaq Composite Index: up 1.5%
o S&P 500: down 0.4%
o TSC Internet: up 5.2%
o Russell 2000: up 1.2%
Companies in Today's Bulletin:
PairGain Technologies (PAIR:Nasdaq)
In Today's Bulletin:
o Stock Mart: Gainsco
o Wrong! Dispatches from the Front: Bottoming Without a Net
o Evening Update: Harbinger Forecasts a Strong Third Quarter
o Bond Focus: Treasuries Look at Inflation Report's Bright Side
TheStreet.com on the Fox News Channel
This week's "Stock Drill" guest is Christopher Vroom of Thomas Weisel Partners. Our writers will be drilling Vroom -- who's covered major retailers such as Home Depot (HD:NYSE) and Staples (SPLS:Nasdaq) and major e-tailers such as Amazon.com (AMZN:Nasdaq) and Drugstore.com (DSCM:Nasdaq) -- about his favorite stock picks.
Plus, Cramer revisits his Red Hot Index. These stocks are trading hot and heavy right now but could crash and burn if the market turns cold. Check out the index and then make sure to catch this week's show for some red hot insight.
The show airs Saturday 10 a.m. ET and again Sunday 1 p.m. ET. For more info and how to find Fox News in your area, please see our TSC on Fox page at www.thestreet.com/tv.
Don't get Fox News Channel? Check out clips of the show on our TSC on Fox page Saturday afternoon.
Also on TheStreet.com:
Brokerages/Wall Street: Tech IPO Success Has Goldman Topping Underwriting Charts
And the bulge bracket keeps flexing its bulging biceps.
Networking: Amplidyne's Stock Rockets After It Says the Magic Words
By Kevin Petrie A company press release says 'high-speed wireless Internet access,' and traders jump. Never mind Amplidyne's ailing financials.
Mutual Funds: Funds Notebook: Merrill Lynch Gets Hip to the Net
Also, Principal Group aims to boost its management fees an average of 32%, and another fund that posts its portfolio on the Internet.
The Invisible Mouth: Unfinished Business: Rising Crude-Goods Prices and the Margin for Error
Plus, deciding which data to lean on.
Stock Mart: Gainsco
9/10/99 5:56 PM ET
Texas financier Richard Rainwater may prove to be the rainmaker insurer
Gainsco shareholders are scheduled to vote Sept. 21 on whether to accept a $31.6 million investment from Rainwater's
Goff-Moore Strategic Partners
. In exchange, Goff-Moore will take two board seats and get 6.2 million shares, giving it a 23% stake in Gainsco with the option to buy as much as 35%. Goff-Moore already owns a small stake.
Rainwater brings a savvy investment eye and big league clout to a minor player. And Goff-Moore sees plenty of potential in Gainsco.
"Gainsco is in our hometown. It is
New York Stock Exchange
-traded," says Randy Chappel, Rainwater's sidekick and principal at Goff-Moore. "At the time we announced the deal, it was trading at below book value. And it has a CEO that we think is overqualified to be a CEO of a company that size."
Gainsco sells general liability and property insurance to small trucking firms, taxi fleets and auto garages. These "nonstandard" customers are considered higher margin because they're less price competitive than general auto and property categories. The Fort Worth, Texas-based insurer made over two-thirds of its $106 million in revenue last year from sales in the Southeast, Texas and California.
"With the capital backing, our main growth engine for the long term will be acquisitions," says Glenn Anderson, the CEO who came to Gainsco after a management shakeup and the subsequent retirement of CEO Joe Macchia in April 1998.
Anderson, who formerly held executive positions with Baltimore-based insurer
Fireman's Fund Insurance
, was handpicked to steer the makeover by John Goff, who heads Goff-Moore and has been a Gainsco director since 1997.
One of the first moves by Anderson's team was to administer some bitter medicine by restructuring the amount of reserves the company carried to cover possible claims. "The company had lost focus and had mortgaged its future by not putting up proper reserves," says Michael Paisan, an analyst with
Keefe Bruyette & Woods
. "The adjustment was painful. The stock got crushed." (Paisan hasn't officially initiated coverage of the company. Keefe hasn't performed recent underwriting for Gainsco.)
As a result, Gainsco posted a loss in 1998, the first time it had done so since going public in 1988. "The last two years the company fell off track," says Anderson.
But in this year's first six months, the company earned $4 million, or 19 cents a share.
"We want to expand and become sort of a family of specialty boutique companies," says Anderson. He declines to name possible acquisition targets, but says they may be similar to the $18 million purchase a year ago of
, a privately owned Miami-based auto insurer. Analysts note that Anderson needs to show that additions will help lower the company's overall cost structure.
Investors are showing some confidence in Anderson's plan. Gainsco's stock has rebounded from its 52-week low of 3 15/16 on June 9. It closed unchanged Friday at 6 9/16. Despite its rise, some still consider it a bargain. Based on the
First Call/Thomson Financial
consensus estimate of 50 cents a share next year, the company's price-to-earnings ratio is about 13, while its growth rate is 25%. In addition, it trades just above its book value of $5.20 a share.
Another benefit from the Goff-Moore's major stake in the company is that the Rainwater group will take over management of Gainsco's $200 million investment portfolio. While insurance companies must keep a certain amount of their assets in stable and low-yielding investments such as Treasury bills, Goff-Moore is expected to be slightly more aggressive.
"We're not going to go crazy, but we obviously think we can do better than Treasuries without taking a lot of extra risk," says Goff-Moore's Chappel.
Michael Lamb, an analyst who covers Gainsco for suburban Kansas City research firm
, recommends the company as a strong buy in part because of the Rainwater investment. Lamb expects to see the share price reach 12 sometime in the next year and a half.
Rainwater and the Goff group do things in the billions, the question is why have they taken the time and interest to get control of a little $150 million inconsequential insurance company," Lamb says.
"It's not an investment to them. It's a vehicle to use. And five years from now they will still be running it," Lamb adds. "You can compare it to
in its infancy because they will be running it to maximize the investment portfolio and to increase the dollars by growing internally and through acquisitions."
Wrong! Dispatches from the Front: Bottoming Without a Net
James J. Cramer
9/10/99 3:53 PM ET
What makes me more certain about this Net bottom has nothing to do with the Net. It has to do with the coming slowdown.
International Strategy and Investment's
stuff regularly. (That's the work put out by
, a strategist), who has made me
over the year.) Today he started a "U.S. Slowdown Watch." To me, that meant swap out of some of the higher gear stocks that need a strong economy and into stocks that don't need a strong economy to thrive.
. But it is also
These stocks have very little economic sensitivity. (I am not buying the e-commerce plays.) Without a slowdown I can tell you that these Net stocks ain't going anywhere. The rest of the economy will be too interesting. But with one, they will go back up.
Of course they can't ramp the way they used to. There will be supply this time. But this time they are all so heavily shorted that it is ridiculous. You can't bring in that much stock that fast. You tend to gap up. I have been part of those gaps. I always compare them to the time I saw the mechanical rabbit fall off at a Florida dog track. The shortselling greyhounds swoop down, but there ain't nothin' there to eat!!
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Dial, Lycos, Yahoo! and Colgate. 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: Harbinger Forecasts a Strong Third Quarter
9/10/99 7:33 PM ET
Friday afternoon is an ideal time for a company with a negative earnings omen to drop the bomb and bolt for the weekend. After watching
get taken to the cleaners today, the inclination is understandable. But e-commerce software supplier
post-close announcement consisted purely of good things to come. The company said it expects third-quarter earnings to meet or exceed expectations, and added the fourth-quarter outlook is favorable as well. Harbinger said the market for its core, business-to-business commerce is strong with indications that growth is accelerating. The 12-analyst estimate calls for earnings of 9 cents a share in the third quarter.
In other postclose news (earnings estimates from
First Call/Thomson Financial
; earnings reported on a diluted basis unless otherwise specified):
Earnings/revenue reports and previews
reported fourth-quarter operating earnings of 25 cents a share excluding items, down from 28 cents a share a year ago. Operating earnings were in line with the five-analyst estimate. Including merger and restucturing charges, the company reported a loss of seven cents a share.
said it expects third-quarter earnings to remain flat and below analyst estimates, partly because of a delay in shipments of its new product. The company also said it expects a charge of $1.5 million relating to its merger with
GE Medical Systems
, a unit of
said it expects third-quarter earnings to fall well below analyst estimates due to a revenue shortfall in its high-speed Internet access via telephone lines. The 13-analyst estimate called for earnings of 2 cents a share.
filed antitrust documents with regulators in connection with its $2.5 billion hostile bid for
. Asarco and Cyprus rejected the bid, saying it was financially inadequate and anti-competitive. Phelps Dodge has repeatedly said a three-way union, which would create the world's largest copper company, would not face significant antitrust issues.
Bond Focus: Treasuries Look at Inflation Report's Bright Side
9/10/99 5:21 PM ET
Treasury yields moved sharply lower and fed funds futures traders took a more optimistic view of the
Oct. 5 meeting in response to some friendlier-than-expected inflation news today. A rise in the dollar against the yen thanks to an intervention by the
Bank of Japan
also supported U.S. bonds.
But market participants said the market had been oversold to begin with, and light volume exaggerated the gains. Some suggested that the reaction to the
Producer Price Index
, which measures inflation at the wholesale level, was borderline delusional.
In any case, the market remains mired in the trading range it's inhabited since late July, with no hope of escaping until it becomes clear whether the Fed will hike rates again next month, and perhaps not even then. Still, next week's key economic reports --
Consumer Price Index
, both for August -- may settle the question.
Today, the benchmark 30-year bond ended 22/32 higher in price at 101 5/32, its yield shedding 5 basis points to 6.04%. Shorter-maturity note yields declined by roughly similar amounts as their prices rose.
In the fed funds futures pit at the
Chicago Board of Trade
, traders downgraded the likelihood of an Oct. 5 rate hike to 30%, from 36% yesterday.
A weaker-than-expected core PPI touched off the rally, which built gradually over the course of the day. The measure, which excludes volatile food and energy prices, fell 0.1%. Economists surveyed by
had expected it to rise 0.1%. Continued good behavior by inflation could stay the Fed's hand, traders reasoned.
Good thing there's a core PPI. A 3.7% gain in energy prices, on the heels of a 3.4% gain in July, helped push up the overall PPI 0.5%, two-tenths more than expected. The year-on-year growth rate of the index rose to 2.3%, its highest level since January 1997.
The BOJ's overnight intervention to weaken the yen primed the market for the rally, since a rising dollar makes dollar-denominated bonds more appealing. The dollar finished around 108.83, up from 108.03 yesterday, after the Japanese central bank bought an estimated $2 billion. A strong yen impairs Japan's ability to sell products overseas, and the yen had reached its highest level in more than three years.
At the same time, the Treasury futures contract started the day at a level -- a price around 113 -- that has proven quite strong as a support level, creating the sense that at least for today, there was nowhere to go but up. "The PPI started it, but the market has been so oversold,"
government bond strategist Jerry Lucas said. "How much momentum is it when you've gotten down to the bottom of the range and then lift off it?"
Some observers went so far as to question the judgment of taking yields so much lower on what they called a highly ambiguous inflation report. "It goes to show how biased the market can be in its interpretation of economic events,"
Banc One Capital Markets
senior financial economist Anthony Karydakis said.
These critics pointed to large gains in the crude and intermediate PPIs. (The overall and core PPIs measure the prices of finished goods.) While crude and intermediate prices are much more volatile than finished goods prices, the unmistakable trend is that those prices have been rising for the last several months, after falling steadily last year.
"The fact is that even though there is not likely to be a quid-pro-quo pass-through of the pipeline gains to finished goods, there will inevitably be some lagged capturing and hence, market implications,"
Miller Tabak Hirsch
chief bond market strategist Tony Crescenzi wrote.
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