Goldman Gets a Hearty Welcome but Doesn't Share the Wealth

Goldman Sachs' IPO is soaring, but the rest of the market has come well off its earlier levels.
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Let's lay off of talking about how overvalued Internet stocks are for a moment. Let's talk about

Goldman Sachs

(GS:NYSE).

Perhaps the venerable banking firm's chief investment strategist,

Abby Joseph Cohen

, could construct a valuation model that would justify how well its IPO has gone. Opening midmorning at 76 -- well above the $53 a share it was priced at -- the time-honored firm's stock traded as high as 77 1/4 before coming in a bit. Lately trading at 73 5/8, the revered institution is trading at about 27 times 1998 earnings.

Compare that to its peer group. On a trailing basis,

J.P. Morgan

(JPM) - Get Report

has a price-to-earnings ratio of about 21.

Morgan Stanley Dean Witter's

(MWD)

is about 18.

Hambrecht & Quist's

(HQ)

-- about 16.

"It's too highly priced," said Courtney Smith, chief investment officer at

Orbitex Management

. "IPO mania has hit Goldman. It's a premier name, over the long run it's got a great franchise, but it just looks too pricey for me."

That sentiment was echoed all over Wall Street today. More than 10 times oversubscribed, shares of Goldman were placed only in the best of hands -- institutions and high-net-worth investors -- and even those didn't get all the stock they wanted. Other investors, wanting a piece of the revered firm, have bid it up stratospherically.

"There's room in everyone's portfolio for a Goldman Sachs," said Bill Allyn, head of block trading at

Jefferies

. "It is the bluest of the blue." But, added Allyn, "the valuation of Goldman is somewhat extended. Maybe

today's high is going to be it for a while."

There has been some thought on Wall Street that a good Goldman IPO might draw interest into its peer group, maybe even make people rethink how these things are valued. Today that doesn't appear to have happened. J.P. Morgan lately was down 2 3/8 to 135, Merrill was off 3 1/2 to 83 3/4 and

Lehman Brothers

(LEH)

was down 9/16 to 54 11/16. It looks like some investors are dumping other financials to build a Goldman position -- although on a day when the 30-year Treasury bond is down 28/32 to 93 9/32, lifting the yield to 5.22%, one shouldn't overstate that. (For more on the fixed-income market, see today's early

Bond Focus.)

While Goldman employees perused apartment listings and did their part to keep the New York real-estate bubble in place, the market struggled through a session that, apart from the crusty old institution's public offering, was pretty tame. The

Dow Jones Industrial Average

was lately off 81 to 10,934, while the

S&P 500

was down 16 to 1339. The

Nasdaq Composite Index

was down 12 to 2524 and the

Russell 2000

was up 2 to 435.

TheStreet.com Internet Sector

index was up 5 to 638.

"It's kind of a blah day," said one hedge-fund manager. "I think it will turn over and get weaker -- the market has just been so strong, it's got to give back a little bit."

On the

New York Stock Exchange

advancers were outpacing decliners 1,472 to 1,428 on 573 million shares, while in

Nasdaq Stock Market

action decliners were topping advancers 1,975 to 1,797 on 551 million shares. New 52-week highs were leading new lows 100 to 12 on the Big Board and 62 to 44 on the Nasdaq.

Despite the moderation, the overall recent improvement in breadth makes Smith happy about the long-term outlook. "The breadth picture has just turned around in an extremely positive fashion," he said. "The market's still moving higher -- in a choppy, sloppy manner."

Goldman's Cohen wasn't just basking in her firm's IPO glow today. She also announced a boost in her rolling 12-month S&P 500 target, to 1385 from 1350. Cohen foreshadowed the modest move in comments

Wednesday.

Tuesday's Midday Movers

By Heather Moore
Staff Reporter

In non-Goldman news,

Wang Global

(WANG)

was climbing 3 1/4, or 12.8%, to 28 13/16 on news

Getronics

, a Dutch information technology company, is buying the company in a deal worth about $2 billion. Getronics will buy all 46 million outstanding Wang shares for $29.25 each.

Elsewhere in merger talk,

Centocor

(CNTO)

was up 1 3/4 to 48 5/8 after

The Wall Street Journal

reported that

Johnson & Johnson

(JNJ) - Get Report

is in talks to buy the biotechnology firm in an all-stock deal that could be valued well above $3 billion. Johnson & Johnson was off 1 13/16 to 95 15/16.

And

Chock Full O' Nuts

(CHF)

was up 1 1/16, or 11.3%, to 10 1/2 after

Sara Lee

(SLE)

said it would begin a cash tender offer for the company of $10.50 a share. Last month, Chock Full O' Nuts rejected Sara Lee's $223 million cash bid, calling it inadequate. Sara Lee was down 7/8 to 21 7/8.

In other news:

Coventry Health

(CVTY)

was up 1 1/2, or 16.7%, to 10 5/8 after

BT Alex. Brown

raised it to buy from market perform.

Enhance Financial Services

(EFS)

was down 2 3/8, or 10.8%, to 19 9/16 after

Credit Suisse First Boston

downgraded it to hold from strong buy.

Extreme Networks

(EXTR) - Get Report

was down 7 5/8, or 14.4%, to 45 3/8 after

Morgan Stanley Dean Witter

started coverage with a neutral.

Seagate Technology

(SEG)

was up 1 1/4 to 30 1/2 after its board approved an increase of up to 25 million shares in the company's stock buyback program.

Superior Telecom

(SUT)

was up 3 9/16, or 13.3%, to 30 5/16 after

Merrill Lynch

named the stock its Focus One pick of the week.

Earnings/revenue movers

Aon

(AOC)

was down 2 9/16 to 66 3/8 after recording postsplit first-quarter earnings of 58 cents a share vs. the year-earlier 53 cents. Presplit, Aon's earnings hopped to 87 cents a share, 2 cents above the eight-analyst

First Call

estimate and higher than the year-ago 80 cents.

Warnaco

(WAC)

was up 1 1/4 to 27 7/8 after posting first-quarter earnings of 39 cents a share, in line with the 11-analyst estimate and above the year-ago loss of 63 cents.

Salomon Smith Barney

started coverage of the stock with a neutral.

Wendy's

(WEN) - Get Report

was up 3/4 to 28 after reporting first-quarter earnings of 25 cents a share, 2 cents higher than the 15-analyst view and above the year-ago 18 cents.