Illogical Logic of Stock Splits Spurs Big Rally

IBM, McDonald's and Xerox join a still-surging Microsoft in sparking across-the-board gains.
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"The answer is --

IBM

(IBM) - Get Report

,

McDonald's

(MCD) - Get Report

and

Xerox

(XRX) - Get Report

."

Jeopardy

contestant: "What are companies that once dominated their industries, then lost their way to varying degrees and have since made impressive comebacks?"

Alex Trebek

: "No, sorry. The judges won't allow it. Contestant No. 2."

No. 2: "What are blue-chips that announced 2-for-1 stock splits and -- as with

Microsoft's

(MSFT) - Get Report

split announcement

yesterday -- helped the stock market rise?"

Alex: "Correct. You control the board...."

No. 2: "I'll finish the category, Alex. Let's have: 'Flourishing markets despite earnings that are mixed compared even with lowered expectations and are mainly down from a year ago' for $500."

Technology, the source of the majority of high-profile splits in recent days, again led the market's ascent. The

Nasdaq Composite Index

rose as high as 2434.77 before closing up 64.10, or 2.7%, to 2433.41. The point gain is the eighth-highest in Nasdaq history and the close establishes a new record for the tech-imbued index, eclipsing the previous best of 2415.49 set Jan. 20.

Microsoft jumped 6% to a new all-time high of 171 9/16, while a host of other tech bellwethers gained in both over-the-counter and

New York Stock Exchange

trading, including

Lucent

(LU)

,

Intel

(INTC) - Get Report

,

Dell

(DELL) - Get Report

and

Sun Microsystems

(SUNW) - Get Report

.

The

Nasdaq 100

and the

Morgan Stanley High-Tech 35

each rose more than 3% while the

Philadelphia Stock Exchange Semiconductor Index

jumped 4.4%.

'Right now tech is king and stocks want to rally,' said D.A. Davidson's Jim Volk. 'I think momentum players are going with it and I've got momentum players in certain stocks today.'

Among secondary names,

Remedy

(RMDY)

rose 36% and

Uniphase

(UNPH)

gained 17.2%; each reported better-than-expected earnings late yesterday.

Compaq

(CPQ)

, meanwhile, rose 5.5% after announcing plans to spin-off

AltaVista

, the Internet navigation unit obtained in its acquisition of

Digital Equipment

. During a conference call about AltaVista's IPO, Compaq officials heightened speculation the PC giant will exceed the 32-analyst consensus of 37 cents a share when it reports fourth-quarter earnings tomorrow morning.

Compaq's announcement Microsoft has agreed to make AltaVista the primary search engine powering the Microsoft Network sent

Inktomi

(INKT)

down 12.5%; MSN currently employs the Inktomi search engine.

But Inktomi's experience was not shared by the majority of Net names.

TheStreet.com Internet Sector

index rose 23.50, or 4.7%, to 520.09. The equal-weighted index was led by

Yahoo!

(YHOO)

,

Check Point Software

(CHKPF)

,

MindSpring Enterprises

(MSPG)

and

America Online

(AOL)

.

Only Oils Stand Out on Downside

Blue-chip proxies initially had a tougher go of it than their tech counterparts but ultimately secured solid gains. The

Dow Jones Industrial Average

rose as high as 9329.99 and closed up 121.26, or 1.3%, to 9324.58.

IBM and McDonald's were among the Dow's best performers, aided by

Johnson & Johnson

(JNJ) - Get Report

, which posted fourth-quarter earnings in line with expectations, and

Merck

(MRK) - Get Report

, on the comeback trail from recent slides.

AT&T

(T) - Get Report

was the big hindrance to the Dow; yesterday, Ma Bell reported fourth-quarter earnings matching expectations but said its first-quarter earnings may fall shy of consensus.

The

S&P 500

closed up 18.33, or 1.5%, to 1252.31. In addition to the aforementioned tech bellwethers, the index got a boost from Xerox, which rose 10.4%; drug makers such as

Monsanto

(MTC) - Get Report

, up 9.3%; transportation names such as

FDX

(FDX) - Get Report

, higher by 4.1%; and broker/dealers such as

Charles Schwab

(SCH)

, up 8.5%.

As crude prices fell again, energy was the lone substantive drag on the S&P 500; the

American Stock Exchange Oil Index

dipped 0.8% while the

Philadelphia Stock Exchange Oil Service Index

shed 4.8%.

The

Russell 2000

climbed 3.22, or 0.8%, to 425.33 as market internals improved.

"Right now tech is king and stocks want to rally," said Jim Volk, co-director of institutional trading at

D.A. Davidson

in Portland, Ore. "I think momentum players are going with it and I've got momentum players in certain stocks today."

Volk declined to specify but said stocks are enjoying "knee-jerk reactions to good news" as "people feel the first quarter is going to mirror the fourth quarter of 1998, with the economy and earnings OK."

The traded added a cautious note amid the upswing. "I'm not worried about a big decline in the short-term, but we're setting ourselves up here for a false sense of security unless things fall into place internationally," he said. "If they don't, it could hurt our economy."

In NYSE trading, 896.4 million shares traded while advancers led declining stocks 1,553 to 1,432. In

Nasdaq Stock Market

activity, gainers led 2,139 to 1,952 while 1.039 billion shares traded. It was the 13th billion-share session in the last 14. New 52-week lows led new highs 58 to 40 on the Big Board but new highs led 90 to 45 in over-the-counter trading.

'We're on Our Way to Dow 10,000'

"Basically we're up very strong right across the board," said Charles Pradilla, chief investment strategist at

SG Cowen

. "Obviously the tech stocks are leading, but I think

the Dow managed to hold the 9050 area last week and as a result, the market is showing strength. We're basically on our way to Dow 10,000."

Pradilla observed that "Internet stocks are strong but there seems to be less emphasis on that group now and more on traditional tech stocks, which is a positive." The strategist cited a litany of "green lights" beckoning major proxies, including a view "earnings are good for the most part."

Responding to the argument earnings have only met or bested lowered expectations, Pradilla responded: "Future growth should begin to expand at a much faster rate in the present economic environment. If the economy should weaken substantially, then that's going to be a stumbling block. But in the short-term we still have an influx of money coming in, there's been no change in psychology, and there's more good news on inflation."

Today, Brazil's lower house passed a bill to increase financial transactions tax, considered a key to its austerity program, he noted. "That's adding fuel to the fire."

In Brazil, the

Bovespa

rose 6.3%. However, the real was quoted at 1.84 to the dollar, up from its morning worst of 1.97, but a new closing low for the beleaguered currency and down 2.8% from the prior day.

Among other indices, the

Dow Jones Transportation Average

rose 26.47, or 0.9%, to 3139.44; the

Dow Jones Utility Average

fell 0.60, or 0.2%, to 308.01; and the

American Stock Exchange Composite Index

edged up 0.35 to 706.36.

The price of the 30-year Treasury bond fell 7/32 to 101 27/32, its yield rising to 5.12%.

Elsewhere in North American equities, the

Toronto Stock Exchange 300

gained 44.97, or 0.7%, to 6663.45 and the

Mexican Stock Exchange IPC Index

rose 58.17, or 1.6%, to 3765.97.

Tuesday's Company Report

By Heather Moore
Staff Reporter

(

Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.

)

IBM brought in 3 5/8 to 185 5/8 on the aforementioned 2-for-1 stock split. Separately,

NewsEdge

(NEWZ)

shot up 2 1/8, or 19.8%, to 12 15/16 after IBM agreed to integrate the company's customized news service into its internal Web-based news service. Terms of the deal were undisclosed.

As noted above, Compaq took in 2 9/16, or 5.5%, to 49 1/4 on plans to spin off AltaVista and an Internet deal with Microsoft. Mister Softee jumped 9 11/16, or 6%, to an all-time high of 171 9/16 after saying its MSN would phase out Inktomi as its primary search engine. Inktomi lost 18 1/2, or 12.5%, to 129 13/16.

TheStreet.com

wondered why

DoubleClick

(DCLK)

wasn't tapped to take Inktomi's place in a

story this afternoon.

Adding to today's Microsoft-related news, Amsterdam-based

United Pan-Europe Communications

and Mister Softee agreed to establish a strategic technical services partnership. The companies plan to set up a number of joint projects to deliver Internet and other interactive services such as digital video to UPC and non-UPC broadband customers in Europe. UPC is majority-owned by

United International Holdings

(UIHIA)

, which lifted 9 3/8, or 24.9%, to an all-time high of 47.

Mergers, acquisitions and joint ventures

LucasVarity

(LVA)

expanded 6 5/128, or 14.5%, to 47 7/16, matching an all-time high, after

The Wall Street Journal

reported that

TRW

(TRW)

is in advanced talks to buy the British auto-parts concern. Yesterday, LucasVarity rejected a takeover offer from

Federal-Mogul

(FMO) - Get Report

, which added 15/16 to 62 3/4.

Tenneco

(TEN) - Get Report

sliced off 1 to 32 3/8 on word it's selling its containerboard business for $2.2 billion to

Madison Dearborn Partners

. Tenneco, which will keep a 45% stake in the containerboard business, also posted fourth-quarter earnings of 2 cents a share, below the eight-analyst call for 8 cents and down from the year-earlier 44 cents.

Warner-Lambert

(WLA)

grew 1 5/8 to 69 1/8 after announcing shortly before the closing bell that it will buy

Agouron Pharmaceuticals

(AGPH)

for $2.1 billion in stock. Agouron was halted shortly after 3 p.m. at 56 13/16.

Earnings/revenue reports and previews

McDonald's advanced 3 1/16 to 78 15/16 after reporting fourth-quarter earnings of 64 cents a share, on target with the 16-analyst forecast and above the year-ago 58 cents. The company also set a 2-for-1 stock split.

Cytec Industries

(CYT)

flourished 1 7/8, or 9.3%, to 22 1/16 after last night beating fourth-quarter earnings estimates by 8 cents a share.

Foster Wheeler

(FWC)

slouched 5/8 to 12 15/16 after posting fourth-quarter net earnings of 41 cents a share, including a loss related to its

Robbins Resource Recovery

facility. The nine-analyst estimate called for operating earnings of 47 cents vs. the year-ago 36 cents.

International Network Services

(INSS)

lowered 4 5/8, or 7.5%, to 57 3/16 even after last night recording second-quarter earnings a penny higher than expected.

McKesson HBOC

(MCK) - Get Report

dropped 7 5/8, or 9.3%, to 74 3/8 even after last night reporting third-quarter earnings of 56 cents a share, in line with the two-analyst forecast and up from the year-ago 43 cents. The company said it is on course to meet its fiscal 2000 profit target of $3 a share; the four-analyst estimate calls for $3.01.

Progressive

(PGR) - Get Report

skidded 29 1/16, or 18.9%, to 124 9/16 after late yesterday missing fourth-quarter earnings estimates by 16 cents a share. Today,

Goldman Sachs

slashed the stock to market perform from outperform.

Ralston Purina

(RAL)

excelled 2 1/2, or 9.6%, to 28 1/2 even after missing first-quarter earnings estimates by 3 cents a share last night.

Remedy soared 6 1/16, or 36.2%, to 22 15/16 after late yesterday posting fourth-quarter earnings 2 cents a share above estimates. Today, Goldman Sachs raised the stock to market outperform from market perform and

CIBC Oppenheimer

upped it to strong buy from hold.

SanDisk

(SNDK)

grew 5 1/2, or 23.5%, to an annual high of 29 after last night topping fourth-quarter earnings estimates by 3 cents a share.

Service

(SRV) - Get Report

plunged 15 5/16, or 44.5%, to an annual low of 19 1/8 after the funeral and cemetery company warned it sees fourth-quarter earnings of 22 cents to 24 cents a share, below the Street's expectations for 42 cents and the year-ago 36 cents. The company also announced plans to double its previously approved repurchase program to 10 million shares.

Morgan Stanley Dean Witter

lowered the stock to neutral from outperform.

Merrill Lynch

cut it to near-term neutral from buy and to long-term accumulate from buy

Uniphase swelled 12, or 17.2%, to an all-time high of 81 3/4 after late yesterday announcing second-quarter earnings 1 cent ahead of forecasts.

Ventana Medical Systems

(VMSI)

sloughed off 1 3/4, or 9%, to 17 7/8 after last night warning its fourth-quarter earnings will fall slightly below the four-analyst view of 13 cents a share because of increased sales expense accruals, higher costs related to integrating acquisitions and increasing reserves for doubtful accounts. The company made 5 cents in the year-ago period.

Whitman

(WH) - Get Report

slid 3 15/16, or 16.7%, to 19 9/16 despite reporting fourth-quarter earnings in line with estimates last night. Morgan Stanley Dean Witter lowered the stock to outperform from strong buy. Also,

PepsiCo

(PEP) - Get Report

said it will transfer several bottling operations to Whitman for around $300 million to realign bottling territories and create a new Pepsi-Cola bottler in which Pepsi will hold a 35% stake. Pepsi slipped 9/16 to 39 11/16.

Xerox took in 10 15/16, or 10.4%, to 116 5/16 after last night reporting (ahead of schedule, thanks to First Call) fourth-quarter earnings of $1.69 a share, 2 cents ahead of the 13-analyst outlook and above the year-ago $1.46. The company also set a 2-for-1 stock split, approved a 11% dividend increase and said it sees stronger European and Japanese currencies helping its 1999 earnings. Xerox said it expects earnings growth in the mid to high teens for the next few years and that 2,200 employees left the company under a fourth-quarter restructuring plan.

In other earnings news:

Offerings and stock actions

Delia's

(DLIA)

shot up 2 5/8, or 17.5%, to 17 3/4 after late yesterday filing with regulators for an IPO of $46 million of shares in its Internet unit,

iTurf

. The offering is expected to be completed in the spring by

BT Alex. Brown

, CIBC Oppenheimer and

Hambrecht & Quist

. iTurf provides online community and electronic commerce services for the 10-to-24 age bracket.

Miscellany

Broadcast.com

(BCST)

gave up 13 13/16, or 9.1%, to 138 3/4 despite news that three

ABC

TV stations --

WABC

in New York,

WPVI

in Philadelphia and

KTRK

in Houston -- chose the company to provide streaming media services for their content. ABC is a unit of

Disney

(DIS) - Get Report

, which lowered 3/8 to 34 9/16. (

TheStreet.com

reported on Disney's preliminary merger talks with

Chancellor Media

(AMFM)

in a

story today.)

Imaging Technologies

(ITEC)

warpzoned up 2 25/32, or 228.2%, to an annual high of 4 1/8 after beginning an advertising campaign for its Web site, which sells computer products.

Monsanto flew 3 13/16, or 9.3%, to 44 7/8 on word the launch of its arthritis drug, Celebrex, appears to be the second-fastest ever after Viagra.

TSC

carried the news

early this afternoon.