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Publish date:



February 9, 2000

Market Data as of 2/9/00, 1:38 PM ET:

o Dow Jones Industrial Average: 10,809.61 down 147.99, -1.35%

o Nasdaq Composite Index: 4,396.96 down 30.54, -0.69%

o S&P 500: 1,423.34 down 18.41, -1.28%

o TSC Internet: 1,143.20 down 18.17, -1.56%

o Russell 2000: 536.84 down 0.65, -0.12%

o 30-Year Treasury: 98 06/32 down 11/32, yield 6.249%

In Today's Bulletin:

o Midday Musings: Early Strength a Memory, Stocks Give Back Gains
o Herb on TheStreet: Checking the Quality of CVS' Earnings, Cash Flow Community

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"" on

Fox News Channel

Computer hackers are mucking up the works at some Internet titans. How will their handiwork impact your Net stocks? We'll get the "Word on TheStreet" with Ark funds portfolio manager, Christopher Baggini and


Herb Greenberg, Adam Lashinsky and special guest, "Capitalist Pig," Jonathan Hoenig.

Also, funds writers Joe Bousquin and Dagen McDowell face off on the best way to tap into this year's biotech boom. And "Chartman" Gary B. Smith and Adam Lashinsky check out two of the most asked-about stocks in Lashinsky's mailbag. All that and predictions.

"" on

Fox News Channel

airs Saturdays at 10 a.m.and 6 p.m. EST and Sundays at 10 a.m. EST. FNC is Fox's 24-hour cable news channel. To find

Fox News Channel

in your area, call your local cable operator or see our "TSC on Fox TV" page at

Also on

Wrong! Rear Echelon Revelations: Investor Amnesia

The trader says you have to love the forgive-and-forget nature of investors. Just look at Reuters.

Silicon Babylon: How Do the Pros Pick Net Stocks? Part 2

Avoiding the next disaster, and other tips.

Mutual Funds: Janus' Extraordinary 1999 Powered by Small Group of Favored Stocks

The average Janus fund gained 81.6%, thanks to an appetite for large-cap growth and tech stocks.

Dear Dagen: Few Net Funds Focus Outside the U.S.

For international Internet exposure, broader technology and international funds are your best bet.

Midday Musings: Early Strength a Memory, Stocks Give Back Gains


Eileen Kinsella

Staff Reporter

2/9/00 1:18 PM ET


Nasdaq Composite Index

made another grab for the spotlight today, this time unsuccessfully. The

Dow Jones Industrial Average

spent the morning backstage, sulking like an unwanted understudy.

Curtains came down on the Comp around noon EST as the tech-laden index gave back all of its solid 30-point gain and was lately dipping into the red, off 28, or 0.6%, to 4399. Still, a solid earnings report from


(CSCO) - Get Cisco Systems, Inc. Report

and the remaining optimism from yesterday's productivity report were enough to keep the Comp in the green for a good part of the morning.

Net Hacking: Join the discussion on our

message boards. Internet Sector

index was down 17, or 1.4%, to 1145. A fresh round of possibly hacker-related problems hurt online brokers




Datek Online

and was putting pressure on E-Finance Index

, off 2.8%.

Meanwhile the Dow was sinking 127, or 1.2%, to 10,830, handing back all of yesterday's 51-point gain and more. Among the average's heaviest weights today were

American Express

(AXP) - Get American Express Company Report

, off 2.5%, and


(MRK) - Get Merck & Co., Inc. Report

, sliding 5.4%.


(MSFT) - Get Microsoft Corporation Report

2.2% drop also was contributing to the 30-stock average's downside.

Red dotted a number of other sectors as well. The

Dow Jones Transportation Average

was down 6.52, or 0.3%, to 2575, while the

Dow Jones Utility Average

was slipping 0.40, or 0.1%, to 310.87. Oil stocks also were under pressure, with the

Philadelphia Stock Exchange Oil Service Index

slipping 2.1% despite a rise in the price of crude oil.

"There seems to be a rotation out of cyclicals and into tech stocks again," said James Maguire Jr., a

New York Stock Exchange

specialist at

Henderson Brothers

. "People are looking to put their money to work and the tech sector has been the top performer. A lot of fund managers are under a lot of pressure to outperform the market. It's just not happening in the value stocks."

Gold was a rare bright spot in today's market, with mining stocks climbing on expectations that supply reductions are in the pipeline. The

Philadelphia Stock Exchange Gold and Silver Index

was rising 5.5%, helped by strength in

Placer Dome


, gleaming 8.6%, and

Barrick Gold


, up 6.2%. Gold for April delivery was lately at $307.60 an ounce, up from yesterday's close of $301.70.

Despite the selling that cut through a broad range of sectors today, one trader waxed optimistic, saying, "We are in a full buy mode over here. Yields are coming down and the market is holding up well overall. Eleven thousand seems to be a good range on the Dow and I think it's going to go to 12,500."

The broader

S&P 500

index was down 16, or 1.1%, to 1426, while the small-cap

Russell 2000

was off 1 to 536.

The benchmark 30-year Treasury was up 7/32 to 98 25/32, its yield at 6.22%.

Market Internals

Breadth was negative on both major exchanges, on heavy volume.

New York Stock Exchange:

1,090 advancers, 1,771 decliners, 643 million shares. 86 new 52-week highs, 124 new lows.

Nasdaq Stock Market:

1,712 advancers, 2,258 decliners, 1.1 billion shares. 259 new highs, 57 new lows.

For a look at stocks in the midsession news, see Midday Movers, published separately.

Herb on TheStreet: Checking the Quality of CVS' Earnings, Cash Flow


Herb Greenberg

Senior Columnist

2/9/00 6:30 AM ET

A drumroll, please:

When we recently visited


(CVS) - Get CVS Health Corporation Report

, the drug-store chain had surprised Wall Street by unexpectedly

adding an extra week to its fourth quarter. Analysts responded by boosting their fourth-quarter forecasts by a penny to 44 cents per share.

Which brings us to yesterday, when CVS, the country's second-largest (in revenue) drug-store chain, surprised Wall Street with earnings of 46 cents. Wall Street responded by bidding up CVS nearly 10% to 40.

But that did little to impress short-sellers, whose analyses of the numbers went something like this: "They engineered an earnings rise out of a disappointment," said one CVS bear. (In other words, this is another story where earnings quality wasn't as good as earnings quantity.)

First, the tax rate was lower. Second, there was the added week, when Y2K-related prescription sales zoomed in the final days of the year. Third (and this is stuff for accountants, so bear with me), the week was a bonus for revenue, but depreciation and amortization are calculated on a quarterly basis, not a weekly basis. So the quarter didn't really include an extra week of depreciation and amortization. (The less depreciation and amortization, the higher the earnings per share.)

What's more, "The number everybody looks at anyway with CVS is EBITDA," or earnings before interest, taxes, depreciation and amortization, says this bear. That's because CVS has done a lot of acquisitions. While EBITDA was up around 22%, CVS' previously rising EBITDA margin -- a sign of profitability -- was down for the second straight quarter. Could that be because CVS' auditors are getting tougher about the use of takeover and restructuring-related reserves? (CVS officials declined comment on this and anything else in this column.)

CVS has also been knocked in the past for having weak operating cash flow. (You need cash from operations to grow.) No problem: CVS bragged that its free cash flow (cash flow from operations minus capital expenditures and before dividends) jumped to $165 million for the year. Ah, but $125 million of that came from deferred income taxes. How would cash flow have been if the tax deferral was more like the $80 million deferred a year earlier? (You've heard of quality of earnings, welcome to quality of cash.) Why did the deferral rise?

Also helping cash flow: CVS is holding the line on capital spending at less than $500 million. (



, by contrast, has been raising capital spending every year and this year expects the number to top $1 billion.) "There are two sides to how much cash you're generating," says the CVS bear. "It's how much cash you're generating and how much cash you're spending. If they're doing so great, why is their capital spending going down?"

Good question, and if company officials ever decide to answer, I'll pass their comments along.

Herb's Latest: Join the discussion on

TSC Message Boards .

Lernahooligan alert -- pulling out all stops:

That, it turns out, is what

Lernout & Hauspie


was doing Monday when it dug (once again!) into its bag-o-tricks to juice its stock. I had pointed out the stock was up on "no news" because, quite frankly, I hadn't thought that the latest in a string of press releases justified the rise. But based on my email, not only was it responsible for the rise, but it was yet another reason why I'm an idiot. (Duh, we already knew



Seriously, folks, I didn't take the press release seriously because it was yacking about a "prototype" for a

Palm Pilot

-like device that recognizes voice. (Lernout makes voice-recognition software.) Prototypes come a dime a dozen in Silicon Valley, where they're unaffectionately known as "vaporware" until they are actually rolled out for sale. So many prototypes simply never make it to market, and when they do, they're often produced much later than originally expected. Lernout expects its product to be rolled out "sometime" by the end of this year.

However, Lernout has more than once shown up at investment conferences armed with demonstrations of its software, only to have the demo flop. (I've only heard the stories from on-the-scene sources, not seen them.) So, armed with the new prototype of its palm device, Lernout went on


Monday night to showcase the product.

Turns out it was a fake demonstration.

According to the transcript, the Lernout device displayed this message: "Can you meet us for lunch ... on Thursday? We'll only be an hour. Whatever happened to the two-martini lunch? Got to run, Allan."

The reporter was then prompted by the Lernout exec to reply to the message. She said, "OK, why don't we say, 'No, I can't make it Thursday, but what about next Monday?'"

To which the device responded: "What are my stocks doing here?"

Huh? That has nothing to do with lunch. What happened? According to a Lernout spokesman, "It's a prototype, not a real product."

My point, precisely.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

Copyright 2000,