TheStreet.com's MIDDAY UPDATE
February 11, 2000
Market Data as of 2/11/00, 1:31 PM ET:
o Dow Jones Industrial Average: 10,564.83 down 78.80, -0.74%
o Nasdaq Composite Index: 4,452.83 down 32.80, -0.73%
o S&P 500: 1,403.11 down 13.72, -0.97%
o TSC Internet: 1,174.38 down 3.12, -0.26%
o Russell 2000: 541.33 down 0.88, -0.16%
o 30-Year Treasury: 99 18/32 up 3 18/32, yield 6.277%
In Today's Bulletin:
o Midday Musings: Dow Slide Worsens as Stocks Remain Under Pressure
o Herb on TheStreet: Tips for the Timid: How to Detect Financial Fraud and Other Stock Shenanigans
Fox News Channel
Computer hackers are mucking up the works at some Internet titans, how will their handiwork affect your Net stocks? We'll get the "Word on TheStreet" with Ark funds portfolio manager, Christopher Baggini and
's 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.
Fox News Channel
airs Saturdays at 10 a.m. and 6 p.m. ET and Sundays at 10 a.m. ET. 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 www.thestreet.com/tv.
Also on TheStreet.com:
Wrong! Tactics and Strategies: Be Not Afraid
Despite the naysayers, the trader's not worried about Microsoft. In fact, he sees a buying opportunity.
Midday Movers: Dell Declines and Dole Ripens Following Earnings
Asia/Pacific: Sohu Will Probably Get a Warm IPO Welcome, but Future Is Unclear
The Chinese portal's future profitability depends heavily on the government's Net rules.
Fixed-Income Forum: In Search of Municipal Bond Offering Documents
Getting your hands on a muni bond prospectus is a labor-intensive and expensive undertaking.
Midday Musings: Dow Slide Worsens as Stocks Remain Under Pressure
2/11/00 1:25 PM ET
Stocks continued to drift in the red at midday, as the
Nasdaq Composite Index
took a well-deserved breather and a weaker-than-expected economic report proved to be a nonevent.
The government reported that retail sales increased 0.3% in January, though they declined 0.3% once a 2.3% rise in auto sales was taken out. The expectation was for a 0.8% gain in total sales, and a 0.7% gain excluding auto sales. Any potential for an enthusiastic response was quickly curbed by a general consensus among economists that the slowdown was the likely outcome of the Y2K-related stockpiling that proceeded it.
The Nasdaq Comp decided to sleep in this morning, worn out from a string of jumps that left it at yet another record close yesterday. The tech-laden index was down 39, or 0.9%, to 4447. Meanwhile
TheStreet.com Internet Sector
index was trying hard to wake up, down 4 to 1174. The
Dow Jones Industrial Average
was also lower, lately down 79, or 0.7%, to 10,565. The 30-stock average is down about 10% since January.
"Its awfully quiet," said Randy Billhardt, co-head of block trading at
. "What you're seeing is some profit-taking in the tech stocks that have done phenomenally well. The money is rotating into other areas" he said, noting the pickup in the financial sector today.
Indeed, Dow components
were showing some muscle, with American Express up 1.3% and J.P. Morgan flexing 2.1%.
"People are starting to focus on financials. The earnings continue to be good." and at least some of the rising interest rates are being priced in, said Billhardt. The
American Stock Exchange Broker/Dealer Index
was lifting 1.4%, while the
Philadelphia Stock Exchange/KBW Bank Index
was gaining 1.2%.
was counteracting the strength in financials, though, sliding 4.4% after a report by
predicted a number of companies will experience compatibility problems with Mister Softee's Windows 2000 software. The stock's weight was putting pressure on both the Dow and the Nasdaq.
"It is worrisome that the Dow 30 continues to sell off," said Brian Gilmartin, portfolio manager of
Trinity Asset Management
in Chicago. "I think you have to see the Dow start leveling off." He pointed out that there are some fundamentally great companies in the Dow, naming
Gilmartin said despite the fact that the relative strength is in the Nasdaq right now, "it cannot continue to go at this rate forever," opining that the Dow components are providing better valuations than the red-hot Comp. He points out that the Comp basically went nowhere from mid-April to mid-October, and said a lot of the tech-stock tear in recent months can be chalked up to pent-up demand from that period. "That will level off at some point."
So where should an investor turn? Gilmartin and PaineWebber's Billhardt both offered up undervalued sectors that bear watching in the near future. Billhardt noted a spark of interest in paper stocks, saying there are some value players coming into the sector. However, "there is just no catalyst for people to go after them aggressively," he said. Lately, the
Philadelphia Stock Exchange Forest & Paper Products Index
was down 2.9%.
Gilmartin pegged oil service stocks, saying that's one sector with pretty good fundamentals. Most of the companies have pinned their capital exploration forecasts with an expectation of a $20-per-barrel level, he said. "It could be that nobody thinks we are going to stay at $30 a barrel," in which case there could be some considerable upside, he said.
Crude oil for March delivery was lately up 9 cents to $29.52 a barrel, off an intraday peak of $29.94 on the
New York Mercantile Exchange
. Lately the
Philadelphia Stock Exchange Oil Service Index
was rising 1.9%.
Elsewhere in index-land, the small-cap
was down 1 to 541, while the broader
was down 15 to 1402.
The benchmark 30-year Treasury was up 18/32 to 99 15/32, its yield at 6.29%. (For more on the fixed-income market, see today's
Breadth was negative on both major exchanges, on moderately heavy volume.
New York Stock Exchange:
1,167 advancers, 1,683 decliners, 608 million shares. 74 new 52-week highs, 191 new lows.
Nasdaq Stock Market:
1,887 advancers, 2,061 decliners, 1.1 billion shares. 301 new highs, 63 new lows.
For a look at stocks in the midsession news, see Midday Movers, published separately.
Herb on TheStreet: Tips for the Timid: How to Detect Financial Fraud and Other Stock Shenanigans
2/11/00 10:40 AM ET
No matter how often I write about financial fraud and other stock-related troubles, readers tell me they want tips on how to find it -- or least how to spot companies that might be having trouble. The requests for tips come from money managers (believe it!) as well as from individual investors looking for an edge. What to look for? This is the first of what I hope will be a regular series of columns that will help give you perspective and avoid getting blindsided. In the future, I'll take you back to how I stumbled on some of my best "hits" and why I stuck with them even when readers were demanding that I be fired.
For a jumping-off point, let's go to the New York Hilton. That's where I was Wednesday, sitting on a panel with accounting sleuth Howard Schilit of the
Center for Financial Research and Analysis
; attorney Alan Schulman of
Bernstein Litowitz Berger & Grossman
, who files class-action lawsuits against companies; and Boris Feldman of the Silicon Valley law firm
Wilson Sonsini Goodrich & Rosati
, who defends the companies that Schulman sues. The title of the panel was "Detecting Financial Fraud From Publicly Available Sources."
Herb's Latest: Join the discussion on
message boards. Our audience was 500 insurance carriers and brokers at a gathering sponsored by the
Professional Liability Underwriting Society
. These aren't your usual insurers; these are the folks who insure corporate directors and officers against claims of fraud. As you might guess, their incidence of claims is increasing at a disturbing rate.
So, did I tell them to go
they write a policy?
My top 10 list:
- I would look at
Bloomberg or even the "upgrades and downgrades" section under company profiles on
Yahoo! Finance (YHOO) . You're looking for analysts who have a sell or hold rating on a stock that most others rate a buy. Analysts don't usually veer from the comfort of the herd if they don't have a good reason. Try to get the reports free from the brokerage firm or, for a fee, from a service like
www.multex.com). Remember when
Lucent (LU) was popular? As
reported here a year ago, two analysts had holds on it; today they look like geniuses.
Check short interest, which you can find every month in the
Tools section of
TheStreet.com and under company profiles on Yahoo! Finance. Short interest, in and of itself, doesn't necessarily mean anything. But it does suggest people are betting against a company. You want to find out why, especially if short interest is expanding. (And don't listen to the sell-side analysts who will pooh-pooh any of the negatives on a company from which they're trying to get investment banking business.)
If the company does have a large short interest and the CEO has waged a public war against the shorts and the company's critics, sharpen your pencil. This is almost always a sign of desperation. It was
CHS Electronics (HS) CEO Claudio Osorio who publicly
declared war on short-sellers of his company's stock. That was in June 1998, when CHS stock was around 25; it's now around 1 1/2.
Regardless of what I said above about the sell-side analysts who like the company,
do get their reports, and do what I do when I research stocks for the Stock Drill segment on "TheStreet.com"
show on the
Fox News Channel: I zero in on what they declare to be the risks. It was
there that I found some concern for credit-card-related problems at
Bank One (ONE) - Get Report -- the same credit-card problems that wound up dragging Bank One down.
I would do a scan of any of the company's filings with the
Securities and Exchange Commission. Here I'm talking about 10-Qs, 10-Ks, S-1 filings and amendments. Then I would go to
Microsoft Word and use the compare function. (See my
column here from a few months ago explaining how that works.) I would compare the actual text in the risk factors and the management discussion and analysis sections. And, just for the fun of it, see how the wording has changed. This led lots of folks to realize that
3Com (COMS) was headed for trouble years ago.
I'd hire a forensic accountant to do the numbers, or I'd subscribe to a service like Howard Schilit's.
Then I would check to see if journalists like me, who specialize in talking to the short-sellers, have written about a company in which you're interested. I talk to some really smart short-sellers, and when they're right, which is often, I always ask myself why it was that the short-sellers knew and nobody else did. The short-sellers, for example, knew that
The Learning Company was aggressive with its books for years -- years before it was bought by
Mattel (MAT) - Get Report. I've
written it for years. And after Mattel acquired TLC, I
suggested in one of my columns that it would only be a matter of time before Mattel learned TLC's dark and dirty secret.
Look for a revolving door of CFOs. And if the company is losing CFOs or other top execs, with any frequency, you might want to check local courts for any wrongful termination suits. Years ago, I was tipped off that a former CFO of
Supercuts, the haircutting chain, had filed a wrongful termination suit against the company. It was full of all kinds of allegations. Turns out his predecessor did the same. That company eventually crashed and burned, and the CEO was kicked out.
Check out the message boards on Yahoo! or elsewhere. The more zealot-like they are, the more careful you should be.
Finally, ignore the direction of the stock. Don't let it give you a false sense of security. Back in the mid-1990s, when a company called
Media Vision had the hottest stock in Silicon Valley, I had written numerous columns questioning the company. After one especially blistering take, the CEO called said something like, "A-ha, our stock is rising. It shows your short-selling friends are wrong." Media Vision wound up filing for bankruptcy, and the ex-CEO is now awaiting trial on securities fraud charges.
Questions, comments, criticism? Let me know. And if you care to share thoughts on how
spotted trouble, pass it along. I'd especially love to hear from money managers who can give examples of what caused them
to buy a stock that eventually cratered.
Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at
email@example.com. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.
Copyright 2000, TheStreet.com