May 10, 2000

Market Data as of 5/10/00, 1:28 PM ET:

o Dow Jones Industrial Average: 10,325.05 down 211.70, -2.01%

o Nasdaq Composite Index: 3,386.64 down 198.37, -5.53%

o S&P 500: 1,378.26 down 33.88, -2.40%

o TSC Internet: 798.60 down 52.28, -6.14%

o Russell 2000: 472.26 down 18.60, -3.79%

o 30-Year Treasury: 101 08/32 up 23/32, yield 6.167%

In Today's Bulletin:

o Midday Musings: Nasdaq Down More Than 5% as Mid-April Lows Approach
o Herb on TheStreet: Was That Really a Blowout at Lernout?

Also on

1994 Redux?: 1994 Redux: Prudent, Not Sexy, Stocks Will Make You Money

The trader compares his long positions in 1994's bear market to his faves now. Covering PMC-Sierra, Ho-Hum

The company rarely surprises and frequently pleases. Its R&D schedule will likely maintain that.

Internet: Hey B2Bs, It's Not Only Microsoft That Has to Fret Antitrust Actions

The exchanges, in which competitors often collaborate, are drawing more scrutiny from government lawyers.

Dear Dagen: Closed Calls: How Can I Get Into Janus When the Doors Are Shutting?

Also, how do funds perform once they close? And, does this mean Janus will change its stripes?

Midday Musings: Nasdaq Down More Than 5% as Mid-April Lows Approach


Eileen Kinsella

Staff Reporter

5/10/00 1:20 PM ET Pass the Prozac, please.

The stock market was looking blue as Wall Street muddled through another down day. Stocks stumbled out of the gate and stayed mired in the red. Not even good news from tech superstar


(CSCO) - Get Report

could bring forth a smile.


Nasdaq Composite Index was plummeting 186, or 5.2%, to 3399. It has traded as low as 3384.19, just 62.90 above its

April 14 close of 3321.29. The

Dow Jones Industrial Average was down 157, or 1.5%, to 10,380. Internet Sector

index was off 46, or 5.4%, to 805. The small-cap

Russell 2000 was down more than 17, or 3.6%, to 473 and the

S&P 500 was slumping 28, or 2%, to 1384. Indices have gone one way only today on light volume, as investors stay on the sidelines ahead of Tuesday's

FOMC meeting.

"There are no rays of light and no rationale today," said Adam Wagner, president of

Wagner Hermann & Herbst

in Houston, adding that light volume is the "only saving grace" today. "When are the buyers going to step up?"

"There is not a lot going on, there's a lot of complacency out there," said David Baker, head of program trading at

Deutsche Bank

. "It seems like a lot of portfolio managers have had a tough time this year and are just taking a deep breath on the market."

You know things are bad when Cisco is unable to spread a little cheer. Despite a better-than-expected earnings report

last night and a handful of upbeat analyst comments, the stock was sliding 6%. Cisco has been under pressure this week after


ran a bearish story questioning the networking giant's valuation and strategy of growth through acquisitions

Many market watchers thought a solid report would relieve some of that pressure, but so far that's not the case. "I think this is more a market attitude at large" than anything more specific about the stock, said Wagner. "The money on the sidelines appears to still be there. What is it going to take for it to come in?"

Other networkers including




Redback Networks


were also headed south. 3Com was falling 9.8% while Redback was off 3.5%.



was moving fast on the downside, lately off 14.2%. This morning,

Salomon Smith Barney

downgraded the stock and cut earnings estimates, saying that although its long-term positive outlook on Motorola had not changed, it believed the assumptions behind its more optimistic view may not materialize. Salomon also mentioned that the loss of a major customer to

Nortel Networks


suggested that better-than-expected results in 2000 were unlikely.

Other wireless stocks were feeling Motorola's pain with



down 7.2% and


(NOK) - Get Report

off 7.8%. Even Nortel couldn't get a break despite its "major" new customer and lately was sliding 7.6%.

Wagner said just as the market was complacent with being so high a few months ago, it's doing the same thing on the downside. "This is almost like a psychological depression in the market, as if it's just too tired to do anything," he said. "That is almost the way it feels just sitting here." Wagner said he would like to see a rally on the heels of next Tuesday's rate news from the Fed, but also thinks the hesitation and stagnant feel could drag on if a tightening bias becomes the next investor focal point.


(INTC) - Get Report

was sustaining some injury, down 6.4%, after it said it would replace motherboards that have a defective memory component. The chipmaker said the problem caused some computer systems sold since last fall to reset, reboot or stall.

Most other chip stocks were taking it on the chin as well, with the

Philadelphia Stock Exchange Semiconductor Index

off 7.4%.

Applied Materials

(AMAT) - Get Report

was off 5.7%, while

Advanced Micro Devices

(AMD) - Get Report

was down 4.4%.

Abercrombie & Fitch

(ANF) - Get Report

was looking pretty ragged, off 9.2% after a number of analysts downgraded the stock this morning. Yesterday the clothing retailer warned about its second-quarter earnings outlook. Meanwhile, the retailing sector as a whole was on the upside, with the

S&P Retail Index

up 1.9%.

Champion International

(CHA) - Get Report

was a rare winner today, up 8.6% and on pace for a 52-week high as investors cheered on the bidding war between

International Paper

(IP) - Get Report

and Finnish papermaker



for control of the Champ.

After International Paper wrote up a $75-a-share bid earlier this morning, UPM-Kymmene came back with a $70-per-share all cash bid and lately said it is considering what to do next. International Paper was down 2.9%, while UPM-Kymmene was up 2.6%. The

Philadelphia Stock Exchange Forest and Paper Products Index

was lifting 2.1%.


Dow Jones Utility Average

was up 1.5% while the

Dow Jones Transportation Average

slid 1.6%.

The 10-year Treasury was the favored airline for today's flight to quality, up 11/32 to 100 5/32, its yield easing at 6.48%.

Market Internals

Breadth was horrible on moderate-to-light volume.

New York Stock Exchange:

766 advancers, 2,017 decliners, 555 million shares. 34 new 52-week highs, 77 new lows.

Nasdaq Stock Market:

715 advancers, 3,230 decliners, 866 million shares. 17 new highs, 166 new lows.

For a look at stocks in the midsession news, see Midday Stocks to Watch.

Herb on TheStreet: Was That Really a Blowout at Lernout?


Herb Greenberg

Senior Columnist

5/10/00 6:30 AM ET

Wednesday wallop:

Lernahooligan alert:

Lernout & Hauspie


, since you didn't ask, reported first-quarter earnings last night. Looked like a blowout, with earnings coming in at 19 cents per share vs. estimates of 15 cents. (So what if the estimates had been reduced in February, at the company's direction, from 22 cents.)

Receivables days outstanding leaped to 105 days from 86 days on flat sales from the prior quarter, suggesting (so say short-sellers) an overstuffed distribution channel. Receivables, in fact, rose by $24 million (or just shy of one-quarter of the entire quarter's revenue). Without the increase, "earnings would've been 3 cents per share," one short says.

Oh, and biz with


(MSFT) - Get Report

, supposedly Lernout's great partner, was down from the prior quarter to $7.3 million from $8.5 million. (You get that by comparing what the company disclosed in its year-end press release with what it disclosed on its conference call.) That's what happens, you could argue, when a big customer/partner becomes a big competitor.

Sales for the whole company, meanwhile, were flat sequentially, despite acquisitions that should've


revenue. Doesn't say much for the company's core biz. And for


investors are paying 100 times expected earnings?! Yep.

Prescription pitfalls:

An item in yesterday's

Herb's Hotline (check it out!) mentioned that even though


(CVS) - Get Report

, the drugstore chain, met analysts' estimates for the first quarter, some skeptics (read it: short-sellers) thought the quarter was a farce. A farce? That may have been an overstatement, but the point was this: "Anybody who looks below the surface sees inconsistencies," says one longtime CVS bear.

One of the most glaring was that at the end of last quarter, the company said it had a better handle on inventories and free cash flow (operating cash flow minus capital expenditures). It also had warned investors to expect seasonally low cash flow from operations in the first quarter.

Is a swing to a negative $145 mil from a positive $14.5 mil in the same quarter (and season) a year earlier really just seasonal? If the company is doing a better job at managing its working capital, as it has been claiming, should it really be


much worse off than last year?

According to CVS' financial folks, via a spokesman, cash flow from operations was down for a number of reasons, including inventories that were up slightly from expectations, and sales that were slightly softer than expectations. The company also says that it took the opportunity to do some forward buying of selected fast-moving drugs in advance of price increases. It also said payables were down due to a shift in more sales coming from the pharmacy, which has quicker payment terms. There were a few other reasons, but the bottom line, according to the company, was that "the cash-flow number is not unexpected or inconsistent with the normal trends in our business."

For the full year, in fact, the company says it's on track to show "a minimum" of $300 mil in free cash flow; last quarter it was a negative $286 mil.

Imagine that ... guaranteeing a number with seven months left in the year. Never have figured out how they (meaning so many companies) do that!

No, not more Salt(on):

Yes, when it rains it pours (thank you,


) but



10-Q was filed late yesterday and, lo and behold, its provision for doubtful accounts (a subjective number) fell to 5.4% from 6.5% of receivables from the prior quarter -- and from 10.6% in the year-earlier quarter. That's the lowest it's been in eight quarters, and it fell just when you may have expected it to rise, because the company is adding so many more (down the food chain, so to speak) outlets for its products. (The more outlets, you would think, the more chances to get stiffed.)

Had the company held the provision steady at 6.5%, short-sellers say its most recent quarter, which beat expectations by 11 cents, would've beaten them by 6 cents; if it had been at 10.5%, it would've


estimates by 16 cents.

Gutenberg's revenge:

An item in yesterday's Hotline noted how

Computer Associates

(CA) - Get Report

had delayed its earnings release. That's bad news. How do you counter bad news? With press releases, lots of press releases, all bearing good news. Yesterday alone, the company issued 12 releases -- count 'em,


And its stock fell 1 to 45 7/8. Investors are wising up, I tell ya,

wising up!

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,