Publish date:

midday06-18-99

Author:

TheStreet.com's MIDDAY UPDATE

June 18, 1999

http://www.thestreet.com

Market Data as of 6/18/99, 12:59 PM ET:

o Dow Jones Industrial Average: 10,852.08 up 10.45, 0.10%

o Nasdaq Composite Index: 2,547.62 up 3.47, 0.14%

o S&P 500: 1,339.39 down 0.51, -0.04%

o TSC Internet: 563.50 up 7.77, 1.40%

o Russell 2000: 445.28 up 1.90, 0.43%

o 30-Year Treasury: 90 04/32 unchanged , yield 5.954%

In Today's Bulletin:

o Midday Musings: Indices Hold Steady as Triple-Witch Session Wears On
o Herb on TheStreet: *Extra* Iomega Blows Up. Besides Herb, Who Cares, Already?

Also on TheStreet.com:

Wrong! Dispatches from the Front: The Buffett Buffer

Cramer looks at how some companies interpret Warren Buffett's interest in them as a free pass to underperform.

http://www.thestreet.com/comment/wrong/757384.html

The Chartist: Rose-Colored Glasses

Helene Meisler's slightly disturbed by investors' current tendency to interpret everything as a bullish signal.

http://www.thestreet.com/comment/chartist/757251.html

Internet: Once Wary of Warehouses, Amazon Branches Into Bricks-and-Mortar Tributaries

The bookseller's distribution plans have it looking more and more like its big store-based rivals.

http://www.thestreet.com/tech/internet/754546.html

Retail: With a Growing Women's Line, Hilfiger Strives for Proper Fit

Some familiar with the company suggest its rapidly expanding women's clothes business may be hitting a few speed bumps.

http://www.thestreet.com/stocks/retail/757103.html

Fixed-Income Forum: What About That Other Kind of Floating-Rate Loan Fund?

TSC

captures the elusive facts about 'continuously offered' funds, which aren't exchange traded.

http://www.thestreet.com/funds/bondforum/757338.html

Midday Musings: Indices Hold Steady as Triple-Witch Session Wears On

By

Aaron L. Task

Senior Writer

After taking the high road for much of the week, stocks appear content to drift along in a languid pool of contentment today.

Stocks are again taking cues from the bond market, where

yesterday's stellar advance has stalled but hasn't retreated.

The price of the 30-year Treasury bond was unchanged at 90 5/32, its yield at 5.96%. (For more on the fixed-income market, see today's early

Bond Focus.)

A profit warning by

Gillette

(G) - Get Genpact Limited Report

and a downgrade of

Intel

(INTC) - Get Intel Corporation (INTC) Report

by

Morgan Stanley Dean Witter

provided prime excuses for a modest early reversal in major averages. But the tone had improved as lunchtime beckoned on Wall Street

The

Dow Jones Industrial Average

was up 3 to 10,844 after rising as high as 10,888.49 and then falling as low as 10,811.55. The

S&P 500

was down 1 to 1339 and the

Nasdaq Composite Index

was off half a point to 2544, but they were off morning lows of 1333.48 and 2524.81, respectively.

Showing strength throughout,

TheStreet.com Internet Sector

index was up 8, or 1.4%, to 563 following some positive comments by

Merrill Lynch

. With the majority of stocks on the rise, the

Russell 2000

was up 2 to 445.

"Bonds are holding up

and inflation fears are on the back burner," said Jim Herrick, managing director of trading at

Robert W. Baird

in Milwaukee. "I think the market is watching for any warnings on second-quarter earnings. You're seeing damage done to those stocks but you're not seeing a spillover effect, which indicates the market has a pretty good undertone."

Intel was down 5.9% on the Morgan downgrade but other chipmakers, such as

National Semiconductor

(NSM)

, were holding up pretty well, Herrick noted.

Stocks could get a lift at the close from today's triple-witching expiration, but the trader noted most of the "unwinding" is done during the course of the week.

In

New York Stock Exchange

trading, advancers were edging out declining stocks 1,450 to 1,344 on 560 million shares. In

Nasdaq Stock Market

activity, gainers were leading 1,941 to 1,535 on 588 million shares. New 52-week highs were outpacing new lows 61 to 25 on the Big Board and 68 to 21 on the Nasdaq.

Deja Vu to You, Too

Gillette was down 10.2% after saying

last night it expects to report about a 20% decrease in second-quarter earnings compared with a year ago. The 14-analyst estimate called for quarterly earnings of 29 cents a share vs. the year-ago 33 cents.

Donaldson Lufkin & Jenrette

,

Bear Stearns

, and

J.P. Morgan

responded with downgrades this morning.

A profit warning from Gillette in August 1997 was among the first signs heeded by Wall Street that something was rotten in Denmark (or, more accurately, Japan, Indonesia and Thailand). On

Sept. 16, 1998, when the company warned of a profit shortfall and announced a major restructuring, it didn't much ease investors' nerves still shaken from the 512-point selloff

Aug. 31.

But investors are taking this latest red flag from the consumer giant as just that, rather than a harbinger of hard times to come for most multinationals.

"This is no longer a market thing. This is a Gillette thing," said Hugh Johnson, chief investment officer at

First Albany

. "You've seen in first-quarter earnings reports some recovery in Latin America and Asia. Most expect the same and better in the second quarter. There's a least one notable exception and that's Gillette."

As for the market's muted reaction today, "it seems some early warnings have been isolated," Johnson said. "

Compaq's

(CPQ)

problems are not general personal computer makers' problems. They really are specific to Compaq. This is another example of the same thing."

'Now My Confidence Is Shaken'

Johnson, who is long Gillette, is "angry" at himself for "violating" his own rules.

"If a stock starts to break down the way this one has, I follow my sell discipline," he said. "I ignored it because the stock performed so well for so many years. I kept thinking they were going to have a return to days of old. Now my confidence is shaken."

Somewhat cynically, the fund manager said that when the market's confidence in a stock is shot and analysts are downgrading

en masse

, "it's usually a signal things are going to get better."

As for the bigger picture, the relative outperformance of small-caps and cyclicals -- Johnson calls them "pricing power" stocks -- such as

Caterpillar

(CAT) - Get Caterpillar Inc. Report

and

International Paper

(IP) - Get International Paper Company (IP) Report

is evidence of a "sea change from a period of declining interest rates and inflation to rising interest rates and inflation," he said.

Inflation probably isn't as troubling as the 0.7% increase in April's

Consumer Price Index

would indicate, "but it's not as good as unchanged in May," he said. "I think we're getting back to reality. Interest rates have been rising since of the first of the year. It takes time

but finally, someone woke up."

Going forward, "valuation is a much bigger issue" and "returns are going to be much more modest," the fund manager said.

Growth-stock giants such as

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

,

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

,

IBM

(IBM) - Get International Business Machines (IBM) Report

,

Microsoft

(MSFT) - Get Microsoft Corporation (MSFT) Report

TheStreet Recommends

,

MCI WorldCom

(WCOM)

,

Merck

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

and

Dayton Hudson

(DH)

remain core holdings at First Albany. But Johnson is trying to increase exposure in "mid- and small-cap stocks that meet our criteria," one example being

Willamette

(WLL) - Get Whiting Petroleum Corporation Report

.

Moreover, the fund manager has put between 7% to 8% of assets in so-called balanced accounts into depositary receipts tracking the

S&P MidCap 400

. (Often called "spiders," S&P depositary receipts represent ownership in a unit investment trust that holds a portfolio of common stocks that closely tracks the price performance and dividend yield of the corresponding index, according to

TheStreet.com's

glossary.)

"It gives me a diversified way of getting exposure to mid-cap, and I needed to do that inexpensively and fast while I'm looking for names," he said. "The most important thing is to be diversified."

And to stick to your discipline.

Friday's Midday Movers

By Heather Moore
Staff Reporter

As noted above, Gillette was down 4 13/16, or 10.2%, to 42 1/2 after last night warning it expects to report about a 20% decrease in second-quarter earnings compared with a year ago. The 14-analyst

First Call

estimate called for quarterly earnings of 29 cents a share vs. the year-ago 33 cents. Gillette said it sees quarterly sales increasing by a low-single-digit percentage, and blamed the warning on disappointing sales of its

Braun

, stationery and toiletries products. Today,

Donaldson Lufkin & Jenrette

cut the stock to market perform from buy.

J.P. Morgan

lowered it to long-term buy from buy and dropped its price target to 56 from 70. The firm also decreased its 1999 earnings estimate for the company to $1.27 a share from $1.35.

Bear Stearns

slashed Gillette to neutral from attractive.

Viant

(VIAN:Nasdaq) was up 9 5/8, or 60.2%, to 25 1/2 after

Goldman Sachs

last night priced its 3 million-share IPO top-range at $16 a share. The price range for the Internet services company's offering was raised to $14 to $16 from $10 to $12.

Elsewhere in new issues,

GoTo.com

(GOTO:Nasdaq), which operates an online marketplace that brings together consumers and advertisers, was up 10 3/16, or 67.9%, to 25 3/16 after DLJ priced its 6 million-share IPO top-range at $15 a share.

In other news:

Cutter & Buck

(CBUK)

was down 2 7/8, or 14%, to 17 7/8 after last night announcing a 1.7 million-share stock offering.

Intel was down 3 7/16, or 5.9%, to 54 1/2 after

Morgan Stanley Dean Witter

downgraded it to outperform from strong buy. Yesterday,

Credit Suisse First Boston

cut its fiscal 1999 earnings estimate on the chipmaker to $2.25 from $2.32 a share and to $2.55 from $2.65 for fiscal 2000.

Kmart

(KM)

was up 1 7/8, or 12.4%, to 17 1/16 after

Business Week's

Inside Wall Street column said the company is being eyed as an acquisition target by some big grocers, notably

Safeway

(SWY)

and

Kroger

(KR) - Get Kroger Co. (KR) Report

. Kroger recently bought

Fred Meyer

.

Lam Research

(LRCX) - Get Lam Research Corporation (LRCX) Report

was up 1 5/16 to 40 3/8 after Morgan Stanley Dean Witter upgraded it to strong buy from outperform and lifted its price target to 55 from 50.

National Discount Brokers

(NDB)

was down 2 3/4, or 6.9%, to 37 3/16 after last night saying that, in view of current market conditions, it will go ahead with its planned 2.6 million-share stock offering. Three days ago, the firm canceled the offering -- due to (then-)current market conditions.

Nextel Communications

(NXTL)

was up 2 1/4, or 5.5%, to 43 1/4 after

CIBC World Markets

pushed up the stock to strong buy from buy.

Rural/Metro

(RURL)

was up 1, or 12.3%, to 9 7/32 after the column said a management group appears to be moving toward taking the company private. The piece also said some investors specializing in leveraged buyouts have expressed interest in the company.

Earnings/revenue movers

Adobe Systems

(ADBE) - Get Adobe Inc. Report

was up 5 5/16, or 7.2%, to 79 3/16 after last night reporting second-quarter earnings of 70 cents a share, beating the 11-analyst projection by a nickel and moving ahead of the year-ago 41 cents.

Cotelligent

(CGZ)

was down 2, or 23.5%, to 6 1/2 after last night saying it sees a first-quarter loss of $13 million to $15 million, including a restructuring charge and a pretax goodwill writedown. The company, which did not provide per-share estimates, said it's experiencing a downturn in demand for its services which it believes is related to decreased investment in information technology infrastructures while companies analyze their Y2K compliance status. Today,

Prudential Securities

downgraded the stock to accumulate from strong buy.

MSC Industrial Direct

(MSM) - Get MSC Industrial Direct Co., Inc. Class A Report

was down 5 1/16, or 30.9%, to 11 5/16 after last night saying it expects to record third-quarter earnings around 18 cents a share, which would be below the 10-analyst forecast of 25 cents. The company, which earned 21 cents in the year-earlier period, cited a declining growth rate in May. Today, Prudential slashed the stock to hold from accumulate, Morgan Stanley Dean Witter dropped it to neutral from market outperform, and DLJ cut it to market perform from buy.

Nova

(NIS)

was up 2, or 9.4%, to 23 1/4 after last night saying its full-year 2000 earnings will come in around $1.48 to $1.52 a share, which would be below the seven-analyst estimate of $1.72. Meanwhile, the company said its fiscal 1999 earnings will be in line with analysts' expectations for $1.13 a share. Nova blamed higher costs for operating expenses, taxes and service delivery for the warning. The company also announced the repurchase of up to $250 million in stock.

Valley Media

(VMIX)

was down 6 1/16, or 27.9%, to 15 3/4 after last night saying it sees a first-quarter loss of 8 cents to 10 cents a share due to higher than expected warehouse moving expenses. The two-analyst estimate called for earnings of 2 cents vs. the year-ago loss of 25 cents.

Woodhead Industries

(WDHD)

was down 1 3/4, or 12.7%, to 11 15/16 after last night saying it sees third-quarter earnings coming in around 18 cents to 21 cents a share. The four-analyst estimate called for 28 cents vs. the year-ago 25 cents. Woodhead said sales for the industrial communications and connectivity segments of its business haven't met expectations.

Herb on TheStreet: *Extra* Iomega Blows Up. Besides Herb, Who Cares, Already?

By

Herb Greenberg

Senior Columnist

Don't forget to read this morning's regular edition of Herb on TheStreet.

The headline above came from the last line of one of

JJC's

many

dispatches today. (Sorry, I lost count of which one it was, and it's still early. Am I the only one who sometimes doesn't care about every twist and turn of the market?)

So, who should care, already? Who should care about this tired old name,

Iomega

(IOM)

, which this morning reported that it's laying off 450 people? Which reported this morning that its Jaz sales are lousy? (Surprise, surprise.) Which reported that its second quarter will fall short of analysts' break-even estimate and instead post an operating loss?

Who should care? Maybe not some trader who makes his living on eighths and quarters and sixteenths, as he daytrades in and out of whatever is or isn't hot at that particular moment. (Never mind that arrogance is an investor's worst enemy. I'll bet you dinner at a good restaurant in New Jersey that you-know-who probably missed

that

trade. Hoo-hah!)

Who should care? Certainly not the legions of investors who continue to buy the stock because, at 4, they think it's cheap. (Never mind that it still has a market value of $1 billion.)

Who should care? Certainly not Iomegans (better, yet, Iomidiots) like reader

Richard "Dick" Poenisch

. In an overnight email, before Iomega's warning this morning, he advised: "I really hope that you are way short on IOM and that you get your butt burned good and proper, again."

Who should care?

Every investor who thinks they've found the Holy Grail of investments.

Every investor who thinks a stock split will cause a stock to rise. (Remember Iomega when its stock, pre-split, was around 35? That was the high!)

Every investor should care, especially in this environment, because Iomega is the quintessential, if not original, Internet stock -- born, reared and kept alive longer than it ever should've by the lunacy of message boards. It sucked investors (and short-sellers) in, made some of them rich, but then spit many out penniless. (Yes, even the shorts.) Iomega will go down as the ultimate case study in investor psychology, investor arrogance and investor stupidity.

Who should care? Every investor who sometimes confuses brains with a bull market should care.

Even a certain trader I know.

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

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

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Copyright 1999, TheStreet.com