Publish date:



June 22, 1999

Phillips Publishing

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Market Data as of 6/22/99, 1:00 PM ET:

o Dow Jones Industrial Average: 10,761.21 down 54.77, -0.51%

o Nasdaq Composite Index: 2,625.34 down 4.94, -0.19%

o S&P 500: 1,344.91 down 4.09, -0.30%

o TSC Internet: 597.53 up 3.02, 0.51%

o Russell 2000: 449.38 down 0.06, -0.01%

o 30-Year Treasury: 88 26/32 down 18/32, yield 6.065%

In Today's Bulletin:

o Midday Musings: Quick Rise in Stocks Slows in Take-a-Break Session
o Herb on TheStreet: The Futile Exercise of Trying to Put a Rational Value on Rambus

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The Chartist: When Bears Turn Bullish

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Dear Dagen: Dear Dagen: How Can I Uncover More About a Fund Manager's Background?

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Midday Musings: Quick Rise in Stocks Slows in Take-a-Break Session


Brian Louis

Staff Reporter

Stocks were a bit on the squishy side early this afternoon, as blue-chips paced major market averages on the downside while the tech sector was taking a well-deserved breather.

The blue-chip

Dow Jones Industrial Average

was softer, but off its lows. It was down 64, or 0.6%, to 10,752. The Dow, weighed down the most by its cyclical components, had traded as low as 10,713.72 before coming off that level.


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was the biggest drag on the index.

Cyclicals in general were getting beaten up a bit today, noted Scott Curtis, senior equity trader at

Brown Brothers Harriman

. The

Morgan Stanley Cyclical Index

was off 1%. Curtis pointed out that since last week's release of the

Consumer Price Index

report, there's been more of a rotation back into tech stocks.

The weakness in stocks was blamed in part on squishiness in the bond market and that stocks were just taking a break after their recent run-up.

Treasuries were modestly lower. The 30-year bond was lately down 15/32 to 88 29/32, yielding 6.06%. (For more on the fixed-income market, see today's early

Bond Focus.) Internet Sector

index was up 3, or 0.5%, to 598. In Net news,

data out of

Media Metrix


said Internet usage rose 1.3% in May from April, reversing April's decline.


S&P 500

was down 5 to 1344. The

Russell 2000

was unchanged at 449. E-Finance Index

was up 27/32, or 1%, to 86 5/8, as it makes its debut today on the

American Stock Exchange

. The index tracks the activities of online brokers, online banks and online-transaction companies. The ticker symbol is XEF. Options on the index will be available for trading later this summer on the Amex. Historical data indicate the index would have risen approximately 180% since the beginning of 1999.


Nasdaq Composite Index

was down 8 to 2623. From the close on June 14 to early this afternoon, the Nasdaq Comp has risen roughly 9.3%.

Elsewhere in techland, the

Nasdaq 100

was down 0.3%, the

Morgan Stanley High-Tech 35

was down 0.7% and the

Philadelphia Stock Exchange Semiconductor Index

was down 0.3%.

Paul Rabbitt, president of

, said expectations of whopping earnings growth in the tech sector have driven the recent rally in the Nasdaq.

In tech, he said he likes semiconductors and some of the box makers, like


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




, for example.

As for Net stocks, Rabbitt said: "I think the Internet stocks should not be chased."

Rabbitt said he likes sectors in part where earnings revisions have been strong, like the industrial, energy and commodities arenas for example.

Rabbitt said he's been buying

Briggs & Stratton

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Brokerage stocks were weaker, returning some of yesterday's outsized advance. Estimate-beating earnings from

Lehman Brothers


failed to inspire the sector today, although brokerage issues have rallied sharply ahead of upcoming earnings reports. Lehman was down 4.3%. (Shocking that a brokerage firm outstripped Wall Street estimates, isn't it?)

Coming up on the brokerage earnings front:

Goldman Sachs

(GS) - Get Goldman Sachs Group, Inc. (GS) Report


Morgan Stanley Dean Witter


are both slated to report earnings this week.

As for market internals, on the

New York Stock Exchange

, decliners were leading advancers 1,575 to 1,195 on 403 million shares. On the Nasdaq, losers were beating winners 2,029 to 1,530 on 540 million shares.

On the NYSE, 67 issues had set new highs 52-week while 37 had touched new lows. On the Nasdaq, 80 issues had set new highs while new lows totaled 31.

On the Big Board,


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was most active, with 18.2 million shares changing hands. It was up 2 1/16 to 24 3/16.

On the Nasdaq,


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was most active, with 18.7 million shares changing hands. It was up 1/2 to 62 1/16.

Meanwhile, among other indices, the

Dow Jones Utility Average

was up 0.6%, the

American Stock Exchange Composite Index

was up 0.3% and the

Dow Jones Transportation Average

was down 0.8%.

Tuesday's Midday Movers

By Heather Moore
Staff Reporter

As noted above, Lehman Brothers was losing 2 9/16 to 57 3/4 after posting second-quarter earnings of $2.09 a share, smashing the 11-analyst

First Call

outlook of $1.68 a share but moving down from the year-ago $2.12. Lehman's move seems to reflect today's downward action in finance stocks more than any reaction to its earnings report. Among other brokerages,



was down 3.7%,

Merrill Lynch


was down 3.8%,

Donaldson Lufkin & Jenrette


was down 2.5%, Morgan Stanley Dean Witter was down 3.1% and Goldman Sachs was off 1.4%.


Ramp Networks

(RAMP:Nasdaq) was growing 3 1/2, or 31.8%, to 14 1/2 after

BancBoston Robertson Stephens

priced its 4 million-share IPO mid-range at $11. The company provides shared Internet access for the small-office market.


(SALN:Nasdaq) was faring less well in its debut, off 1/4 to 10 1/4 after

W.R. Hambrecht

priced 2.5 million shares at $10.50 each through a Dutch auction.




was hopping 4 1/4, or 30.2%, to 18 3/8 after two firms started coverage of the ISP yesterday.

In other news:



was up 2 5/8, or 5.7%, to 48 7/8 after last night

Abbott Laboratories

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agreed to acquire the company in a stock swap valued at $7.3 billion. Under the terms of the deal, each Alza share will be exchanged for 1.2 Abbott shares. Abbott said it expects to record a charge of $100 million in 1999 related to the deal and that it sees dilution of 3 cents a share in 2000 earnings. Abbott was down 1 3/16 to 43.


(KNL) - Get Knoll, Inc. Report

was up 1 3/4, or 7.1%, to 26 9/16 after last night agreeing to be acquired by

Warburg Pincus Ventures

and members of Knoll Management for $28 a share in cash.

Time Warner


was up 1 1/2 to 68 3/16 after

Merrill Lynch

named the stock its Focus One stock of the week.

Earnings/revenue movers

Cabletron Systems

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was down 1 9/16, or 9.9%, to 14 3/16 even after last night reporting first-quarter earnings of 4 cents a share, topping the 20-analyst estimate by 3 cents and moving ahead of the year-ago break-even results. The company also announced a strategic alliance with Compaq.


(SYX) - Get Systemax Inc. Report

was down 1 3/16, or 10%, to 10 11/16 after last night saying it sees second-quarter operating earnings of 18 cents to 20 cents a share, which would be behind the three-analyst call for 31 cents. In the year-ago period, the company earned 20 cents.

Herb on TheStreet: The Futile Exercise of Trying to Put a Rational Value on Rambus


Herb Greenberg

Senior Columnist

Tuesday Thud:

Just for fun:



(RMBS) - Get Rambus Inc. Report

closed in on the 12-month targets of some analysts when it topped 100. No big deal in a market where many, if not most, Internet valuations are considered way out of whack. Or in a market that has helped inflate

Micron Technology

(MU) - Get Micron Technology, Inc. (MU) Report

, despite every suggestion that the darling of DRAM's valuation at almost any point in recent years was more than out of whack. (Yep, the same Micron that has made yours truly look like a fool more times than I care to remember.)

So where does Rambus stand in the world of the out-of-whacked? One argument, posed by a longtime anti-Rambus rabble-rouser, goes like this: If Rambus gets 100% of the memory chip market over in the next year or two, and gets a royalty of 2% on each chip sold -- the high end of expectations -- you'd be looking at 2% (again, on the high end) of an estimated $10 billion market. That would be $200 million, or roughly one-tenth its current valuation.

Even if you applied


(INTC) - Get Intel Corporation (INTC) Report

current multiple of seven-times-sales you'd still come up short, and that's


deducting expenses (albeit low) and taxes (like any other company). "You can't justify that unless you think the whole DRAM market will explode, like some kind of nuclear strike in Korea," our skeptic says. "How is 1% or 2% worth 2 to 3 billion dollars" in market valuation?

Simple: market sentiment and momentum. Just as they drove Micron to unrealistic and unsustainable levels, so will they drive Rambus. "It's not like people are making rational judgements of Internet stocks, either," says

SG Cowen's

outspoken Drew Peck, who is just as likely to be negative on a company as he is positive. (In this case, he has a buy rating on the company; Cowen did not underwrite Rambus' 1997 public offering.)

In a nutshell, Peck sees it like this: The DRAM market is currently at the low point of its pricing cycle, and annualized, the DRAM market is twice the size of the number used by our skeptic (who based


estimate on Micron's sales). Peck also is looking for a DRAM shortage starting late next year, and he believes Rambus will be in the right place at the right time with the right (256-meg) chip. He also says critics don't take into account the fact that Rambus' logic chips that are bought by video game makers, which he figures add another 50% onto the projected sales figures.

He also believes Rambus could earn as much as $7 to $8 per share in 2001 or 2002, compared with 28 cents last year. He says his analysis assumes that Intel provides "unwavering" support for Rambus. Intel's chips, using Rambus technology, are expected to ship in September. (See my colleague Marcy Burstiner's excellent

coverage of Rambus for more detail.) If Intel backs away, he adds, "all bets are off."

In the meantime, our Rambus rabble-rouser argues, so is rational analysis.

Hate to sound like Cramer, but:

Pathetic is the best way to describe a

New Orleans Times-Picayune

story over the weekend regarding

Stewart Enterprises


, based in a New Orleans suburb.

Headlined, "Stewart Enterprises Believes Its Steady Pace of Expansion Will Lead to a Strong Future," the story paints a glowing picture of Stewart as the exception to the rule in an industry beset by problems. There are quotes from your typical bullish analysts saying how great Stewart is, how it doesn't need to be turned around because it isn't broken.

There was no mention in the story of balance sheet concerns or questions about the quality of Stewart's earnings. But whaddaya want? Reality is that the story is a classic example of hometown boosterism and the worst in parochial journalism. If it weren't for the fact that this story was written by a woman I'd say the good ole boys network was alive and well in Louisiana.

And, poorly timed, I might add: Monday

Banc of America Securities

analyst David Scharf sliced his earnings estimate on Stewart by a penny this year and a nickel next year. He cited one of the very reasons that was pooh-poohed by the


: concerns over the death-care industry's ability "to sustain its historical levels of funeral price increases." The stock fell 1 1/4 to 14 7/8.

And speaking of Stewart, an item here

last week said that

J.P. Morgan

analyst Joseph Chiarelli valued Stewart by not subtracting debt. Subtracting the debt, he was quoted as saying, would've resulted in higher multiples for various metrics (relative to his calculations), which in turn would have resulted in a higher valuation -- not lower.

To which he said on Monday: "You misquoted me regarding Stewart's valuation. What I said was that when I do a valuation computation without debt, I use a lower multiple to value the company than if debt is included. If debt is deducted in the computation, a higher multiple is used which usually results in a higher value."

On that note ... until we meet again.

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.

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