July 7, 1999


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Market Data as of 7/7/99, 1:04 PM ET:

o Dow Jones Industrial Average: 11,103.15 down 31.97, -0.29%

o Nasdaq Composite Index: 2,730.94 down 5.84, -0.21%

o S&P 500: 1,387.48 down 0.64, -0.05%

o TSC Internet: 649.12 down 16.18, -2.43%

o Russell 2000: 453.75 down 2.80, -0.61%

o 30-Year Treasury: 88 23/32 down 14/32, yield 6.068%

In Today's Bulletin:

o Midday Musings: What a Waste: Earnings Warnings Drive Stocks Into the Red
o Herb on TheStreet: Has IDT Been Making Loans to a Company That Doesn't Technically Exist?

Also on

Europe: The Anglo File: Online Auctioneer QXL Uses Euphemism for IPO

If it goes public, the company will be the U.K.'s second-largest Internet outfit, behind Freeserve. True Value


man in the valley takes a look at the valuation gap between a Net-stock wonder and its merely successful competitor.

Internet: The Ax: Henry Blodget vs. the Internet Queen

Since 1995, Mary Meeker has reigned unchallenged as the top Internet analyst. Merrill Lynch's Henry Blodget aims to change that.

Europe: Tartan Technology: Let the Games Begin

Scottish games software firms are booming. Their next step is to get beyond the 'Scottish' qualifier and go global.

Dear Dagen: Dear Dagen: Readers Suggest Undiscovered Small-Cap Managers

Some you've probably heard of. All are worth knowing about.

Midday Musings: What a Waste: Earnings Warnings Drive Stocks Into the Red


Heather Moore

Staff Reporter


yesterday's selling on the close, a few stocks today have taken to selling on the news. Sort of.

Despite beating second-quarter earnings estimates by 2 cents a share,

Dow Jones Industrial Average



(AA) - Get Alcoa Corp. Report

was down 4%. And earnings warners

New Era of Networks

(NEON) - Get Neonode Inc. Report


Waste Management


were getting destroyed.

Hit by selling

in anticipation

of stellar quarterly earnings,



-- which rallied 21.3% last week and is scheduled to release second-quarter earnings after today's closing bell -- was off 4.6% at 167. While the

First Call

estimate calls for earnings of 8 cents a share, the whisper number for Yahoo! is 10 cents or 11 cents.

Over the past year or so, Yahoo!'s earnings have marked something of a near-term top for its Internet kinsfolk. If that phenomenon were to appear this time around, Yahoo! -- far from its all-time closing high of 207 -- would top the sector at a lower high. Would that be a bearish indictor for Internets?

Richard Dickson, technical analyst at

Scott & Stringfellow

in Richmond, Va., said the Yahoo! indicator won't be in effect this time around. Sure, he says, the company's earnings matter, but the dot-coms are set to fly skyward whether or not it beats its number.

Dickson, who dismissed yesterday's selloff and today's moderate negativity as understandable profit-taking, sees the overall market -- led by semiconductor equipment, networking- and communication-equipment stocks and other tech names -- moving higher. Watching Internet Sector

index, he said he sees a lot of buy signals for the sector and that after being down, momentum for Internet stocks is back up and will be for the next three to six weeks. Not today: The DOT lately was down 3% to 645.40.

"Of course, the Internets could go off into their own world -- we certainly can't discount that possibility," he said. "But if we have normal conditions, I think the Nets will move with the market with continued strength." He expects investors to continue to prefer top-tier Net names such as Yahoo! and

America Online


and regard lesser-known names with a lot of downside risk. "With some of these

lesser-known Internet names, we're talking about going away -- not just on vacation but forever."

Gregory Nie, chief technical analyst at

Everen Securities

in Chicago, agreed, maintaining Internet stocks will participate in what he predicts will be a broad market rally no matter what Yahoo!'s earnings are. Speaking of the stock, he said: "First of all, it's a neutral chart, not a bearish chart. It's been in a broad trading range since the beginning of the year. It's plausible

the earnings will mark a near-term Internet top if the earnings disappoint or there's some sort of management discussion, but this chart does not show that the stock is destined to fall. The technical underpinnings are decent -- strong enough to absorb a hit."

Dickson said he is a little worried about mid-August, though, when high valuations might mark a market top. He said he's been watching the dividend yield/Treasury bill yield ratio. If that ratio gets worse, he said, valuations will be in "nosebleed territory" and the perceived risk will be too high.

As for breadth, Dickson differed with those technical types calling for sustained 2-to-1 advance/decline ratios to signal a leg upward and said he's pleased with recent positive numbers. "It'd be nice to see, you know," he said about a 2-to-1 A/D ratio. "It'd also be nice to have a date with

Cindy Crawford

. ... I remember when the A/D line stunk and the market moved up despite it."

Today's market internals were negative. On the

New York Stock Exchange

, decliners led advancers 1,533 to 1,159 on 436 million shares. The downs had the ups 1,955 to 1,716 on 601.1 million shares in

Nasdaq Stock Market

activity. But new 52-week highs were outpacing new lows 52 to 36 on the Big Board and by 98 to 15 on the Nasdaq.

After falling as low as 11,097.45 and rising as high as 11,147.15, the Dow lately was down 44.64 to 11,090.48. As Alcoa served as the weakest among the gilded 30,


(CAT) - Get Caterpillar Inc. Report



(GE) - Get General Electric Company (GE) Report


International Paper

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

stood out on the upside.

The broader

S&P 500

was down 2.59 to 1385.53, and the small-cap

Russell 2000

was down 2.88 to 453.67.

The tech-driven

Nasdaq Composite Index

was down 11.37 to 2725.41 after an earlier intraday high of 2746.96.

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

, climbing 2.5%, was notably on the upside.

The 30-year Treasury was down 16/31 to 88 22/32, yielding 6.078%. (For more on the fixed-income market, see today's early

Bond Focus.)

Wednesday's Midday Watchlist

By Thomas Lepri
Staff Reporter

Inhale deeply. That isn't the fetid streets of Manhattan you're smelling -- it's Waste Management's earnings warning. The stock was plunging 19 15/16, or 37.3%, to 33 5/8 after the company warned last night that its second-quarter earnings would be a malodorous 67 cents to 70 cents a share, missing the 14-analyst forecast for 78 cents but above the year-ago 41 cents. The company blamed lower-than-expected North American revenue, and said the revenue shortfall will hurt future quarters, too.

Trash-sector buddy



was joining Waste Management in the dumps, lately off 4 9/16, or 24.2%, to 14 1/4 after yesterday posting third-quarter earnings of 30 cents a share, 2 cents under the 12-analyst view and up from last year's 20 cents.

Mergers, acquisitions and joint ventures


Single White Female


The X-Files




. The housewares manufacturer was off 3 1/16, or 9.9%, to 27 13/16 after its board yesterday unanimously rejected the


takeover offer from rival


(LBY) - Get Libbey Inc. Report

, this one worth about $637 million, or $37.50 a share. Oneida issued a rather spooky statement calling the bid "illusory," and said that Libbey's desire to negotiate amounts to "nothing more than efforts to obtain access to Oneida's confidential and proprietary business information."

TheStreet Recommends

U.S. fund-management firm

Pimco Advisors


was up 4 1/16, or 13.7%, to 33 5/8 on a

Wall Street Journal Europe

report that German insurance colossus


is in talks to buy all or part of the company in a deal worth as much as $5 billion. Allianz has declined to comment on the report.



was off 5/16 to 17 9/16 after setting an alliance with



to collaborate on a number of Internet-based initiatives, including the development of high-speed content to be deployed over RCN's fiber optic network.

Earnings/revenue reports and previews

Aluminum manufacturer and Dow component Alcoa posted second-quarter earnings of 65 cents a share, 2 cents above the 16-analyst consensus and up from last year's 62 cents. But no one seems to care much, as Alcoa was lately sinking 2 9/16 to 61 3/16.

HCR Manor Care

(HCR) - Get Hi-Crush Inc Report

was falling 4 3/8, or 17.9%, to 20 1/8 after it said last night that it expects to earn only 30 cents to 35 cents a share in its second quarter, well below the 14-analyst call for earnings of 44 cents a share, and close to last year's 32 cents. The company said the shortfall was partly due to delays in a January agreement to sell 28 assisted living residences to

Alterra Healthcare


for $200 million. The company said that it had yet to sell seven of those facilities.

NCI Building Systems

(NCS) - Get Cornerstone Building Brands Inc Report

was dropping 2 7/8, or 12.5%, to 20 1/16 after it warned yesterday that its third-quarter earnings will be 68 cents to 70 cents a share, below the seven-analyst consensus for earnings of 82 cents and up from last year's 58 cents.

Investors were getting Mesozoic on New Era of Networks today, sending the business software maker down 22, or 53.8%, to 19 after it last night warned it will report a second-quarter loss of 12 cents to 22 cents share, significantly below the nine-analyst prediction for a repeat of the year-ago profit of 12 cents.

Sterling Commerce

(SE) - Get Sea Ltd. (Singapore) Sponsored ADR Class A Report

was plummeting 11 1/8, or 31.1%, to 24 5/8 after it warned that its third-quarter earnings will be 38 cents to 39 cents a share, below the 41-cent 22-analyst view.

Yahoo! was kerplunking down 8 to 167 ahead of its second-quarter earnings report, due after the close today. Yahoo! inked a broad marketing deal with U.K. pay-TV broadcaster

British Sky Broadcasting


. The deal covers Yahoo!'s U.K. and Ireland properties.

Analyst actions

Concur Technologies


was advancing 6 3/4, to 20.3%, to 40 1/2 after


analyst Eric Upin raised it to strong buy from buy. Upin also set a 12-month price target of 60 for Concur.



was popping 7/8, or 5.1%, to 17 15/16 on news that it opened its online music store today, celebrating the launch with -- ooh! ooh! -- a free download of


"Deep Water."

Cox Communications


was moving up 1 1/2 to 38 1/16 after it said it will exchange its $2.85 billion in AT&T stock -- 50.3 million shares -- for AT&T cable TV networks with 495,000 customers. Cox said that it will also get $750 million in "other consideration, including cash" under the deal.

ADRs of



were sliding 3 1/4, or 9.7%, to 30 1/4 on news that President and CEO Sven-Christer Nilsson resigned in the face of the board's criticism over the company's slow restructuring process.



was falling 2 3/8, or 8.2%, to 27 5/16 on a

Wall Street Journal

report that the

Securities and Exchange Commission

sent the Irish drug firm a comment letter in January raising questions about its accounting procedures. Elan said it expected the SEC inquiry to be resolved in the next couple weeks.

last month

explored the accounting issues at Elan.

And finally, good comedy has many layers.

J2 Communications


, owner and licenser of the

National Lampoon

name, was rocketing 6 3/4, or 91.5%, to 14 1/8 after announcing yesterday the hilarious news that it will soon unveil "the official portal site for comedy on the Internet." Investor Daniel Laikin told

Dow Jones Business News

, "If you look at this company as an Internet play, it should be a $120 to $150 stock." Along with a partner, Laikin holds a 21.9% stake in the company, which has a float of less than a million shares.

Herb on TheStreet: Has IDT Been Making Loans to a Company That Doesn't Technically Exist?


Herb Greenberg

Senior Columnist

You can't help but wonder who or what to believe when trying to match documents with disclosures at



. IDT bills itself as "a leading emerging multinational carrier" with businesses that range from marketing prepaid calling cards and providing long-distance services for other carriers to transmitting phone calls over the Internet. Its


Internet unit, in fact, is in the process of being spun off to the public as a separate company.


Lermer Overseas Telecommunications

, a private telecommunications holding company with close ties to IDT. A look at those ties raises the question of whether publicly traded IDT lent money to a company that apparently does not technically exist.

Stay with me as we walk through this.

The "Lermer" in Lermer is Simon Lermer, a close business associate of IDT founder and CEO Howard Jonas. Jonas' sister, Joyce Mason, who is also IDT's general counsel, actually filed Lermer Overseas' original incorporation documentation in 1993. Simon Lermer once served as a director of IDT and helped Jonas start what is now IDT, according to IDT President James Courter, a former New Jersey congressman and onetime Republican New Jersey candidate for governor.

IDT isn't the only link between Simon Lermer and Howard Jonas. Simon Lermer helped Howard Jonas start a publishing venture,

Jonas Publishing

. IDT Prez Courter says Lermer still acts as an adviser and consultant to Jonas' publishing activities; he even has a desk there.

The relationship hasn't been a one-way street. IDT fed biz Lermer's way to the tune of $2.1 million in fiscal 1996 and $2.4 million in fiscal 1995, according to IDT public filings. And just last year, the filings add, IDT provided Lermer Overseas with a $25 million revolving line of credit at the attractive rate of 5%.

Here's where the story gets sticky: The credit line to Lermer was dated May 1998. But according to the New York secretary of state, Lermer Overseas was dissolved in September 1997 for failing to pay the state franchise tax.

That's not all: According to

Dun & Bradstreet

, as of April 1998, Simon Lermer was merely vice president of Lermer Overseas. The president, D&B said, was Howard Bolter. Could they have meant Howard Balter (with an "a" instead of an "o"), who until recently was chief operating officer of IDT and is currently CEO of Net2Phone? (Reminder: Net2Phone is the Internet unit of IDT.) Net2Phone's S-1 IPO filing says nothing about Balter's being involved with Lermer Overseas. However, according to a February 1994 contract obtained by this column, Balter


identified by Lermer as its vice president and principal contact.

Contacted yesterday, Balter said he hasn't had anything to do with Lermer since it was set up. "I have not been involved with the company," he said. "I think it must be a mistake." Dun & Bradstreet, however, says it relies on information provided by companies and usually contacts companies twice a year.

So, who


run Lermer Overseas? Courter, IDT's president, says Lermer's current CEO is Nissim Crespi, who lives in Israel. He adds that IDT reviews Lermer's financials monthly, but he doesn't know how many people work at Lermer, which he says has "teams of people in the field" for its principal business of routing international telephone traffic to long-distance carriers.

Why didn't it pay its taxes to New York? Courter says he suspects it was an "inadvertent" error by a company that is run by "a group of technical people" who hadn't paid attention to such minute details as incorporation papers. "IDT didn't know they were unprofessional in keeping up-to-date records," he says. "And we will be contacting Lermer

with the demand to reinstate its charter; otherwise we will call the loan."

Simon Lermer's side of the story? Hard to say; he couldn't be located. Courter says he tends to "travels a lot." A call to a Manhattan phone number for Lermer Overseas provided by Dun & Bradstreet rang at the office of an attorney. I left a message. A call to the telephone directory for Simon Lermer in the Bronx, N.Y., rang to the office of another attorney. A call to a referral number that one of my sources had for Lermer (a New Jersey number that is one digit off from IDT's) rings at Jonas Publishing.

Twice last week, the people answering the phone at Jonas said they hadn't heard of Simon Lermer. Today, a different receptionist at the same number said Lermer hadn't arrived, but was expected, and put me into his voice mail. (I left a message; if he or the attorney returns my calls, I'll provide the comments in a future column.)

I also called IDT and punched Simon Lermer's name into the company's automated phone directory. It rang (what a surprise!) at the office of the same attorney who was listed in D&B for Lermer Overseas.

More on this saga when (and if) it unfolds.

Short Positions

Lernahooligan alert:

Confirming this column's earlier

reports, Tom Doherty, one of the top financial execs of

Lernout & Hauspie


, has left the company. Doherty was the contact best known to Wall Street. Lernout tried to put a positive spin on the story this morning, saying that it was strengthening its financial position. Doherty, who had been senior VP of finance, left to rejoin a firm that specializes in turnarounds and interim management.

Time will be the ultimate arbiter.

Sifting through the garbage:

Tuesday's warning by

Waste Management


that its second-quarter earnings will miss analysts' estimates came as a surprise to everybody, it appears, but company insiders. Bob Gabele, director of insider research at

First Call/Thomson Financial

(and a columnist for


), muses that he spotted record insider selling at the company in May, when 13 insiders shed more than 1 million shares at prices from $51.74 to $56.41. The sellers included President and Chief Operating Officer Rodney Proto, who sold 25% of his holdings. At last check, the stock was off 17 3/8, or 32%, to around 36 3/16. A spokeswoman wasn't immediately available for comment.

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.

Get in the trenches with James Cramer... Invest a cool $500,000 without the risk - register for TSC's Investment Challenge and play for prizes, including a trip to NYC and a morning with James Cramer! Pre-registration - June 21. Game begins - June 28.

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