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TheStreet.com's MIDDAY UPDATE

July 16, 1999



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Market Data as of 7/16/99, 1:00 PM ET:

o Dow Jones Industrial Average: 11,157.29 down 29.12, -0.26%

o Nasdaq Composite Index: 2,856.54 up 17.17, 0.60%

o S&P 500: 1,411.05 up 1.43, 0.10%

o TSC Internet: 641.12 down 8.59, -1.32%

o Russell 2000: 464.11 down 1.69, -0.36%

o 30-Year Treasury: 90 29/32 up 7/32, yield 5.887%

In Today's Bulletin:

o Midday Musings: Market Endures a Tough Slog Through an Uncertain Landscape
o Herb on TheStreet: Timing of Takeover Is the Latest in the Saga of Sabratek

Also on TheStreet.com:

Market Features: Argentina's Freak-Out Could Give Fed Pause

U.S. economic data will play the largest role in the Fed's decision-making, but Latin American instability could be a spur toward standing pat.


Wrong! Dispatches from the Front: Open Season on the OEX

Microsoft is the star of the options world today, but Cramer doesn't believe it will continue to rise and take the OEX with it.



Technical Forum: Put Big Bets Aside in This Nervous Market

Also, another look at Nike and more reader requests.


Internet: ISPs Try to Keep Customers Who Love 'Em and Leave 'Em

Richly valued Internet service providers are finding that attracting subscribers is the easy part. Keeping them faithful is another matter altogether.


Fixed-Income Forum: What's My Mother-in-Law Doing in That Tax-Free Bond Fund?

Given the facts, choosing a taxable bond fund is a no-brainer.


Midday Musings: Market Endures a Tough Slog Through an Uncertain Landscape


Heather Moore

Staff Reporter

Technology -- at least the big guys -- has been the real star of late, and today's no different. While the other major equity indices flailed in the red for much of the morning (albeit not all that violently), the

Nasdaq Composite Index

has perked its head above the flatline all day. Not long ago, the

S&P 500

joined the Nasdaq in positivity.

Most notably in techland,


(MSFT) - Get Report

was making its investors beam after a

Wall Street Journal

report said Mister Softee is close to creating a tracking stock for its

Microsoft Network

Internet unit. The stock was climbing 3.5% -- that's record territory -- on 28.2 million shares.

Tom Burnett, senior trading advisor at

Wall Street Access

, said today, being the monthly expiration of options on stocks and index futures, is an important day but a quiet one.

"Volatility is down under 20 -- it's a calm, quiet phase," the trader said, adding that many folks are waiting to hear what



Alan Greenspan

will say Thursday during his semiannual


testimony before Congress. "Puts are low priced, the VIX

Market Volatility Index

was over 60 last fall with all those concerns out of Russia and Latin America. Now it's at 19."

Burnett continued: "So I sense complacency. People are relaxed now that the bond rallied and we're way under 6%. They're feeling comfortable here. ... The market environment is good, but there's no hot story. We can't just make things up. I think we're headed for a correction but that could be months away. It's hard to predict these things."

As for earnings, he said "there's no rhyme or reason" to figuring out what investors' response will be to company earnings news. "And we got all the bad news early.


(KO) - Get Report



(G) - Get Report

already told us they would miss and so they had no impact when they reported. Even


(CAT) - Get Report

which missed second-quarter earnings estimates by 2 cents a share this morning is only down three-quarters of a point. It's all so counter-intuitive:

Texas Instruments

(TXN) - Get Report

which announced a 2-for-1 split last night rallied earlier but now it's down?" Cat was lately off 0.2% and Texan was down 0.7%.


Dow Jones Industrial Average

, meanwhile, was losing 32 to 11,154 after an earlier high of 11,194.90. Upside standouts were


(AA) - Get Report

, rallying on upgrades from

Morgan Stanley Dean Witter


Merrill Lynch


General Motors

(GM) - Get Report

; and

International Paper

(IP) - Get Report

. Leading on the downside were

American Express

(AXP) - Get Report






(MRK) - Get Report


Procter & Gamble

(PG) - Get Report


The aforepraised techtastic Nasdaq was jumping 17, or 0.6%, to 2856, below an earlier high of 2860.25. Along with Microsoft,

Sun Microsystems

(SUNW) - Get Report

was performing well.

TheStreet.com Internet Sector

index was giving back 8 to 642.

The broader S&P 500 was up 1 to 1411 while the small-cap

Russell 2000

was down 2 to 464.

The 30-year Treasury was up 10/32 to 91, yielding 5.90%. (For more on the fixed-income market, see today's early

Bond Focus.)

Market internals were weak. On the

New York Stock Exchange

, decliners were leading advancers 1,577 to 1,173 on 427 million shares. And the downs had the ups 1,907 to 1,728 on 635 million shares in

Nasdaq Stock Market

activity. Still, new 52-week highs were outpacing new lows 70 to 21 on the Big Board and 182 to 18 on the Nasdaq.

Friday's Midday Watchlist

By Thomas Lepri
Staff Reporter

Investors were bidding up Microsoft 3 5/16 to 97 3/4 ahead of its earnings report Monday. The usual Softee earnings optimism was getting an extra boost today from a

Wall Street Journal

report that the tech giant is closer to creating a tracking stock for its Microsoft Network properties; the paper wrote that Microsoft may make an announcement as early as next week.

Mergers, acquisitions and joint ventures

No one's very excited about the news that

Cyprus Amax Minerals




(AR) - Get Report

are combining in a $764.2 million stock transaction. Cyprus Amax was lately off 11/16, or 4.7%, to 13 7/8, while Asarco was down 11/16, or 3.6%, to 18 9/16. Cyprus Amax shareholders will get 0.765 shares of the new company, to be called Asarco Cyprus, for each share of Cyprus Amax they hold, giving them about a 64% stake in the new company. Asarco shareholders will exchange their stock for Asarco Cyprus shares at a 1-for-1 ratio. Not impressed,

Warburg Dillon Read

cut Cyprus Amax to hold from buy.

Earnings/revenue reports and previews

Air Products & Chemicals

(APD) - Get Report

was shedding 4 3/16, or 10.1%, to 37 1/8 after it warned that it expects to report third-quarter earnings of 48 cents a share, below the 12-analyst

First Call

outlook of 56 cents a share and down from the year-ago 63 cents.

Investors aren't selling too hard on Dow component Caterpillar's bad news today. The stock was off a scant 1/8 to 59 after the company said it earned 78 cents a share in its second quarter, 2 cents below the 20-analyst consensus and down from the previous year's $1.20. Caterpillar also said it expects 1999 earnings to be 20% to 25% lower than in 1998.

Charles Schwab


was sinking 2 11/16, or 4.9%, to 52 9/16 after it warned that its profit margins may shrink later this year. Schwab posted second-quarter earnings of 18 cents a share, a penny above the eight-analyst view and up from last year's 9 cents.

In other earnings news:


(G) - Get Report

was up 2 1/8 to 46 7/8 after last night posting second-quarter earnings in line with lowered analysts' estimates. The razor-blade maker earned 26 cents a share, matching the 13-analyst view but falling below the year-ago 33 cents.

Insurance firm

Horace Mann Educators

(HMN) - Get Report

was dumping 2 15/16, or 10.2%, to 26 after warning that its second-quarter earnings will be about 34 cents a share, 16 cents below the six-analyst call and slightly up from last year's 31 cents.

Mercury Interactive


was moving up 6 1/2, or 17.8%, to 43 3/16 after yesterday reporting second-quarter earnings of 18 cents a share, 2 cents on top of the 11-analyst vision and up from last year's 10 cents. The company also yesterday named its CEO and co-founder, Amnon Landan, to the additional post of chairman.

Newport News Shipbuilding


was up 1/2 to 31 5/8 after reporting second-quarter earnings of 55 cents a share, excluding one-time items, above the two-analyst estimate of 52 cents and up from the year-ago 45 cents.


(PCH) - Get Report

was up 1/4 to 41 7/8 after posting second-quarter earnings of 33 cents a share, beating the three-analyst estimate of 30 cents, but down from the year-ago 35 cents.



was rocketing up 11 1/2, or 16.4%, to 81 1/2 on the heel's of yesterday's hot earnings report. The company said it earned 23 cents in the second quarter, a nickel above the 18-analyst view and up from the year-before 15 cents.

Seagate Technology


was slumping 3 3/16, or 10.6%, to 26 13/16 after yesterday reporting fourth-quarter earnings of 30 cents a share, 4 cents below the 11-analyst consensus and up from the previous year's 9 cents. Morgan Stanley started the disk drive maker with a cool neutral rating today.



was off 5/16 to 87 1/2 after posting second-quarter earnings of 88 cents a share, excluding nonoperating items, a penny ahead of the 14-analyst estimate and up from the year-ago 75 cents, excluding nonoperating items.


(VRTS) - Get Report

was up 5 3/8, or 10.1%, to 58 9/16 after it yesterday reported second-quarter earnings of 16 cents a share, 2 cents above the 17-analyst estimate and up from the previous year's 8 cents a share.

Offerings and stock actions

Efficient Networks


isn't done yet. The high-speed DSL firm was lately up a further 10 3/4, or 21%, to 61 7/8, the day after it rocketed about 240% in its trading debut.

Paradyne Networks


was booming up 35 1/2, or 209.1%, to 52 1/2 in its first day of trading. Lead underwriter

Donaldson Lufkin & Jenrette

priced Paradyne at $17 a share yesterday, above its $14-$16 pricing range.

Analyst actions

Alcoa was up 1 3/16 to 61 15/16 after Morgan Stanley upgraded it to strong buy from neutral.


(FNV) - Get Report

was falling 3 15/16, or 7.5%, to 48 1/2 in the face of another downgrade, this time from

J.P. Morgan

, which cut the company to long-term buy from buy. Yesterday

BancBoston Robertson Stephens

cut Finova to long-term attractive from buy on concerns over the financial services firm's profit margins. Finova reported second-quarter earnings of 83 cents a share yesterday morning, in line with the 17-analyst view and up from the previous year's 68 cents.


Gains from Net deals can disappear as quickly as they come.



was giving back 2 9/16, or 10.3%, to 22 5/16 after racing up 19% yesterday after it said it will put together an audiobooks channel on the Microsoft Network site



It's not clear why

GlobeSpan Semiconductor


was clambering up 6 7/16, or 11.1%, to 65 3/4. But there it was, clambering nonetheless.

Herb on TheStreet: Timing of Takeover Is the Latest in the Saga of Sabratek


Herb Greenberg

Senior Columnist


Timing is everything:

Normally it wouldn't be worth writing about something as small as



recently announced acquisition of a miniscule privately held consulting firm called

Strategic Reimbursement Services

, or SRS.

It's the latest in a string of acquisitions as Sabratek,

no stranger to this column, expands away from its original business of medical infusion pumps. What makes the acquisition so noteworthy is that it was done on the day before the end of last quarter (end of June), and the press release then only referred to the company as SRS, not by its full name. And unlike other recent transactions, it didn't say how much Sabratek was paying, leading any investor (and certainly short-sellers) to figure it was a nothing of a deal.

That was before last Friday when Bob Gienko, CEO of SRS, filed a 13-D showing that he had acquired 965,454 shares of the company for an 8% stake. That meant it was a $20 million deal. Then, on Wednesday, Sabratek filed an 8-K with the


with more details -- showing that it paid for the company with 1.6 million shares, putting the value in excess of $30 mil.

The rub: If the company


makes its quarter or beats it by a penny or two, skeptics -- and there are skeptics (I've talked to at least one short-seller) -- will figure the company decided to do the deal when it did the deal to make its quarter.

CEO Shan Padda says that wasn't the case. He adds the deal had been in the works since February, but didn't say why it was completed when it was. He says there was no conscious decision not to use SRS's full name or to exclude other details.

What kind of earnings does SRS have? At first Padda told me they could be found on a

Dun & Bradstreet


report. However, D&B doesn't have earnings for SRS. Padda then said the deal will be neutral to slightly accretive. (In other words, it'll drop a few pennies to the bottom line.)

Why should any of that matter? Because when a company is trading at 75 times trailing earnings and 35 times forward earnings, there's not much room for error. Making earnings


of an acquisition isn't what Wall Street usually wants to hear. Of course this is the same company that missed its last quarter, but judging by the stock's performance since then (it has risen nearly 100%), even this news isn't likely to pierce Sabratek stock's armor.

Hooray for Hollywood:

A few weeks ago, when William H. Baumhauer quit as president of

Planet Hollywood



The Wall Street Journal's

Richard Gibson did his usual gonzo job of coverage. The best part was a quote by CEO Robert Earl, who has presided over Planet Hollywood's rise


fall. Asked why Baumhauer quit, he referred to the recovery strategy and said: "Two leaders don't work on this. The initiatives to be carried out are particularly specialist to what I do."

Huh?! Isn't Earl the guy who ran Planet Hollywood into the ground? Why should anybody think Earl can bring it back to life? I asked the question of Earl, via an email to his handler (as is their policy) and never heard back.

Open access:

Was watching


David Faber, clearly one of TV's best biz journalists, with a report on open access to the Internet. He was interviewing

Liberty Media's


John Malone, whose parent --


(T) - Get Report

-- plans to provide Internet service over cable. At issue is whether cable companies should open their cable to rivals like

America Online


. America Online obviously believes they should. AT&T obviously believes otherwise -- at the least, AT&T wants users to pay. That approach prompted Malone to tell Faber, "Try to get to



if you're an AOL customer."

It just so happens that I was at my PC with my AOL up and running, so when I saw the clip, I went to the top of the AOL screen, typed in http://www.yahoo.com, and, wouldn't ya know it, in a second Yahoo! popped up. No muss. No fuss. Give it a try sometime, John.

Reader revolt:

"I just hope you will be 'man enough' to eat an appropriate amount of crow when the facts down the line show how incredibly wrong you were regarding

Stewart Enterprises'


future," writes

Jerry Markovich

. "Always swinging for the fences" invariably goes hand-in-hand with a high strikeout rate.

Actually, my batting average is public and for all to see. Every six months

I publish a report card regarding companies mentioned aggressively in this column. That means every six months I fess up to what I did right and what I did wrong. That means every six months I eat crow and/or take accolades. That's what's called accountability.

Speaking of which, the last report card failed to mention one of this column's worst failures so far this year:

questioning whether



was overhyped and its stock overcooked. So far: Wrong!

Meanwhile, in response to reader revolt, Tom V.writes:

"Hey, some of us do support you and your right to say what you think as long as it is supported by facts. We think the emotional behavior and emails of the (fill in the blank) idiots is inappropriate and, well, just plain idiotic. How about mentioning us (not me by name, I mean the group)? Not all your readers are mentally disturbed and unaccountable for their choices. Well, I am disturbed but I try to keep it to myself."

Tom, thanks. Truth be known: With the exception of those rare days when the Hostile React-O-Meter is spinning out of control, the Appreciation-O-Meter is spinning on daily. It should go without saying (if somehow a response fell through the electronic cracks): Muchas gracias. (Whaddaya want? I grew up in Miami.)

Finally, Iomega insanity:

Why did



stock and fundamentals do so poorly when its


did so well?


Joe Nocera delivers the best explanation in the current issue. A must read for all stock cultists.

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.

Catch the premiere of TheStreet.com on the FOX News Channel July 17! Join host Brenda Buttner and TSC regulars like Jim Cramer, Herb Greenberg and Dave Kansas. Saturdays at 10 a.m. ET and again on Sundays at 1 p.m. ET.

Copyright 1999, TheStreet.com