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TheStreet.com's MIDDAY UPDATE

July 19, 1999


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Market Data as of 7/19/99, 1:16 PM ET:

o Dow Jones Industrial Average: 11,201.93 down 7.91, -0.07%

o Nasdaq Composite Index: 2,844.35 down 20.13, -0.70%

o S&P 500: 1,410.07 down 8.71, -0.61%

o TSC Internet: 623.47 down 15.26, -2.39%

o Russell 2000: 461.71 down 3.55, -0.76%

o 30-Year Treasury: 91 00/32 up 1/32, yield 5.894%

In Today's Bulletin:

o Midday Musings: Earnings 'Logic' Can't Aid Indices
o Herb on TheStreet: Are Seagate's Parts Worth More Than Its Whole?

Also on TheStreet.com:

Wrong! Rear Echelon Revelations: The Show Goes On

Our TSC TV premiere may have been delayed, but Cramer gives a lowdown of what happened on the set.


Tech Savvy: Qwest v. 2.0: Starting All Over Again With U S West

Maybe, just maybe, Joe Nacchio does know what he's doing after all.


Mutual Funds: Morningstar May Have Bid a Premature Farewell to Its Natural Resources Fund

The category is doing quite well, and inflation may not be as dead as the fund-tracker thinks.


SiliconStreet.com: Introducing the Mighty Morphin' Net Exec

barnesandnoble.com's CEO exemplifies a wily hybrid of online smarts and bricks-and-mortar experience.


Dear Dagen: Jacob's Ladder to Fund Fame Is No Easy Climb

A look at how five other star managers fared on their own.


Midday Musings: Earnings 'Logic' Can't Aid Indices


Thomas Lepri

Staff Reporter

The standard tale of this earnings season is paradoxical. Strong reports have been breeding selloffs, because investors have already priced in the numbers, bidding stocks up to the point where they have nowhere to go but down.

But despite the general malaise among the market's major proxies, today's standout stocks aren't following that plot. Companies such as

Alaska Air

(ALK) - Get Report


Continental Airlines

(CAL) - Get Report


Delta Air Lines

(DAL) - Get Report

were doing what companies are supposed to do after positive surprises: going up. Along with


(CSX) - Get Report

-- which is in talks to sell its international container-shipping business, according to

The Wall Street Journal

-- those stocks were helping to send the

Dow Jones Transportation Index

up 36.24, or 1.1%, to 3438.11.

In the banking sector,


(C) - Get Report


J.P. Morgan

(JPM) - Get Report

were getting respectable pops after putting out some monster numbers this morning, helping to send the

Philadelphia Stock Exchange/KBW Bank Index

was lately up about 1.7%. Only

Wells Fargo

(WFC) - Get Report

was sticking to the bizzaro earnings script, lately off 0.7% after posting record profits.

Meanwhile, investors were bidding down earnings machines such as


(MSFT) - Get Report



(IBM) - Get Report

ahead of their post-market reports.

None of the individual stories can hide the fact that technology was slumping badly at midday. The

Nasdaq Composite Index

was off 25.53, or 0.9%, to 2838.95 on weakness in its big tech names. The Net wasn't mitigating the downward pressure, as

TheStreet.com Internet Sector

index was sloughing off 16.51, or 2.6%, to 622.22.


Dow Jones Industrial Average

was losing 31.97, or 0.3%, to 11,177.87. The broader

S&P 500

was off 10.43, or 0.7%, to 1408.35 while the small-cap

Russell 2000

was down 3.85, or 0.8%, to 461.41.

But Louis Todd, head of equities trading at

J.C. Bradford

, wasn't taking the selloff too seriously. He called today "a typical Monday in summertime. The market's going sideways. Volume's subdued." In the short term, Todd foresees today's pullback continuing after Softee and IBM report tonight. "We'll probably see some profit taking on that good news."

Another trader bluntly echoed that sentiment. "The market's doing what it should be doing -- a little profit-taking after a big run-up last week," he said.

As far as the interest-rate outlook, Todd wasn't particularly concerned about the


testimony that



Alan Greenspan's

will give on Thursday. Stocks are responding to earnings news right now, he said.

Pleasant Surprise

And, today's broad weakness notwithstanding, earnings have been looking extremely juicy. In a research note Friday,

Lehman Brothers

chief investment strategist

Jeffrey Applegate

said that this quarter's 8:1 positive-to-negative surprise ratio is making in 1999 the culmination in a decade of increasingly strong earnings.

Applegate raised his per-share S&P 500 earnings forecasts to $50.50 from $49.50 for 1999, and to $55.75 from $54.50 for 2000, based partly on an expectation of recovery in global markets. On that basis, he raised his year-end

S&P 500

price target -- a practice he called "a near ritual" -- to 1500 for this year, and 1650 for next year. Applegate reiterated that his money remains where his mouth is: 80% in stocks and 20% in bonds, with absolutely


in cash.

The 30-year Treasury was up 2/32 to 91 2/32, yielding 5.90%. (For more on the fixed-income market, see today's early

Bond Focus.)


New York Stock Exchange

trading, 360.8 million shares were exchanged while declining stocks led 1,751 to 1,016. In

Nasdaq Stock Market

activity, 532.4 million shares were exchanged while losers outpaced gainers 2,085 to 1,618.

Monday's Midday Watchlist

By Heather Moore
Staff Reporter

As noted above, recently sluggish airline names were flying high at midday, boosted by solid earnings reports.

Alaska Air was up 2 3/4, or 6.6%, to 44 5/8 ahead of a 3-for-2 stock split tonight and after this morning recording second-quarter earnings of $1.59 a share, topping both the 11-analyst

First Call

forecast of $1.35 and the year-ago $1.51.

Continental was up 2 5/8, or 6.8%, to 41 3/16 after reporting second-quarter earnings of $1.80 a share, beating the 12-analyst estimate of $1.73 but falling behind the year-earlier $2.11.

Finally, Delta was up 2 1/16 to 61 1/8 after posting fourth-quarter earnings of $2.40 a share, 9 cents ahead of the 11-analyst estimate and above the year-ago $2.26.

Mergers, acquisitions and joint ventures



was down 2 1/4 to 137 9/16 on news it's acquiring privately held

HotHaus Technologies

for $280 million in stock.

CSX was up 1 5/8 to 50 9/16 following a report in

The Wall Street Journal

saying the company is in talks to sell its international container-shipping business to Danish


for about $800 million.

CommNet Cellular


was up 1/2 to 30 5/8 after

Vodafone AirTouch

(VOD) - Get Report

said it's buying the company via its subsidiary

AirTouch Cellular

for $764 million. Vodafone AirTouch was off 2 3/8 to 211 7/8.

General Motors

(GM) - Get Report

was up 1/16 to 69 1/8 on word it's considering exercising an option to complete a takeover of


, the Swedish carmaker, by acquiring a second half of the company from Sweden's




(STMP) - Get Report

was up 7 1/2, or 18.7%, to 48 after striking a deal to provide computer-generated stamps and postage over

Office Depot's

(ODP) - Get Report

Web site.

U S West


was down 5/16 to 59 15/16 after accepting

Qwest Communications'


buyout offer. Also,

Global Crossing


was up 1 1/16 to 47 3/16 after saying it will proceed with its $12.9 billion purchase of


(FRO) - Get Report

, which was off 1 13/16 to 57 5/16.

Earnings/revenue reports and previews


(VIA) - Get Report

was off 5/16 to 44 7/16 after reporting second-quarter earnings of 8 cents a share, better than the 15-analyst estimate of 5 cents and moving up from the year-ago loss of 40 cents. Viacom also amended a previously filed registration statement with the

Securities and Exchange Commission

for a proposed 31 million-share IPO for


, representing approximately 17.7% of its shares. Viacom estimates the IPO price will be $16 to $18 a share.

In other earnings news:

Analyst actions



was up 4 5/8, or 15.5%, to 34 3/4 after

J.P. Morgan

started coverage with a buy and a price target of 55.


also started coverage with a buy.

Merrill Lynch

initiated coverage of the stock with a near-term accumulate and a long-term buy.



(T) - Get Report

was flat at 55 1/2 after

The Journal

reported it will start a new Internet company in partnership with Tim Robertson, the son of evangelist

Pat Robertson

. The site aims to give parents a way to screen out pornographic material, hate sites and other information unsuitable for children.


(F) - Get Report

was up 3/16 to 54 1/4 after

The Journal

said the company's assessing several initiatives to boost its stock price, including a possible divestiture of its auto-parts unit,

Visteon Automotive Systems




was up 2 3/16 to 116 3/16 after naming

Lucent Technologies


executive Carly Fiorina its new president and CEO. Lucent was down 2 3/16 to 76 1/4.

Herb on TheStreet: Are Seagate's Parts Worth More Than Its Whole?


Herb Greenberg

Senior Columnist

Opening the Seagate:

Welcome back to our mystery money manager whose

last comments here -- anonymous, as always -- explained why he thought

Apple Computer

(AAPL) - Get Report

was a buy when most of Wall Street thought it wasn't.

Now his favorite:

Seagate Technology


, which he owns and has no current intentions to sell.

His rationale: The parts are worth more than the whole.

Here's the breakdown: The stock, as of Friday, had a market value of $5.9 billion. However, the parts of the company include 34 million recently acquired shares of

Veritas Software

(VRTS) - Get Report

, $900 million in net cash, 6 million shares of



, around 20% of

Gadzoox Networks

, which is going public this week, an 18% stake in

Dragon Systems

and its majority interest in

Seagate Software


His estimate of the value of those parts: $6.3 billion, or $400 million


than the stock's current price, and that


include the company's principal business as the world's largest maker of disk drives. That business has been pummeled lately, largely as the result of a price war, started by Seagate, to grab more market share at the expense of current earnings, which fell below analysts' expectations in the recently reported fiscal fourth quarter.

Meanwhile, Seagate has been an active acquirer of its own stock this year, buying back 10% as of last March with plans to buy another 10%.

How does the company unlock value? That's what our mystery man wants to know. Seagate officials reportedly said on their earnings conference call last week that they are looking closely at options regarding the Veritas stock, acquired through last month's sale of a part of its software business to Veritas.

In our mystery man's dream world, Seagate would issue new Seagate convertible securities that would be convertible into Veritas common, using cash from the sale of the convertible to buy back more stock. "If they reduce shares from 220 million to whatever," he says, "imagine what would happen when they start making money again." (As profits are spread over a smaller share base, earnings per share rise.)

Will our mystery man be disappointed?

Seagate officials couldn't be reached.

Nitpicking Nike:

What does it mean now that, after a 10-year absence,


(NKE) - Get Report

has found the softer side of


(S) - Get Report

? Probably more to Sears than Nike. Nike and Sears parted ways when it was apparent the Sears image didn't jive with Nike's image. That relationship was rekindled last week, when Nike said it would supply Sears with shoes geared to women and families.

But some analysts believe the relationship with Sears is evidence that Nike's business is maturing and that it's pulling out all stops to drum up sales. "It's a combination of the fact that they do need volume, and the fact that they think they can finesse it" so that it will not hurt their image, says analyst Faye Landes of

Thomas Weisel Partners

. "That's not the easiest thing to do."

A Nike spokeswoman concedes biz is maturing, but says that the return to Sears is more a reflection of a change at Sears than of desperation at Nike.

Perhaps, but this warning: What may be good for Sears and what might be good for Nike is not likely to be good for





, which until now have had Sears to themselves.

Fun at Fox:




writeup on our first Fox show. However, as usual, he only told part of the story. Here's my rewrite, in JJC style, of an excerpt from Cramer's interpretation of the Fox show. My comments on his take are in bold:

JJC: So we all mixed it up. First we tackled the


tracking stock and Herb made me eat my words that all tracking stocks are bad because I admitted I would be a buyer of this one.

(Go back and read his earlier piece, from January, which was headlined , "Doing the Wrong Thing: Tracking Stock." He called them "spurious" creations of greedy investment bankers; nothing more than a sucker's play.)

JJC: The difference, as Dave Kansas,


editor-in-chief, pointed out, is that


(MSFT) - Get Report

management is so great that you want to buy any stock they issue, including a tracking stock.

(JJC hopes it's a good idea because he's loaded to the gills in Microsoft.)

JJC: Then we talked about whether


(KO) - Get Report

was a buy. Herb was positively inclined, which almost made me fall out of my chair. I talked about how these guys are like Brutus; the fault is not in the monsoons or bad weather or bad-smelling Coke or unrest, but in themselves. Management doesn't know what it is doing. (Of course, the Brutus thing came to me after the taping, but that's the way it is sometimes.)

(Of course he doesn't tell you that I said as long as a company has a strong brand and no product that can become technologically obsolete, it's likely to recover. If management is the problem, I said, fine: It'll be replaced. But Coke as a brand going bad? Remember when they were dumping on


(MCD) - Get Report not long ago? Same thing here. Then JJC pulled a wrinkled newspaper clipping of Coke's earnings out of his pocket and showed how they blamed it on silly externals like the monsoon. And I tell him that it's just like a short-term trader to look at a quarterly report and draw all kinds of conclusions. That's the difference between traders, like JJC, and investors. Yep, that's me, positive. And I don't hold a position!)

JJC: Finally, Dave talked about how senseless and stupid it is to try to follow what


is up to, in this case with its



position, because you really have no way of knowing that the firm is really doing. We all agreed.

(Yes, but what he doesn't tell you is that I point-blank asked him, on camera, what he would do if he discovered that Fidelity had sold all its AOL. He actually had to pause for a second -- OK, only a split second, if you can believe that -- and then he said -- he'd buy more!)

And that's ... the rest of the story. Hope to see you next week!

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 TheStreet.com on the FOX News Channel July 24! 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