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midday08-05-99's MIDDAY UPDATE

August 5, 1999

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Market Data as of 8/5/99, 1:29 PM ET:

o Dow Jones Industrial Average: 10,727.33 up 52.56, 0.49%

o Nasdaq Composite Index: 2,536.25 down 3.75, -0.15%

o S&P 500: 1,306.68 up 1.35, 0.10%

o TSC Internet: 495.57 up 5.66, 1.16%

o Russell 2000: 426.31 down 3.39, -0.79%

o 30-Year Treasury: 89 07/32 up 26/32, yield 6.039%

In Today's Bulletin:

o Midday Musings: Bounce From Lows Brings Cheer, Along With Skepticism
o Herb on TheStreet: Why Short-Sellers Think Investors in Premier Parks Should Hold on Tight

Also on

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Buy only what's liquid and holding its own as a business.

Networking: Net2Phone CEO Retains Opt-Out Clause

An unusual arrangement allows for Net stocks to be changed into parent company stock.

Internet: Leveraged to the Gills, Net Traders Bite Their Nails

The Street is sweating over how heavily many Internet investors are trading on margin.

Nothing but Net: AOL, Taking a 9% Haircut, Leads as Tech's Downhill March Resumes

Once again Net stocks are off sharply, with the TSC Internet index off 6%.

Dear Dagen: Dear Dagen's Guide to Taking on Your Broker

Have a problem with the way your broker executed a trade? Here's what to do.

Midday Musings: Bounce From Lows Brings Cheer, Along With Skepticism


Justin Lahart

Senior Writer

You can't say that it wasn't dramatic the way stocks turned this morning, the way the heavy early selling found investors willing to buy. And you can't say that it isn't cheering to see it, after days and days where any hint of strength was met by selling. It's comforting to see the trading screens finally flash green.

But skepticism is reigning on Wall Street, where the move is seen as little more than a head fake, a momentary respite on the way to declines that will end with a much more capitulative downturn than what we saw this morning.

Both fundamentally and technically, said Peter Canelo, U.S. strategist at

Morgan Stanley Dean Witter

, the market is on shaky footing.

Fundamentally, the concern is interest rates, and a growing concern that the


will raise rates not just at its meeting Aug. 24, but also at its Oct. 4 get-together.

"What's happening is, we had this crisis, it brought inflation down a little bit too much and it brought interest rates down a little too much," said Canelo. "So rates are going back where they were." This is really not too much of a problem -- the market was doing fine when rates were higher, after all -- but Canelo thinks it will be enough to weigh down the market through to the end of the quarter.

Technically, Canelo is worried about what effect the Internets will have on the market. "We have seen a massive head-and-shoulders top on Internet Sector

index," he said. In that context, today's turn in the dot-coms is not very comforting, representing the usual fake-out rally after a

head-and-shoulders gets completed. Among the technically minded, it's considered the classic shorting opportunity.

The DOT lately was up 3 to 493, having traded as low as 452.90.

"In my opinion, we're going to 300" on the DOT, said Canelo. That, he thinks, will bring margin calls which will prompt selling in other issues. "That could take the

S&P 500

below 1280, and then you go back to your February and March lows." Around 1220.

The corollary level on the

Dow Jones Industrial Average

to 1280 is 10,500, according to Greg Nie, chief technical analyst at

Everen Securities

in Chicago. "I think the market, in terms of the Dow, has a fighting chance to stay in the trading range it's been in since April, 10,500 is shaping up to be the pivotal point -- we are probably in danger of brushing it and playing with fire." If the Dow breaks that level on heavy volume, Nie worries that his indicators will point bearish for the first time in a long while.

The Dow was lately up 30 to 10,704 while the S&P 500 was down a fraction to 1305. The

Nasdaq Composite Index

was off 6 to 2534. It had been as low as 2474.41. The

Russell 2000

was off 4 to 426.

Canelo doubts that Dow will get too heavily hit, though, protected by its weighting in cyclicals. The S&P, loaded with tech and financials, is another story. "I think you need anywhere from four to six weeks just to grind out the weak hands, losing positions, margin calls and that sort of thing," he said. Once the selling is over, though, "I think we're going to see a tremendous rally in the market in the fourth quarter."

Decliners were topping advancers 1,945 to 868 on the

New York Stock Exchange

with 540 million shares changing hands. There were 150 new 52-week lows against 25 new highs. In

Nasdaq Stock Market

action, decliners were beating advancers 2,472 to 1,186 on 753 million shares. There were 174 new lows and 23 new highs.

Thursday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

In the the midst of a volatile market, investors responded harshly to companies that missed earnings estimates or warned of bad news to come. Shares of


(BKE) - Get Free Report

got belted 9 5/8, or 34.2%, to 18 9/16 after the company said it could miss the

First Call

consensus expectation of 31 cents a share by as much as 4 cents.

Protein Design Labs

(PDLI) - Get Free Report

weakened 4 3/16, or 15.5%, to 22 7/8 after reporting a wider than-expected-loss of 14 cents a share for the second quarter, compared with a five-analyst estimate of a 9-cent loss and a year-ago loss of 5 cents.

Upscale retailer

Neiman Marcus


wasn't looking so fancy after the upscale retailer warned fourth-quarter earnings might miss their mark by as much as 5 cents due to weak sales. The current five-analyst estimate is for 12 cents. Shares slipped 1 3/16, or 7.6%, to 22.


Internet Capital

(ICGE:Nasdaq) was a bright spot in the otherwise bleak IPO market. Its shares rocketed up 10 3/4, or 89.5%, to 22 3/4 after

Merrill Lynch

priced 14.9 million shares at $12 each.

Mergers, acquisitions and joint ventures

American Access Technologies


added 5/8 to 17 3/8 and

Herman Miller

(MLHR) - Get Free Report

slipped 5/16 to 25 9/16 after the companies announced a marketing deal.



rose 3/4 to 74 1/4 after it said it entered into an agreement with a subsidiary of EXCHANGE="" PRIMARY="NO"/>



to acquire development rights for natural gas power plant in California. Shares of Enron were flat at 84 13/16.

Cardinal Health

(CAH) - Get Free Report

lost 11/16 to 66 3/8 after it said it's acquiring privately held

Automatic Liquid Packaging

of Woodstock, Ill., a custom manufacturer of sterile liquid pharmaceuticals and other health-care products, for $390 million in stock.


(IBM) - Get Free Report

added 7/8 to 119 3/8 and

i2 Technologies


tacked on 3 1/2, or 13.4%, to 29 3/4 after the two companies agreed to jointly market supply chain software to companies moving their business onto the Internet.

Jabil Circuit

(JBL) - Get Free Report

added 3 3/4, or 10.2%, to 40 7/16 after it said it plans to acquire

GET Manufacturing

, a privately held electronics manufacturing services provider which is headquartered in Hong Kong, for $250 million in stock. GET has principle manufacturing operations in China, with additional sites in Mexico and California.

Earnings/revenue reports and previews

Ethan Allen

(ETH) - Get Free Report

lost 1/2 to 27 5/16 despite posting fourth-quarter earnings of 54 cents a share, ahead of the 12-analyst estimate of 52 cents.

Pier 1 Imports

(PIR) - Get Free Report

fell 2 11/16, or 30.7% to 6/16 after it said its chief financial officer resigned and second-quarter earnings will fall below expectations. Pier 1 said it expects to report earnings of 12 to 14 cents a share. The 15-analyst estimate called for the company to earn 18 cents. The company said Stephen Magnum, the CFO, is leaving "to pursue other interests."

Royal Dutch/Shell Group

, on an adjusted current cost of supplies basis, posted better-than-expected second-quarter results of $1.61 billion, up about 5% from $1.54 billion in the year-ago period.

Royal Dutch Petroleum


which owns 60% of Royal Dutch/Shell Group, rose 2 1/8 to 62 1/2 while

Shell Transport & Trading

(SC) - Get Free Report

, which owns 40%, added 2 1/8 to 49 5/8.

UnitedHealth Group

(UNH) - Get Free Report

jumped 5 5/8, or 10.1%, to 61 3/16 after posting second-quarter earnings of 76 cents a share, ahead of the 21-analyst estimate and up from the year-ago 45 cents.

Offerings and stock actions

Be Free

, an Internet marketing service, said it plans to raise $60 million through an IPO of common stock.

Donaldson Lufkin & Jenrette


Hambrecht & Quist


Dain Rauscher Wessels

will underwrite the offering.

CIT Group

(CIT) - Get Free Report

fell 2 1/16, or 7.9%, to 23 7/8 after it said it approved a 2-million share repurchase program.

Things were looking blue for the trading debut of


(CBLT:Nasdaq), which lost 1 5/8, or 14.8%, to 9 3/8 after being priced at $11 a share by

BancBoston Robertson Stephens


Interactive Pictures'

(IPIX:Nasdaq) lost 3 /16 to 17 15/16 after

J.P. Morgan

priced its shares top-range at $18 each.

Trizetto Group

, a health-care Internet portal in Newport Beach, Calif., said it plans to raise more than $57 million in an initial public offering.

Bear Stearns

, DLJ and

Adams Harkness & Hill

will underwrite the offering.

Analyst actions

Charles Schwab


climbed 1 5/16 to 38 15/16 after

Warburg Dillon Read

initiated coverage with a buy rating and set a price target of 55 on the stock.

Dow Chemical

(DOW) - Get Free Report

gained 3 5/16 to 121 15/16 after J.P. Morgan and


raised their recommended ratings to long-term buy, and attractive respectively.


Eastman Kodak


lost 5/8 to 69 7/8 after it said that Jesse Greene has been promoted to senior vice president of business strategy and information technology, a newly created position that expands the executive management team. Greene will report directly to Dan Carp, who will become the company's CEO in January, Kodak said.


(MSFT) - Get Free Report

gained 1 1/4 to 86 1/8 after it said it's laying plans for low-priced, or perhaps even free, Internet access in a challenge to

America Online's


dial-up Net-access business, as reported in

The Wall Street Journal

. AOL lost 5 5/8, or 6.4%, to 81 3/4.

The Heard on the Street column in the


today takes a look at prominent analyst Bill Burnham of

Credit Suisse First Boston

. The column notes that his record at First Boston has been mixed, pointing out that his 12-month price targets on





(AMTD) - Get Free Report

have been surpassed, but two of the IPOs he recommended after First Boston took the companies public -- online broker

TD Waterhouse Group



Pilot Network Services


, an Internet-security firm -- are now trading well below their IPO prices. People in the industry say new investment banking clients have been drawn to First Boston because of Burnham's clout, the column reports, helping to improve the firm's rankings in Internet underwritings.

Herb on TheStreet: Why Short-Sellers Think Investors in Premier Parks Should Hold on Tight


Herb Greenberg

Senior Columnist

The Thursday (Better Late Than Never) Thud: Drop Zone? (And We're Not Talking About the Net)

This is shaping up to be either a banner year for

Premier Parks


or the beginning of one heck of a wild ride. Premier, which owns the

Six Flags

chain of theme parks, is spinning the "banner year" story, thanks in large part to rocketing sales of season passes -- sales that have exceeded even the most generous Wall Street estimates.

Oddly enough, that boom in season pass sales is one of the very reasons some of this column's savviest (and always anonymous) short-selling sources expect investors to experience the feeling of weightlessness.

Their argument goes something like this: Most season pass sales occur


the current, third quarter, which historically is the best in the theme park biz. The more sales early in the season, the shorts figure, the more likely sales will be stolen from later in the season as revenue per patron. (That assumes there will be fewer one-day ticket sales, and that repeat visitors spend less time at the park and buy less food and merchandise.)

The, result, they suspect, could be some kind of disappointment in the third quarter.

Which brings us to Premier CFO James Dannhauser, who says the shorts don't have a clue what they're talking about. He says Premier will give guidance for the rest of the year along with its second-quarter report (expected next Wednesday), and he sees no reason to believe the company won't say what it's been saying all along: that it'll meet or beat Wall Street forecasts. With season pass sales, he says, "We've guaranteed our success."

Depends on how you describe success.

Like most theme parks, Premier prefers to be judged on earnings before interest, taxes, depreciation and amortization (a.k.a. EBITDA), which analysts expect to grow by 13% for the quarter and 30% for the year. The companies argue that EBITDA is a better measure of growth because they spend so heavily on capital improvements, such as snazzy new roller coasters.

But the shorts say EBITDA masks mediocre underlying fundamentals, and that those new, expensive rides are necessary to continue to build revenues. As a result, they say, much of the depreciation and amortization should viewed as a normal expense and a normal hit to earnings. (Regular readers of this column may want to take a look at my "Against the Grain" column in


a few months back. A key point was the overuse of EBITDA by companies whose regular earnings wouldn't justify their stock prices.)

While EBITDA may be soaring at Premier, the shorts note that second-quarter revenue is expected to be up a meager 6%. And Wall Street has already (and quietly) trimmed Premier's second-quarter earnings estimates by 30% to 19 cents per share. That's flat against what was an unexpectedly lousy second quarter last year. Dannhauser attributes the downwardly revised earnings to a noncash, options-related charge that analysts hadn't known about. "It was unrelated to our performance," he says.

Maybe, but sooner or later those charges do matter, and a company has to start showing honest-to-goodness real earnings growth. If Premier doesn't deliver pretty soon, or if it experiences any missteps, the shorts are betting this will be one ride investors won't forget.

And this note: Yesterday

Cedar Fair

(FUN) - Get Free Report

, an operator of five theme parks, reported lethargic second-quarter results. Dannhauser says the difference between Cedar Fair and Premier is that most of Cedar Fair's parks are mature. Still, Cedar Fair now trades at roughly 8 times its EBITDA. Apply that same multiple to Premier, say the shorts (after all, it is an EBITDA story), and its stock would be at 15. It currently trades at around 35.

That's entertainment:

An item here

a month ago noted that two of my very best sources were at the opposite ends of the spectrum on

Hollywood Entertainment


. Both were in total disagreement about lawsuits brought against Hollywood by

Fox Entertainment Group

(FOX) - Get Free Report




, a distributor of video tapes, which have sued Hollywood on charges of various accounting improprieties. One source said the suits are a joke; the other said the suits could bring Hollywood down.

Looks like the "bring 'em down" source is currently in the lead. Yesterday Hollywood reported disappointing second-quarter earnings. And on a conference call the company mentioned that it has spent considerably more than expected on litigation.

The "bring 'em down" source figures the suits must have some real merit for the company to fight


hard. Hollywood's stock, around 20 back then, is currently at around 14.

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.

Mark Martinez assisted with the reporting of this column.

Copyright 1999,