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midday08-26-99's MIDDAY UPDATE

August 26, 1999

Hollywood is changing - Let's talk about it! DIGITAL COAST '99, 9/8-9, LA. Speakers Include: Leonard Nimoy, Mark Cuban of, Kevin Foxe - The Blair Witch Project, Rob Fried Producer Godzilla, Dave Bohnett,

Market Data as of 8/26/99, 1:16 PM ET:

o Dow Jones Industrial Average: 11,270.00 down 56.04, -0.49%

o Nasdaq Composite Index: 2,807.20 up 1.60, 0.06%

o S&P 500: 1,372.14 down 9.65, -0.70%

o TSC Internet: 598.14 up 7.00, 1.18%

o Russell 2000: 437.82 down 0.04, -0.01%

o 30-Year Treasury: 10 308/32 down 17/32, yield 5.888%

In Today's Bulletin:

o Midday Musings: Cloudy Market Conditions Prevail on Soggy Wall Street
o Herb on TheStreet: Anybody Taking a Look at the Fundamentals of Net2Phone and IDT?

"" on the Fox News Channel

Ever wonder what happened to the "lost episode" of ""? Wonderno more! This week's "Stock Drill" guest is Ken Schapiro, president ofCondor Capital and the first ever "Stock Drill" participant. writers as they drill Schapiro about his favorite stock picks.

And TSC's own "Chartman," Gary B. Smith, tells us what makes a chart say"buy" and what makes it say "sell."

The show airs Saturday at 10 a.m. ET and again on Sunday at 1 p.m. ET. Formore info and how to find Fox News in your area, please see our TSC on Foxpage, at

Also on

Wrong! Dispatches from the Front: Trimming Time

Cramer says he's unloading some overextended positions.

James K. Galbraith: The Fed's Fighting the Wrong Battle

Raising rates is the wrong weapon to use against asset inflation. It's time Greenspan trotted out Reg T.

Market Features: Inflated by Y2K Fears, Bond Spreads Float Without a Pin in Clear Sight

Most believe the gap between Treasury yields and high-grade bond yields will narrow significantly, but no one can agree on when.

Tech Savvy: As Always, Cisco's Making All the Right Moves

Yes, the price tag on the Cerent deal is steep -- just as the returns promise to be.

Mutual Funds: Moving Past the Paperwork, Invesco Gets Ready for Fund Sales on the Net

The paperless transaction, common elsewhere on the Web, is new to the mutual fund industry.

Midday Musings: Cloudy Market Conditions Prevail on Soggy Wall Street


Tara Murphy

Staff Reporter

8/26/99 1:18 PM ET

Thursday so far has seemed more like a lazy summer Friday on Wall Street. In fact, the most talked-about news was the treacherous downpour that hampered many New Yorkers' morning commute. Fortunately, after the market movers and makers dried off, they didn't have another storm to bear. Just another drizzler of a session.

After reflecting briefly on today's weather, Richard Yamarone, senior economist at

Argus Research

, said he sees additional signs of labor market tightness, citing today's release of initial jobless claims at 283,000 for the week ended Saturday, down from a revised 288,000 in the previous week. "Manufacturing has stepped up its pace with the release of August's


survey, up 56.7 from 50.8," he said. "We don't believe this is indicative of a major resurgence in manufacturing, but more realistically a temporary attempt to add inventory in anticipation of heightened Y2K demand."

At the midday, tickers seemed to be going from green to red, as investors sold off some of yesterday's gains. Peter Cardillo, chief strategist at

Westfalia Investments

, said he sees some profit-taking after yesterday's surge. Cardillo also noted a possible turnaround in investors' strategy now that the word is out on interest rates, saying investors "will begin to focus on individual companies, rather than the market itself."

The oil sector appeared to be leaking after yesterday's sharp decline in oil and gasoline futures prices, with



slip-sliding down 2 1/8 to 93, while


(TX) - Get Free Report

stumbled 1 9/16 to 63.

This morning, retailers were sporting the red "for sale" tag, trading down after

Merrill Lynch

analyst Dan Barry initiated a conservative investment opinion on a slew of stores.

Dayton Hudson



Barnes & Noble

(BKS) - Get Free Report






(JWN) - Get Free Report



(KSS) - Get Free Report

were all being bagged.

On the

New York Stock Exchange


Vodafone AirTouch

(VOD) - Get Free Report

was proving that it was more than just talk, soaring 6 15/16 to 104 15/16 after announcing a possible joint venture with

Bell Atlantic




Dow Jones Industrial Average

was down 53 to 11,273. The small-cap

Russell 2000

was unchanged at 438, while the

S&P 500

was off 9 to 1373. The tech-laden

Nasdaq Composite Index

was up 4 to 2810, while Internet Sector

index was up 7 to 598.

On the Big Board, decliners were beating advancers 1,642 to 1,134 on 424 million shares, while on the

Nasdaq Stock Market

laggards were beating leaders 1,831 to 1,702 on 665 million shares. New 52-week lows were leading new highs 35 to 26 on the NYSE, but on the Nasdaq, new highs were beating new lows 98 to 38.

The benchmark 30-year Treasury was down 18/32 to 103 8/32, its yield at 5.89%.

Thursday's Midday Watchlist

By Thomas Lepri
Staff Reporter


Earnings estimates from First Call; new highs and lows on a closing basis unless otherwise specified. Earnings reported on a diluted basis unless otherwise specified.


Get out of the Kid's way. Exemplifying upside momentum,


(CSCO) - Get Free Report

was lately


1 (that's an additional $3.2 billion in market cap, remember) to 69 5/8 after saying it spent a whopping $7.4 billion in stock for two privately held fiber-optic networking companies.

About $6.9 billion of Cisco stock will go to Petaluma, Calif.-based


, with the other $501 million earmarked for

Monterey Networks


Mergers, acquisitions and joint ventures

Shares of copper miners


(AR) - Get Free Report


Cyprus Amax


were on the upswing after they said yesterday that they would begin merger negotiations if once-spurned suitor

Phelps Dodge

(PD) - Get Free Report

upped its all-stock offer for both companies to $3.3 billion from $2.5 billion. Cyprus and Asarco had initially turned down proposals from Phelps, saying they'd pursue their own merger. Cyprus was lately up 11/16 to 17 7/8, while Asarco had risen 1 3/8, or 6.4%, to 22 13/16. Phelps Dodge was off 5/16 to 57 5/16.

ADRs of

British Telecommunications


were sinking 2 13/16 to 157 11/16 after the company said it bought

Yellow Book USA

for $665 million as part of an effort to build its online directory service. BT said it plans to integrate the company with its own yellow pages business.

Recovery Engineering


longs are sitting pretty today after

Procter & Gamble

(PG) - Get Free Report

set plans to buy the maker of household drinking water systems for $35.25 a share in cash. Recovery was halted in early trading, but investors quickly bid it up toward the acquisition price when it opened. Recovery was lately up 17 5/8, or a handsome 103%, to 34 3/4. Procter & Gamble was down 2 1/8 to 100 1/2.

Rite Aid

(RAD) - Get Free Report

was off 2, or 8.8%, to 20 7/8 after it said it was in ongoing talks for potential corporate transactions that could be "material" if completed.

Vodafone AirTouch was up 7 3/16, or 3.6%, to 205 3/16 after

The Times

of London reported that the company was in talks with Bell Atlantic to create a joint venture in the U.S. The newspaper wrote that analysts believe the deal could involve a merger of AirTouch's West Coast operations and Bell Atlantic's mobile phone unit, which covers the East Coast. The combined businesses could be worth more than $100 billion, according to the paper. Bell Atlantic lately was up7/8 to 64 3/4.

Offerings and stock actions


was lighting it up in its first day of trading, lately up 5 11/16, or 81.3%, to 12 11/16 after being priced at $7 a share by lead underwriter

Prudential Securities


Analyst actions


(GP) - Get Free Report

was up 15/16 to 42 7/16 after Merrill Lynch raised it to near-term accumulate from near-term neutral and to long-term buy from long-term accumulate.


(HAL) - Get Free Report

was down 3/8 to 44 5/8 despite the fact that

Banc of America Securities

raised it to buy from market performer. The brokerage also upped its rating on oil drilling service firm

Weatherford International

(WFT) - Get Free Report

to strong buy from market performer. Weatherford was lately up 1/8 to 33.

Micron Technology

(MU) - Get Free Report

was up 1 1/2 to 70 15/16 after Merrill raised it to near-term buy from near-term accumulate and upped its earnings estimate for the August 2000 fiscal year to $2.22 a share from $1.90.


American Home Products


was off 1 to 46 13/16 after it agreed to settle lawsuits with more than 36,000 women over the Norplant contraceptive device. The company didn't disclose the size of the settlements.


(AMR) - Get Free Report

was sinking 2 7/16, or 3.8%, to 62 5/16 one day after "Operation Ramp Rats," in which 58 employees of its

American Airlines

subsidiary were arrested on charges of smuggling drugs and weapons through Miami airport's baggage system.

It's not clear what's driving the selloff in engineering and services construction firm

Dycom Industries

(DY) - Get Free Report

. The company has claimed it has no idea. But there it goes anyway, lately down 5 3/4, or 13.2%, to 37 15/16. Dycom had traded as low as 33 earlier in the session.

A Heard on the Street column in today's

Wall Street Journal

questioning the high P/E ratios inspired by the Pokemon craze is taking its toll on several companies today:

Grand Toys International

(GRIN) - Get Free Report

, off 4 5/8, or 20.2%, to 18 7/16;

Toymax International


, down 3 9/16, or 25.9%, to 10 1/4;

4 Kids Entertainment


, off 3 7/8, or 6%, to 60 7/8; and



, down 1/4, or 7.3%, to 10 1/16. The TaskMaster, a.k.a.

Aaron Task

, wrote about

Pokemon (whatever the heck that is) last night.




were seeing the ugly side of Net volatility today; was lately down 4 11/16, or 9.3%, to 45 9/16, while was off 7 1/16, or 5.4%, to 124 3/16.

Herb on TheStreet: Anybody Taking a Look at the Fundamentals of Net2Phone and IDT?


Herb Greenberg

Senior Columnist

8/26/99 6:30 AM ET

Pumpers and dumpers are having a field day, no doubt, with the stocks of






. Like the old days of the Internet, at the expense, no doubt, of the little guy who will almost certainly get walloped. Anything, and I mean


that goes up that quickly -- on a relatively small float -- almost always falls just as quickly, if not faster, after this kind of buying frenzy. Yesterday the stock zoomed 32% to 70 1/8, giving it a market value of more than $3 billion.

This will surely go down as yet another case of investors not fully understanding what they're buying. The evidence is clear by the recent action in Net2Phone. As I pointed out

yesterday in a midday "Herb on TheStreet Extra," anybody who really likes Net2Phone would be better off owning IDT, because of its 57% stake in Net2Phone and its steep discount to Net2Phone.

That, of course, prompted some readers to wonder whether I was "eating crow" or "throwing in the towel" on past items here that were

critical of IDT.

You kidding? The Net2Phone spinoff itself is just the latest questionable transaction involving IDT. Among the biggest winners in the deal are IDT insiders. According to Net2Phone's prospectus, Net2Phone has agreed to pay IDT $6 million for a 20-year right to use part of a new high-capacity network still under construction. (An example of why this is good for IDT.) What's more, as the company says in its prospectus, they have lots of competition for their services and products, including some from large, well-known, deep-pocketed companies. And if prices of long-distance service continue to fall, Net2Phone warns that it may lose its competitive pricing advantage for long-distance calls. Already some Internet telephone companies are undercutting Net2Phone in the U.S.

, for example, charges 3.9 cents per minute vs. 4.9 cents for Net2Phone on domestic calls except for Alaska and Hawaii.

Then there's the quality issue: As I noted yesterday, the quality of the actual phone calls over the Internet, from a PC, is nothing to write (or call) home about. Calls made several times to me from a friend over the course of the past month using Net2Phone's Internet telephone service were unintelligible. Admittedly, mine is a small sampling. And then there is reader

Hazem El-Abbadi

. He uses the service frequently for overseas calls, and writes: "The main problem I've found is not the voice quality but a delay between the time one person says something and the other person hears it. This varies from a couple of seconds to about a half a minute. That is where the real annoyance comes in."

Finally, in its prospectus, Net2Phone, which had sales of $22 million for the nine months ending April 30, and no profits, warns that

U S West





have asked the


to institute federal access charges for Internet phone calls. The company says many of its competitors are lobbying for the change. If that happens, Net2Phone warns that its business could be "materially" affected. Boilerplate, sure, but some analysts believe this is a





Joe Kernen yesterday told his viewers that on Tuesday officials from IDT called him, pointing out that they believed their stock deserved to be substantially higher with Net2Phone on such a tear. (Assuming someone from IDT really made the call: They had to say


because Net2Phone's investors certainly don't have a clue.)

Blown to Smith-ereens


Gary B. Smith


Yesterday's "technical" take on several of this column's recent hits was, as usual, masterful. Hope to see more of his touch on my column, though we all know that regardless of what the charts may show, in the end, the fundamentals win out.

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.

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