TheStreet.com's MIDDAY UPDATE
October 5, 1999
Market Data as of 10/5/99, 1:26 PM ET:
o Dow Jones Industrial Average: 10,470.25 up 69.02, 0.66%
o Nasdaq Composite Index: 2,828.20 up 32.23, 1.15%
o S&P 500: 1,312.18 up 7.58, 0.58%
o TSC Internet: 671.77 up 16.16, 2.46%
o Russell 2000: 427.70 up 1.09, 0.26%
o 30-Year Treasury: 100 12/32 down 2/32, yield 6.092%
In Today's Bulletin:
o Midday Musings: Wall Street Holds Onto Solid Gains as Fed Decision Nears
o Herb on TheStreet: Why CKE Restaurants' Stock Purchase Plan May Not Be as Appetizing as It Seems
There's plenty of debate on today's message boards. Make sure to get in on the action. Discuss whether the Fed "really oughta tighten tomorrow" or if the market will continue to rally, regardless of the outcome of today's meeting. Toss around the idea that the Sprint deal may spark an Investment Bank battle. Rally for your favorite to be added to Cramer's Red Hot index and much more.
Fed Should Know It Can Pay Now or It Can Pay Later
Lucrative Sprint Deal Could Spark Investment Bank Battle
Herb Greenberg: Mattel Has Nobody to Blame but Itself for The Learning Co. Fiasco
James Cramer: Make Way for Foundry Networks
Also on TheStreet.com:
Wrong! Dispatches from the Front: Sifting Through the Buzzwords
Cramer decodes some Internet-derived research and explains the significance of 'YAASS.'
Telecom: MCI WorldCom Facing Down Regulatory Hurdles After Sprint Pact
Sprint's wireless assets were the key to attracting rich bids, analysts say.
The Chartist: Rally On
Regardless of the outcome of the FOMC meeting, the Chartist predicts the market will continue to rally. Give us your opinion on our message board.
Dear Dagen: Dear Dagen: Sneak Preview of the End-of-Year Column
Yes, it's three months early. But why wait?
Midday Musings: Wall Street Holds Onto Solid Gains as Fed Decision Nears
Patrick M. Fitzgibbons
10/5/99 1:03 PM ET
While the waiting may indeed be the hardest part, the stock market chose to forge ahead in active trading ahead of this afternoon's
Federal Open Market Committee
Traders said the tone of the stock market was fairly bullish this morning as most of the focus seems to be on the ramifications of the $115 billion merger between
Market participants said this morning that business had been fairly brisk ahead of the FOMC meeting.
"It seems as if the market has fully discounted that the
will leave rates alone," said Jim Herrick, managing director of trading at
Robert W. Baird
in Milwaukee. "We've seen a pretty nice bounce-back in the techs and the semis today."
TheStreet.com Internet Sector
index was up 13, or 2%, to 669 and the
Philadelphia Stock Exchange Semiconductor Index
was soaring 3.5%.
While most of the bets are on the side of the Fed sitting on its hands in respect to interest rates, Herrick said the word on the Street is that the Fed will choose to move to a tightening bias. If the Fed chooses to leave unchanged its neutral policy directive for future moves, the stock market could be poised for a run up.
"We are expecting that the Fed will move to a tightening bias," he said. "If they choose to leave the bias as-is, the market could definitely be helped." Whatever the Fed decides, its announcement will hit the wires -- and
-- around 2:15 p.m. EDT.
Herrick also said that the overall tenor of the market was improved today following the MCI WorldCom-Sprint deal. He said that even the somewhat negative comments made this morning by
Federal Communications Commission
Chairman William Kennard on Reuters did not throw any cold water on the mood of the market.
While both WorldCom and Sprint were lower this early afternoon (WCOM was down 3 1/4, or 4.5%, to 68 3/8, and FON was off 11/16, or 1.1%, to 60 3/16), other names in the sector had improved. For example,
was recently quoted up 1 1/8 points, or 2.6%, to 44 7/8.
In other market news,
shares were up 4 1/16, or 17.7%, to 27 1/16, after the stock was upgraded this morning to buy from outperform by
Salomon Smith Barney
This morning, Trigon, a health-care services company, announced that it would exit the health insurance market in April 2000 -- a move the company said would result in improved earnings for the rest of this year and into 2000, after a $49 million to $52 million after-tax charge during the third quarter.
Dow Jones Industrial Average
was lately up 62, or 0.6%, to 10,463 while the
was up 6, or 0.5%, to 1311.
Nasdaq Composite Index
was up 25, or 0.9%, to 2821 and the
had risen 1.1%.
New York Stock Exchange
trading, 500 million shares had been exchanged while declining issues were edging advancers 1,491 to 1,310. In
Nasdaq Stock Market
action, 630 million shares traded while gainers led 1,863 to 1,738.
Bonds were modestly lower ahead of the Fed decision. The bellwether 30-year Treasury was off 5/32 to 100 9/32, its yield rising to 6.10%. (For more on the fixed-income market, see today's early
Tuesday's Midday Watchlist
Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.
Sprint slipped 11/16 to 60 3/16 after trading at a record 63, following news that MCI WorldCom forged a $115 billion deal to acquire the No. 3 long-distance carrier in the largest corporate buyout ever. MCI WorldCom upped its offer to rival
higher bid. Shares of MCI WorldCom dropped 3 1/4 to 68 3/8, while BellSouth slipped 1/4 to 42 3/16. According to the agreement, MCI WorldCom said it would pay $76 in stock for each Sprint share, while each share of
would be exchanged for 1 new
tracking share. After the merger, MCI WorldCom said Sprint CEO William Esprey would serve as chairman, while MCI WorldCom CEO Bernard Ebbers has been tapped as president and CEO.
wrote about what BellSouth's next move might be in a
story last night.
gained 7/16 to 42 1/2 after saying it would not enter a rival bid for Sprint and said it would sell its 10% interest in the company. Deutsche said it would rake in a $9.8 billion profit from the sale, revised upward from an earlier estimate.
Mergers, acquisitions and joint ventures
added 1/4 to 34 after it said it is considering strategic options for its
division, also up 1/4, to 12 3/8. The company said that a tax-free spinoff of the unit appears to be the most viable alternative, but it is in talks with a special committee of Arch Coal board members to discuss other solutions.
dropped 3 3/16,or 8.6%, to 33 13/16, a trading low for the year, after it unveiled plans to buy
which was jolted 5 13/16, or 32.9%, to 23 1/2, in a cash-and-stock deal valued at $2.6 billion. The agreement calls for DTE to pay $28.50 for each share of MCN. DTE said, including MCN's debt, the acquisition is worth roughly $4.6 billion.
inched up 1/8 to 43 13/16 after
The Wall Street Journal
reported that it inked a $2 billion agreement with
to change 44 jets into freighters, while providing ongoing maintenance for the international delivery service.
slipped 3/4 to 57 after saying it would provide 34 of the 44 Boeing 757-200 aircraft used in the deal.
climbed 11/16 to 77 11/16 after saying it plans to acquire
for $500 million.
gained 3/8 to32 after saying it inked a $120 million stock deal to buy
lost 1/4 to 18 9/16 after saying it signed a $700 million, 10-year computer services agreement with
Harvard Pilgrim Health Care
. Perot Systems will help Harvard implement and manage computer systems, restructure its claims department and improve its technology infrastructure.
fell 1/2 to 45 1/4 after saying it would pay $180 million for the
, a central Illinois daily newspaper, and a group of seven community newspapers known as the
Illinois Valley Press
Earnings/revenue reports and previews
soared 14 3/8, or 10.6%, to 150 3/4 after saying it expects to post third-quarter revenue between $36 million to $38 million, beating internal expectations. The company made its trading debut Sept. 28 at $25 a share.
moved up 2 1/8, or 11.4%, to 20 3/4 after it said it expects to meet analyst estimates for the third quarter, due to strong sales growth in Europe, Asia and Australia.
climbed 2 5/16 to 78 11/16 after last night posting a fourth-quarter loss of 7 cents a share, which included $600,000 from an issuance of unit stock and an income-tax benefit of $7.4 million. The loss was less than the 21-analyst estimate of an 18-cent loss and the year-ago loss of 43 cents.
Deutsche Banc Alex. Brown
raised their 2000 earnings estimates on the stock.
lost 1/4 to 18 9/16 after saying it would report third-quarter earnings between 8 cents and 14 cents a share, greatly missing the four-analyst estimate of 45 cents a share and the year-ago 43 cents.
climbed 3 7/8, or 7.5%, to a record 49 9/16 after saying it expects to post third-quarter earnings between 56 cents and 60 cents a share, beating both the 14-analyst estimate of 51 cents and the year-ago 40 cents.
Offerings and stock actions
, one of Israel's largest cellular telephone operators, said its board approved plans for an IPO in the U.S. and Europe.
initiated coverage on four automotive industry companies.
added 1 1/8 to 52 3/8 after being placed on the recommended list.
climbed 2 to 66 3/16,
Delphi Automotive Systems
gained 5/16 to 15 3/4 and
lost 7/8 to 49 1/4 after all three were rated market outperformers.
lost 1/16 to 18 3/4 despite
initiation of coverage with an attractive rating.
dropped 6 3/4, or 9.8%, to 62 after
cut its rating to outperform from buy. Lehman said it is slightly more cautious in its revenue estimate because of a delay in an outsourcing deal with
Electronics For Imaging
added 3 3/4, or 7%, to 57 1/16 after
Morgan Stanley Dean Witter
upped its rating to strong buy from outperform.
jumped 5 3/16 to 187 5/8 after
Warburg Dillon Read
began coverage with a buy rating.
was unchanged at 27 15/16 after PaineWebber started coverage with an attractive rating.
lost 3/16 to 19 15/16 after Morgan Stanley sliced its rating to neutral from strong buy. Meanwhile
BancBoston Robertson Stephens
, citing a low P/E multiple, raised its rating on the stock to buy from long-term attractive, despite SunGard's warning that third-quarter earnings will fall short of expectations.
gained 7/16 to 51 1/8 after PaineWebber initiated coverage with a buy rating.
lost 1 9/16 to 44 1/16 after PaineWebber sliced its rating to attractive from buy.
added 4 9/16 to 142 1/8 after saying it plans to introduce an online trading and financial advisory service called
American Express Brokerage
climbed 1/16 to 20 3/16 after it announced plans to divide its electronic instruments division into two subunits. The division will be split into an aerospace and heavy vehicles unit and a process and industrial products group.
climbed 1 3/8 to 51 11/16 after saying it plans to launch an aggressive expansion, including opening 40 new discount stores and 160 to 165 new supercenters. Separately, the company posted an October same-store sales increase of 7.2%, down from the year-ago 9.5% increase, while total sales were $15.7 billion, beating the year-ago $12.4 billion.
Herb on TheStreet: Why CKE Restaurants' Stock Purchase Plan May Not Be as Appetizing as It Seems
10/5/99 6:30 AM ET
Food for thought:
The gumption of
. Its stock gets hammered because biz is bad. It's in such rotten shape that it has to sell hundreds of company-owned restaurants to franchisees to help raise cash so it can continue to remodel existing
So, why is it that the company doesn't have enough money to remodel its restaurants, but it has enough to loan execs as much as $10 million to buy shares of CKE stock? That's what the company announced yesterday in a release that quoted CEO Bill Foley objecting to his company's low valuation. "We believe these long-term individual commitments via personal note obligations to the company not only reflect management's confidence in the value of the company's stock, but also CKE's continued prospects for success,'' he said. CKE officials did not return a call seeking further comment.
Mattel and The Learning Co.: Tell us what you think on
If it's such a good deal, why didn't they just buy the stock with their own cash? No matter what a company says, insider purchases accomplished with the help of company loans should be viewed with the same amount of suspect as a high-wire walker connected to a safety line. One reason for the cynicism from people like Bob Gabele, of
First Call/Thomson Financial
, is that you never really know for sure how the loan agreements are structured. "You cannot rule out the fact that the purchases themselves may have been made for reasons other than an investment motive," Gabele says. "Sometimes we see loans where they're forgiven after a period of time, and sometime they're nonrecourse loans," which means the exec, who probably pledged his stock as collateral, doesn't need to reimburse the company if the loan turns into a loss.
Gabele says stock-purchase loans are increasingly popular, and rarely are they a good sign.
, for example, has been doing them since 1996 by guaranteeing bank loans. At first, the insiders looked smart. The stock zoomed to around 58 from 17 before falling. It's now around 21, and as of Dec. 31, when the stock was still in the 30s, bank loans guaranteed by Conseco -- in connection with those stock purchases -- exceeded by $74.6 million the value of the stock pledged as collateral.
That should give CKE investors something to chew on.
P.S.: Some companies, like
, for instance, require top execs to own stock. That's one reason Gabele recently warned his clients not to get overly excited when CEO Jill Barad bought 10,000 shares of Mattel stock.
Speaking of Mattel:
was beating himself up for getting so enthused about Mattel after hearing money manager Robert Olstein sing the company's praises on our
TV show on
What does Olstein, a long-term value investor, think now? "I was wrong," he says. But he adds that in retrospect he was wrong to buy the stock so high. But if he liked it at 24, he loves it at 13. "I don't think Mattel is worth 13," he says. Believing it's worth more than that, he purchased more Mattel after yesterday's disclosure that the company will miss its third-quarter consensus estimate. If nothing else, with its strong brand, Mattel is a prime acquisition candidate, Olstein says. He adds that he wouldn't be surprised to see Barad thrown out. "If they get a stable manager," he says, "this stock is up 20%" on the news.
Or so he hopes.
(If you missed my take midday yesterday on Mattel's latest fiasco and why it shouldn't have come as a surprise, read it
recent recall of 400,000 hard drives, the PC industry is getting walloped by a disk-drive shortage. The clear benefactors should be
, yet some investors known to this column continue to gravitate toward Seagate -- and not only for reasons outlined
here a few months ago. "It's the highest quality company in a lousy industry," says the analyst for one buy-side firm long Seagate. "If you're going to play in a lousy industry, you ought to play with the best guy."
Looking a gift horse in the mouth?:
here several weeks ago quoted very reliable sources as saying that
Policy Management Systems
, a provider of information technology software and consulting to the insurance industry, received and rejected as inadequate an unsolicited takeover in recent weeks from
. Neither company would comment at the time, but this much is clear: Based on Policy Management's disclosure yesterday that its third-quarter earnings would miss analyst estimates -- and the stock's 23% decline -- maybe the company should've taken the money and run.
blew up yet
after the market closed.
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
email@example.com. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.
Copyright 1999, TheStreet.com