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midday10-15-99's MIDDAY UPDATE

October 15, 1999

Market Data as of 10/15/99, 1:08 PM ET:

o Dow Jones Industrial Average: 10,132.74 down 153.87, -1.50%

o Nasdaq Composite Index: 2,753.27 down 53.57, -1.91%

o S&P 500: 1,262.39 down 21.03, -1.64%

o TSC Internet: 673.18 down 22.91, -3.29%

o Russell 2000: 414.28 down 5.03, -1.20%

o 30-Year Treasury: 97 15/32 up 4/32, yield 6.307%

In Today's Bulletin:

o Midday Musings: Stocks Hang in With Harsh Losses but Well Off Lows
o Herb on TheStreet: IDT's Convoluted Earnings Release Tries to Get Investors to Ignore the Important Numbers Community

You know's the place for great market commentary, but did you know it's also the place for intelligent investing discussion? Whether it's Cramer's commentary or breaking news, we bring the conversation straight to you. Check out these message boards in the Community section:

Jim Seymour: Blame it on October

TheStreet Recommends

Herb Greenberg: IDT and Tyco

A Tough Morning on Wall Street: Stocks drop on PPI

The Market According to Cramer: Intel, ANF and the October Chill

"" on Fox News Channel on Fox News Channel

We put ourselves to the test this week on "Stock Drill" as Jeff Bronchick of Reed Conner & Birdwell -- and a TSC contributing editor -- goes over his favorite stock picks with Jim Cramer and Herb Greenberg.

Big market drops, big market gains. The market's been manic for months, but stocks aren't really moving that much. Does that mean your investments should tread water? We'll hear what our "Word on TheStreet" panel has tooffer.

Plus, we'll preview our upcoming "Cracking the Books" series. Alex Berenson introduces us to the world of earnings, and why things aren't always as good as they seem.

"" on Fox News Channel airs Saturdays at 10 a.m. and 6 p.m. EDT and Sundays at 10 a.m. EDT.

FNC is Fox's 24-hour cable news channel. To find Fox News Channel in your area, call your local cable operator or see our "TSC on Fox" page at (look for the yellow box in the upper right hand corner).

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IPOs: SEC Keeping a Vigilant Eye on Directed-Share Programs

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Stock Strategies: Making Money on Y2K: Some Stocks and Strategies

Whether you think it's a coming calamity or a crock, there are ways to play it, investment-wise.

Fixed-Income Forum: Bond Funds Aren't Always as Conservative as Their Names

If you're trying to avoid risky assets, you can't assume a safe-sounding fund holds only conservative investments.

Midday Musings: Stocks Hang in With Harsh Losses but Well Off Lows


Eileen Kinsella

Staff Reporter

10/15/99 1:09 PM ET

An early-morning hurricane hit the market hard, but lost some steam. By midsession the selling felt more like a tropical storm.

That didn't mean there wasn't some damage to sort through though. The

Dow Jones Industrial Average

was down 158, or 1.5%, to 10,129, after a more-than-200-point drop bounced it dangerously close to 10,000, a key psychological support level. The technology-laden

Nasdaq Composite Index

was down 56, or 2%, to 2751 after trading as low as 2704.28.


comments from



Alan Greenspan

last night, on financial risk and risk-management models, stirred up some preopening clouds and wind. Then, at 8:30 a.m. EDT, a stronger-than-expected

Producer Price Index

report blew into town and whipped things into a squall. The September headline figure gained 1.1%, above the expected 0.5%, while the core rate, which excludes food and energy prices, rose 0.8%, compared with the expectation of 0.4%. It looked pretty bleak there for a while.

Not that anyone thinks stocks are out of the woods yet, but a bounce off the intraday low -- so far, anyway -- provided a little bit of relief. "It's just kind of settling down now," said Bill Schneider, head of U.S. equity block trading at

Warburg Dillon Read

. "The sellers had their feast and now you've got some buyers around kicking the tires."

Schneider said the morning volatility was further complicated by the monthly expiration of options, since many of the orders had accumulated on the buy side. Schneider said -- cautiously -- he believed the damage was done and that the worst was over for today.

Technology and financial stocks were hit particularly hard, though hardly any sector was spared the pain. The

Philadelphia Stock Exchange/KBW Bank Index

was off 2.7%, while the

American Stock Exchange Broker/Dealer Index

dropped 3.9%. Financial bellwether

American Express

(AXP) - Get American Express Company Report

was down 3.4%, and among the biggest losers on the

New York Stock Exchange

. Internet Sector

index was also hit, lately down 23, or 3.4%, to 673, dragged by

America Online





, two stocks that normally can't be bothered with this downturn nonsense.

Sun Microsystems

(SUNW) - Get Sunworks, Inc. Report

was a rare bright -- uh, make that green -- spot in the tech sector, after last night beating earnings forecasts. Sun was rising 5%.

Asked whether today's sharp downturn was a sign of something ominous on the horizon, a few strategists and economists said they felt today's drop was simply part of a larger ongoing, and much-needed, correction but one that will eventually work itself out. "Coming into the third quarter, everyone expects 20% increases in earnings growth," said Dick Stein, chief technical analyst at

Noble Financial Group

in Boca Raton, Fla. "People are starting to realize they have been somewhat excessive. We need for it to go into a sidewards pattern and have multiples come back down."

John Eade, director of research at

Argus Research

, echoed the sentiment. "At 1250 on the

S&P 500

, we're still 30% to 35% ahead of fair value, particularly with bonds moving away," said Eade, who also said he could see the S&P 500 falling to 1150 in the next couple of months before resuming upward momentum.

"There is still a little more pain on the downside," said Stein. "We haven't seen a bottom yet."

Breadth was horrible on the Big Board, where decliners were trouncing advancers 2,280 to 639 on 513 million shares. On the

Nasdaq Stock Market

, laggards were beating leaders 2,785 to 878 on 630 million shares. New 52-week lows were beating new highs 386 to 5 on the NYSE, while on the Nasdaq, 177 new lows were ahead of 30 new highs.

The S&P 500 was down 22, or 1.7%, to 1262, while the small-cap

Russell 2000

was off 5, or 1.2%, to 414.

The benchmark 30-year Treasury bond was up 3/32 to 97 14/32, its yield at 6.32%. (For more on the fixed-income market, see today's early

Bond Focus.)

Friday's Midday Watchlist

By Tara Murphy
Staff Reporter


Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified


Sun Microsystems after yesterday's close

reported first-quarter earnings of 33 cents a share, beating the 19-analyst estimate of 31 cents and the year-ago 14 cents. Earlier today,

Banc of America Securities

upgraded the stock to buy from market perform, while

Lehman Brothers


Credit Suisse First Boston

boosted their 2000 earnings estimates. Sun Microsystems was jumping 4 1/2, or 5%, to 94.



was slipping 15/16 to 38 1/8 after its energy-services division entered into a $1.5 billion total energy-management pact with

Simon Property Group's

(SPG) - Get Simon Property Group, Inc. Report

Simon Brand Ventures

business initiative. Shares of Simon were skidding 5/16 to 22 1/8.

Mergers, acquisitions and joint ventures


(AR) - Get Antero Resources Corporation Report

was climbing 3/16 to 29 1/2 after saying it would ax its proposed $1.17 billion stock and cash merger agreement with

Phelps Dodge

(PD) - Get PagerDuty, Inc. Report

to accept a revised $1.18 billion offer from

Grupo Mexico

. According to the deal between Phelps Dodge and Asarco, Phelps has five days to respond to Asarco's decision. Shares of Phelps were bouncing 1 1/8 to 58 3/8.


was adding 15/16, or 5.8%, to 17 after it announced it is buying privately held


, owner of

, for 1.8 million shares and $3 million in cash.



was mounting 2 9/16 to 69 1/2 after it said


(INTC) - Get Intel Corporation Report

bought an equity stake in the company. Intel bought the stake through a secondary offering of 3.6 million shares at $52.38 a share earlier in October. Intel was sinking 13/16 to 72 1/2.

Earnings/revenue reports and previews


(CAT) - Get Caterpillar Inc. Report

was falling 3/8 to 55 5/16 after it posted third-quarter earnings of 61 cents a share, a penny ahead of the 20-analyst estimate but down from the year-ago 92 cents.

Colonial Properties


was declining 1/8 to 25 1/4 after it posted third-quarter funds from operations of 81 cents a share, in line with the 13-analyst estimate and up from the year-ago 73 cents.



was sliding 1 1/4, or 5.1%, to 22 3/4 after it reported third-quarter earnings of 9 cents a share, in line with the single-analyst estimate but below the year-ago 12 cents.

Diamond Offshore Drilling

(DO) - Get Diamond Offshore Drilling, Inc. Report

was losing 1 1/4 to 31 5/8 after the company reported third-quarter earnings of 27 cents a share, a penny above the nine-analyst estimate and up from the year-ago 75 cents.

Dominion Resources

(D) - Get Dominion Energy Inc Report

was falling 5/16 to 45 1/2 after it reported third-quarter earnings of $1.31 a share, above the 15-analyst estimate of $1.25 and up from $1.14 a year ago.

FPL Group

(FPL) - Get First Trust New Opportunities MLP & Energy Fund Report

was declining 3/8 to 49 9/16 after it posted third-quarter earnings of $1.70 a share, in line with the 17-analyst estimate and up from $1.66 a year ago.

Fifth Third Bancorp

(FITB) - Get Fifth Third Bancorp Report

was stumbling 2 5/16 to 60 1/2 after it reported third-quarter earnings of 62 cents a share, in line with the 14-analyst estimate and up from a year-ago 53 cents.

Haverty Furniture

(HVT) - Get Haverty Furniture Companies, Inc. Report

was declining 11/16 to 14 9/16 after it posted third-quarter earnings of 31 cents a share, above the four-analyst estimate of 29 cents and better than a year-ago 20 cents.


(IDXX) - Get IDEXX Laboratories, Inc. Report

was sliding 3/8 to 15 3/16 after it posted third-quarter earnings of 21 cents a share, in line with the three-analyst estimate and up from 15 cents a year ago.



was losing 3/4 to 57 1/2 after it posted third-quarter earnings of 78 cents a share, 4 cents ahead of the 13-analyst estimate and up from the year-ago 58 cents.

Legg Mason

(LM) - Get Legg Mason, Inc. Report

was plummeting 4 11/16, or 12.3%, to 33 5/16 after it posted second-quarter earnings of 47 cents a share, below the four-analyst estimate of 52 cents but up from 37 cents a year ago.

New Century Energies


was tumbling 1/4 to 31 3/4 after it reported third-quarter earnings of 85 cents a share, beating the 9-analyst estimate of 83 cents and the year-ago 82 cents.



was sliding 9/16 to 25 7/8 after it reported third-quarter earnings of $1.28 a share, beating the 10-analyst estimate of $1.24 and the year-ago $1.27.


(ROG) - Get Rogers Corporation Report

was advancing 1 to 38 5/8 after it posted third-quarter earnings of 58 cents a share, above the single-analyst estimate of 45 cents and up from the year-ago 34 cents.

Tower Automotive


was slipping 7/16 to 18 1/4 after it reported third-quarter earnings of 44 cents a share, in line with the 12-analyst estimate and up from 36 cents a year ago.

UniSource Energy


was gaining 5/16 to 11 7/8 after it posted third-quarter earnings of 96 cents a share, missing the single-analyst estimate of $1.05 but above the year-ago 87 cents a share.

Analyst actions


(BA) - Get Boeing Company Report

was losing 3/4 to 42 7/8 after

Merrill Lynch

upgraded the stock to near-term accumulate from near-term neutral.

Coca-Cola Femsa

(KOF) - Get Coca-Cola FEMSA SAB de CV Report

was falling 15/16, or 6.3%, to 13 3/4 after

Morgan Stanley Dean Witter

added it to its fresh-money buy list and removed




(KLAC) - Get KLA Corporation Report

was climbing 1 5/8 to 74 5/16 after Credit Suisse First Boston raised its fiscal 2000 EPS to $1.90 from $1.80 and fiscal 2001 EPS to $2.65 from $2.50.

Microchip Technology

(MCHP) - Get Microchip Technology Incorporated Report

was leaping 5 1/4, or 10.2%, to 56 1/2 after Merrill Lynch raised its rating to long-term buy from accumulate. In addition, Warburg Dillon Read upped its price target on Microchip Technology to 70 from 65.


(MSFT) - Get Microsoft Corporation Report

was declining 2 5/8 to 88 1/8 after Credit Suisse First Boston said the company was on target to post first-quarter earnings above the consensus estimate of 36 cents a share.

Powerwave Technologies


was soaring 8 1/8, or 15.8%, to 59 3/8 after Warburg Dillon Read upped its estimates 1999 estimate to 90 cents a share from 74 cents and fiscal 2000 estimates to $1.28 from $1.07.


(DSS) - Get DSS, Inc. Report

was climbing 1 9/16, or 11.1%, to 15 9/16 after Morgan Stanley upped its shares to outperform from neutral.



was mounting 2, or 9.2%, to 23 5/8 after

Goldman Sachs

added the stock to its recommended list.


was stumbling 2 1/2, or 18.6%, to 10 15/16 after

Bear Stearns

cut the stock to neutral from attractive. The company late yesterday warned of a third-quarter revenue shortfall.

Offerings and stock actions


(VRTS) - Get Virtus Investment Partners, Inc. Report

was bouncing 6 7/8, or 7.9%, to 88 after it set a 3-for-2 stock split, payable on Nov. 19 to shareholders of record Nov. 2. Veritas posted third-quarter earnings after yesterday's close of 21 cents a share, beating the 20-analyst estimate of 17 cents and the year-ago 12 cents. Networks

(WOMN) - Get Impact Shares YWCA Women's Empowerment ETF Report

hadn't begun trading at midday. Morgan Stanley late yesterday priced the 3.75 million-share IPO at $10 a share, the high end of its recently lowered range. Morgan Stanley had said it expected to price the offering at the low end of the $8-to-$10 range, which had been reduced from $10 to $12.


American Home Products


was losing 1 3/16 to 45 3/8 after its

Wyeth Lederle Vaccines

unit pulled its


rotavirus vaccine from the market, based on its contribution to an intestinal disorder called intussusception.



was climbing 2 5/8, or 10.8%, to 26 3/4 despite getting hit with four separate class-action lawsuits from investors, alleging that they were misled by the company. The law firms representing the investors said that Raytheon hid information regarding its operation and finances.

The Heard on the Street column in

The Wall Street Journal

reports that

Neuberger Berman

(NEU) - Get NewMarket Corporation Report

suspended money manager Jack Ferraro. It is conducting an internal investigation of payments he received from

Showscan Entertainment


and three small companies. In 1995, Ferraro lined up $7 million for Showscan through a Swiss bank, in return for warrants for 100,000 shares of Showscan, but did not disclose his payment to his clients or to Neuberger, the story says.

Herb on TheStreet: IDT's Convoluted Earnings Release Tries to Get Investors to Ignore the Important Numbers


Herb Greenberg

Senior Columnist

10/15/99 6:30 AM ET

Talking about trying to make earnings look better than they really are:



gets this column's chutzpah award. Not only does it keep the mirrors in plain view, but it gives detailed instructions on how the trick is played, leaving investors to decide whether they want to accept the company's version of last quarter's financial results as a mere illusion.

The headline on the press release sets the tone by boasting a "record fourth quarter" and "strong market share gains."

Herb on TheStreet:

Join the discussion on


Message Boards.

It's downhill from there for anybody taking the time to go line by line through what is an unusually complicated and highly convoluted earnings report. "I cannot believe that press release because you cannot really determine what core earnings per share were," says analyst Greg Miller of

Jefferies & Co.

, who rates IDT a hold. Adds Vik Grover of

Kaufman Brothers

, who has a sell on the company, "I've never seen an earnings release like this."

The company's spin, in the first paragraph, is that IDT reported a 29% gain in first-quarter revenue and earnings of 22 cents per share. Wow! Sounds great -- until you read the rest of the same sentence. Those numbers include "several" unspecified "one-time" gains and don't include several other unspecified SG&A costs. They also don't include the results of



, in which IDT owns a 57% stake.

It's generally not good when a company includes one-time gains or excludes costs without providing details of what those gains and costs were and how much they're for. (It certainly isn't clear in the press release, which is all the average investor has to go on until documents are filed with the

Securities and Exchange Commission


It's also not generally a good sign when a company, in its earnings press release, offers investors their choice of two income statements -- and steers them from the one reported in accordance with generally accepted accounting principles to a more watered-down version (which, in the case of IDT, doesn't include results from Net2Phone).

That's just what IDT did, and for good reason: The GAAP report showed a loss of 15 cents a share, below analysts' expectations for a gain of 8 cents a share, rather than a profit of 22 cents a share.

IDT's argument, in its press release, is that it would prefer investors look at the results of its core biz. No prob, but IDT can't have it both ways. Back when Net2Phone went public, IDT execs were on TV trying to convince investors that they should consider buying the lower priced IDT instead of the expensive Net2Phone because as a 57% investor in Net2Phone, IDT was a cheap way to buy into Net2Phone. "They want credit from owning Net2Phone, but they don't want to accept the losses," grumbles one short-seller.

The income-statement shell game aside, IDT's basic biz, which includes selling prepaid phone cards, doesn't look so great. Gross margins are on the wane. Most telling was that the fastest growth -- 55.6% -- came from non-IDT-branded cards, which have meager 3.5% gross margins; that compares with an 8.9% gain of IDT-branded cards, which have margins of 26.9%. There were similar examples in other parts of the company, which suggests that in order to deliver that stunning revenue growth, IDT all but gave a good chunk of its biz away. "The fact that they have a great top line is irrelevant," Miller says. "You and I could create a company that puts up $200 million with zero margin."

Adding to the confusion, IDT held a brief conference call Thursday morning that lasted all of about 15 minutes. No questions were permitted. Company officials left the impression that they had more important things to do.

Oh, and finally, IDT made its debut

here in a Hostile-React-O-Meter-spinning column that questioned a $25 million loan from IDT to

Lermer Overseas Telecommunications

, a company run by a close friend of IDT CEO Howard Jonas. Lermer, however, was dissolved as a corporation in New York in September 1997 for failing to pay the state franchise tax, which means IDT made a large loan to a company that technically didn't exist. IDT said if it didn't reincorporate, the loan would be called. In the conference call Thursday, IDT said the loan had been repaid.

IDT officials didn't return my calls Thursday.

Short Positions

SCM's side of the story:

An item here Thursday mentioned that

SCM Microsystems


had filed a report with the SEC saying that its auditors,


, had quit. An SCM spokeswoman Thursday said the move was an economic decision and that

Deloitte & Touche

-- SCM's new auditor -- was the same auditor used by SCM's new CFO at his former employer. CFO Andrew Warner joined the company in June from privately held

Dazzle Multimedia

before SCM bought a controlling stake in Dazzle.

An early and major investor in Dazzle, by the way, was Paul Jain, the former CEO of

Media Vision

, once one of Silicon Valley's hottest companies, which filed for bankruptcy and now ceases to exist. Last July, Jain was indicted by the Justice Department on fraud charges related to the failure of Media Vision. Two years ago, when I first mentioned Jain's involvement at Dazzle in my column at the

San Francisco Chronicle

, Jain's name had just been removed from its position near the top of Dazzle's phone directory. Thursday, the spokeswoman had no idea whether he still had an investment in or plays a role at Dazzle.

Tyco terror:

So, Thursday,


slams a 2-by-4 over my head for my having reported that the chief counsel of

Tyco International


filed to sell his Tyco shares prior to this flap. Turns out the guy is a buddy (and former counsel) to Cramer, so it sent him into one of his

tirades. (Never mind that

this column was one of the first out with any attempt at deciphering the day's Tyco news, including having Tyco's response.) My response: Given the day and the news, it was an appropriate item regardless of whether you think insider selling (options related or not) is important. Have a problem with it, JJC? Fine, let's deal with it tonight at the



Nothing I look forward to more than ending my week face to face with an agitated Cramer. (Yep, I'd rather visit the endodontist! At least he gets me numb


the procedure.)

Report on Faber:

An item Thursday said that


David Faber had mentioned a report on Tyco by accounting sleuth David Tice; it suggested that Faber's comment led to the stock's decline. Faber reports that he only mentioned the Tice report


the stock's decline. Sorry 'bout that. (Still a scoop in my book.)

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,