midday10-22-99
TheStreet.com's MIDDAY UPDATE
October 22, 1999
http://www.thestreet.com
Market Data as of 10/22/99, 1:11 PM ET:
o Dow Jones Industrial Average: 10,430.04 up 132.35, 1.29%
o Nasdaq Composite Index: 2,837.88 up 35.93, 1.28%
o S&P 500: 1,300.93 up 17.32, 1.35%
o TSC Internet: 725.75 up 6.79, 0.94%
o Russell 2000: 418.45 up 4.18, 1.01%
o 30-Year Treasury: 96 28/32 down 2/32, yield 6.350%
In Today's Bulletin:
o Midday Musings: Techs, Financials Lead Market Out of Recent Doldrums
o Herb on TheStreet: An Early (Very Early?) Warning of Trouble at Colgate-Palmolive?
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TheStreet.com on Fox News Channel
Steve Sanders, president of MDL Capital Management, is this week's guest on "Stock Drill." See what Herb Greenberg and Dan Colarusso have to say about this money manager's picks.
"Chartman" Gary B. Smith takes on a new rival in funds columnist Dagen McDowell and tries his hand at charting mutual funds. And on "Word on TheStreet," our panel will be taking a look at IBM and Y2K and Cramer offers some thoughts on making the most of earnings news and taking advantage of negativity.
"TheStreet.com" on Fox News Channel airs Saturdays at 10 a.m. and 6 p.m. ET and Sundays at 10 a.m. ET.
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Also on TheStreet.com:
Wrong! Dispatches from the Front: An Important Bottom
The market plays many, many tricks on us, Cramer says. He is proud that he stood his ground during last Friday's selloff.
http://www.thestreet.com/comment/wrong/800450.html
Telecom: Ericsson Jumps on Rosy Sales Forecast
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http://www.thestreet.com/tech/telecom/800362.html
Earnings: Profit Warning Sends Waste Management Tumbling
Accounting troubles could force the company to take a charge of up to $1 billion against its third-quarter earnings.
http://www.thestreet.com/markets/earnings/800479.html
Fixed-Income Forum: How Can I Trade the 30-Year Treasury Bond?
With considerable hassle. But we'll describe easier ways to gamble on a big drop in rates.
http://www.thestreet.com/funds/bondforum/799877.html
Midday Musings: Techs, Financials Lead Market Out of Recent Doldrums
By
Brian Louis
Staff Reporter
10/22/99 1:15 PM ET
Just last Friday, the performance of bank stocks was almost as revolting as the mysterious, horrific, rotting tuna smell that permeated the elevator today at about 7:15 a.m. EDT.
One week ago, the
Philadelphia Stock Exchange/KBW Bank Index
closed at 709.85, a level it was trading at in October 1998. Well, another week, another hundred-odd points. The bank index was lately up 3.7% at 807.
The Market: Join the discussion on
TSC
Message Boards.
Major stock proxies were trading near their best levels of the session early this afternoon as financials were leading the upside assault with spicy gains, thanks to word that the White House and congressional negotiators reached a preliminary deal to revamp Depression-era banking laws. Also enjoying a decent pop in the market today were tech stocks, notably semiconductors.
The
Dow Jones Industrial Average
was up 139, or 1.4%, to 10,437, powered by hefty gains in
J.P. Morgan
(JPM)
and
American Express
(AXP)
.
The deal in Washington would allow banks, insurance companies and brokerages to merge or enter each other's businesses.
Financial sector gauges were sizzling. The
American Stock Exchange Broker/Dealer Index
was up 6.7%; the
Nasdaq Financial Index
was up 2.2%; and the
S&P Insurance Index
was up 5.9%.
Away from financials, the story was
Sycamore Networks
(SCMR)
, which was exploding in its trading debut, flying 418% to 199 after trading as high as 270 7/8. The company makes products that send voice data over wavelengths of light.
Morgan Stanley Dean Witter
priced Sycamore's 7.475 million-share IPO yesterday at $38 a share.
The
S&P 500
was up 19, or 1.5%, to 1302. The financial components of the S&P 500 were largely powering the bid-cap gauge higher. The
Nasdaq Composite Index
was up 38, or 1.4%, to 2840.
The small-cap
Russell 2000
was up 4, or 1%, to 418.
TheStreet.com Internet Sector
index was up 8, or 1.1%, to 727. Holding back the DOT's advance was
Inktomi
(INKT)
, which was off sharply after
Merrill Lynch
downgraded the stock in the wake of the company's fourth-quarter loss report last night.
In tech, the
Philadelphia Stock Exchange Semiconductor Index
was up 2.8%. The
Nasdaq 100
was up 1.4%.
"I think the technology stocks still want to be the leadership of the market," said Ted Bridges, vice president and money manager at
Bridges Investment Counsel
in Omaha, Neb. The money manager said the key event was
Microsoft's
(MSFT)
earnings this week, which seemed to turn the mood in tech from a negative view to positive. As for the
IBM
(IBM)
debacle yesterday, Bridges pointed out that the damage was contained for the most part to IBM.
Volume was heavy, for the most part, and breadth was positive (see below).
In the Treasury market, the 30-year bond was lately down 2/32 to 96 29/32, yielding 6.36%. (For more on the fixed-income market, see today's early
Bond Focus.)
"It looks strong so far," said Louis Todd, head of equities trading at
J.C. Bradford
, of the market's advance, speaking around midmorning.
The trader said if interest rates stay around their current levels or go lower, he wouldn't be worried about stocks selling off too badly. He also pointed to the good breadth under the market.
Todd said everyone's keeping an eye on the inflation numbers and interest rates. Once the current earnings season is out of the way, rates and economic data will be the "guiding force" for the fourth quarter.
Meanwhile, among other indices, the
Dow Jones Utility Average
was up 0.1%; the
Dow Jones Transportation Average
was up 1.5%; and the
American Stock Exchange Composite Index
was down 0.9%.
On the Big Board,
Philip Morris
(MO)
was most active with 21.1 million shares changing hands. It was up 4%, beginning to repair some of the damage it has suffered the last couple of sessions.
On the Nasdaq,
Ericsson
undefined
was most active with 19.9 million shares changing hands. It was up 14.1% after coming out with a positive outlook for next year.
Friday's Midday Watchlist
By
Eileen Kinsella
Staff Reporter
Shares of consumer goods giant
Gillette
(G)
shaved off 2 3/8, or 6.6%, to 35 1/2, with the stock among the biggest losers on the Big Board. Last night Gillette said it sees fourth-quarter sales and earnings declining as it tries to trim excess inventory. The company said it expected its results to bounce back and return to high growth rates "in the near future," according to
Reuters
.
TheStreet.com
took a look at Gillette's announcement in a
story last night.
Gillette also announced third-quarter earnings of 32 cents a share, in line with the downward-revised 12-analyst estimate and up from the year-ago 30 cents. Separately, Gillette said its board authorized the repurchase of an additional 25 million shares as part of its stock buyback plan, bringing the total plan to 100 million shares.
TheStreet.com
closely examined Gillette's cash management techniques in a prescient
Tuesday story, part of
TSC's
Cracking the Books II series on corporate accounting shenanigans.
Trading at
Charles Schwab
(SCH)
, both online and over the automated telephone system, was back in running order on its backup systems at around 11:20 a.m. EDT, company spokesman Greg Gable said.
The problem that suspended trading is related to systems software, and the company is working with its vendor on solving them, he said. Schwab was down on Thursday after the market closed for similar problems, Gable said, but Wednesday morning's nearly three-hour outage was unrelated. Schwab is just one of many online brokerages that have discovered in the last few years that keeping trading running on the Internet is not as easy as it sounds.
-- Caroline Humer
PaineWebber
(PWJ)
was up 3 3/8, or 10.1%, to 36 11/16 on an
Investment Dealers' Digest
report that it's in talks to acquire privately held investment banking boutique
Keefe Bruyette & Woods
.
IDD
said no further details were immediately available.
Mergers, acquisitions and joint ventures
Deutsche Telekom
(DT)
climbed 1/2 to 46 5/16 after saying its buying
MediaOne Group's
undefined
mobile-phone assets in Poland, Hungary and Russia for $2 billion. MediaOne was edging up 5/8 to 69 5/8.
Mechanical Technology
(MKTY)
fell 1 7/16, or 5.8%, to 23 9/16 after it announced plans to buy a 16% interest in
SatCon Technology
(SATC)
, in a deal valued at $7 million. Shares of SatCon were slipped 17/32, or 6%, to 9 5/16. The transaction calls for Mechanical to swap its
Ling Electronics
divisions, along with $7 million for 1.8 million newly issued SatCon shares and warrants.
Earnings/revenue reports and previews
(
Earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified.
)
Cincinnati Bell
undefined
climbed 1 1/8, or 5.5%, to 21 7/16 after posting third-quarter earnings of 22 cents a share, a penny better than the six-analyst estimate and up from the year-ago 15 cents a share.
Ericsson ascended 4 11/16, or 13.9%, to 38 7/16 after hitting an intraday record high of 39 3/8. The company said third-quarter sales rose 14% over last year, but income before taxes fell 19% from the year-ago period.
IXC Communications
undefined
climbed 2 3/4, or 6.6%, to 44 3/8 after it posted a third-quarter loss of $2.29 a share, which includes a restructuring charge. The six-analyst estimate was for a $2.27 loss, while the year-ago report was a $3.53 loss, which also included a restructuring charge.
IXC Communications
undefined
climbed 2 3/4, or 6.6%, to 44 3/8 after it posted a third-quarter loss of $2.29 a share, which includes a restructuring charge. The six-analyst estimate was for a $2.27 loss, while the year-ago report was a $3.53 loss, which also included a restructuring charge.
U S West
(USW)
inched up 1/8 to 59 9/16 after it posted third-quarter earnings of 83 cents a share, beating the 16-analyst estimate of 80 cents and the year-ago 75 cents.
Waste Management
(WMI)
, fell 1 1/4 to 15 9/16 after the garbage-hauling titan, warned that preliminary findings from an internal audit will likely "have a material unfavorable impact" on the company's third-quarter and full-year results.
Offerings and stock actions
Analyst actions
ABN Amro
sliced its price target on
Biogen
undefined
to 75. Biogen sank 10, or 13.5%, to 64.
Carrier
undefined
fell 1/4 to 50 despite a lift from
Warburg Dillon Read
raised its earnings per share estimates for the fourth quarter and 2000, and set a price target of 65, up from 60.
Morgan Stanley Dean Witter
upped its rating on
Exodus
undefined
and
National Semiconductor
(NSM)
Atmel
(ATML)
to a strong buys from market perform ratings. Exodus was bouncing 6 3/8, or 8.6%, to 79 13/16 and National Semiconductor was advancing 9/16 to 29 7/16, while Atmel shares were gaining 1 15/16, or 5.8%, to 35 1/16.
Merrill Lynch downgraded Inktomi to intermediate-term neutral from intermediate-term accumulate for valuation reasons and "a significant increase in our operating-loss estimates" for fiscal year 2000. Merrill maintained its long-term buy rating on Inktomi, however. Inktomi was plummeting 17 13/16, or 14.7%, to 102 7/8.
Mattel
(MAT)
fell 1/8 to 13 1/16 after
U.S. Bancorp Piper Jaffray
cut its earnings estimates on the toy maker for the fourth-quarter, and full year 1999 and 2000.
Lehman Brothers
raised its rating on
Nabors Industries
(NBR)
to outperform from neutral. Shares of Nabors were adding 7/8 to 24 13/16.
Goldman Sachs
upped its rating on
NetZero
(NZRO)
to a trading buy from market outperform. NetZero was mounting 4 3/16, or 22%, to 23 1/8.
Deutsche Bank
upped its 1999 earnings estimates for
Nokia
(NOK)
by 9% and its fiscal 2000 estimates by 19%, while maintaining its buy rating. Nokia was climbing 5/16 to 104 1/4.
First Albany
cut
Pervasive Software
(PVSW)
to accumulate from buy. Pervasive shares were plummeting 24 1/2, or 67.9%, to 1 9/16.
Deutsche Bank Securities
sliced its 1999 earnings estimates for
Reuters
undefined
by 5% and its fiscal 2000 estimates by 10%, while maintaining its market perform rating. Reuters was losing 3 13/16, or 6.6%, to 53 7/16.
Merrill Lynch upgraded
Symbol Technologies
(SBL)
to intermediate-term buy from accumulate. Symbol Technologies was advancing 4 7/16, or 13.4%, to 37 3/8.
Donaldson Lufkin & Jenrette
raised its rating on
Tidewater
(TDW)
Tidewater shares were rising 2 11/16, or 10%, to 29 7/16.
Goldman Sachs added
Viant
undefined
to its recommended list from a market outperform rating. Viant was soaring 23 1/4, or 32.9%, to 94 1/2.
Miscellany
Amazon.com
(AMZN)
said it plans to sue
barnesandnoble.com
undefined
, claiming that the retail Web site duped Amazon's patented
1-Click
technology for online shopping. The proceedings charge patent infringement and seek an immediate court order to stop barnesandnoble.com from using the technology. Shares of Amazon were bouncing 15/16 to 81 5/8, barnesandnoble.com were advancing 1/8 to 18 5/8.
The
Clinton
administration and
Congress
reached a pact early today that is expected to clear the way for overhauling Depression-era banking laws,
Reuters
reported.
Intel
(INTC)
said it plans to roll out its fastest
Pentium III
chips on Monday without its highly anticipated 820 chipset family, which PC makers such as
Dell
(DELL)
are relying on for their own products' production. The 700-megahertz chipset will compete with
Advanced Micro Devices'
(AMD)
new
Athlon
chip family. Shares of Intel were bouncing 1 3/8 to 73 1/8, while AMD was falling 1/8 to 18 3/4.
Herb on TheStreet: An Early (Very Early?) Warning of Trouble at Colgate-Palmolive?
By
Herb Greenberg
Senior Columnist
10/22/99 6:30 AM ET
|
Yesterday's third-quarter report by
Colgate-Palmolive
(CL)
was another winner. So much so that the exalted
JJC
was
yacking about how maybe it could be where dejected
Philip Morris
(MO)
investors put their money. But before they do, they might want to hear what
Banc of America Securities
analyst Bill Steele has to say.
Steele likes to look beyond the P&L, and when he does -- at least when it comes to Colgate -- he doesn't necessarily like what he sees.
Colgate-Palmolive: Join the discussion on
TSC
Message Boards.
Steele is known best to readers of this column for
predicting earnings trouble at
Gillette
(G)
. And according to "
Chainsaw
,"
John Byrne's
excellent book on
Sunbeam
(SOC)
, he was one of the few analysts who had the guts to go against the grain on Sunbeam. Colgate is no Sunbeam. It may not even be another Gillette. But what it shares in common with both -- and which is why it's not on Steele's recommended list -- is the kind of balance sheet that makes Steele uneasy.
Specifically, Steele is bothered by what he sees when he analyzes Colgate's cash flow statement and balance sheet. Such analysis "either gives you stronger confidence or lower confidence in EPS trends," he says. While he can't say
when
an earnings miss will occur, he believes that the odds have increased that an earnings miss (or misses) is (or are) looming. "You don't have that one specific catalyst," he says, adding: "This is not a negative call. It's a warning flag call." (And all too often warning flag calls, such as these, are ignored.)
Steele first voiced his Colgate concerns in an August report to clients. Among his concerns: Second-quarter cash flow from operations dropped 17%. It was the first quarterly decline in nearly two years. And days supply of inventory had risen for four straight quarters (finished goods comprising much of it) while days receivables outstanding leaped for the fifth quarter. They inched up by a day or two in the quarter that was reported yesterday. Nothing egregious, mind you (at 45 days and 68 days, respectively), just a potentially troublesome trend.
What's more, in its earnings press release, Colgate made a special point of saying that cash flow from operations in the third quarter rose by 16%. As for the second quarter, a spokeswoman says the decline in operating cash flow was an aberration, caused by a one-time payment to the state of California to settle a tax dispute. She adds that Colgate believes it's more important to look at the long term than a single quarter. For example, for the last nine months Colgate's operating cash flow rose by 15%. And when the third-quarter 10-Q is released in several weeks, she says, it will become evident that other "one-time" issues distorted second-quarter cash flow.
She also points out that while Steele "may be good at spotting trends, he certainly missed the boat on Colgate," which he hasn't recommended for at least four years. During that time Colgate's stock has soared by 235%.
Steele doesn't disagree, but he notes that he was on the "wrong" side of Gillette for a couple of years, too.
Nothing wrong with being early as long as you're right.
Short Positions
Diamond Dollop:
Seen
Diamond Technology Partners
(DTPI)
since it was last
mentioned here as the favorite of one of this column's most diligent short-selling sources? Up 60%. Strong earnings. Another acquisition. Inquiring minds -- among many of this column's readers -- wanna know what the short is saying now?
"I'm staying short," he says. "All consulting firms with these issues I have ever shorted in the past have blown up. Like
Superior Consultant Holdings
undefined
." Will Diamond be the exception? Will keep you posted.
Closing the book on Open Text:
At item
here two months ago raised questions about the quality of
Open Text's
(OTEX)
earnings. (The stock was 25 at the time.) Then, a month ago, the company guided analysts lower, and the stock tumbled to around 20. The latest: One of the company's chief cheerleaders, Banc of America Securities analyst Greg Vogel, downgraded the stock. It's now around 16 and, according to short-sellers, headed lower.
Lernahooligan alert:
An item here several weeks ago mentioned that a new
Lernout & Hauspie
undefined
speech-enabled Web browser sounded an awful lot like the same software rolled out almost four years ago by
Quarterdeck
-- back when Quarterdeck was run by the same guy who now runs L&H. Lernout officials, at the time, didn't take my call, so the column -- literally -- asked whether the software was a retread.
After the item ran, the company directed its outside public relations firm to contact me and demand a correction.
Correction?
You gotta be kidding!
The column merely mentioned that the two software products seemed similar, and it publicly
asked if that was so.
So, instead of a correction, here's Lernout's answer to my question: The software in question is not the same software and doesn't use the same technology as the Quarterdeck product, according to the outside public relations firm, which was quoting Lernout.
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.
Mark Martinez assisted with the reporting of this column.
Copyright 1999, TheStreet.com
