midday10-27-99

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TheStreet.com's MIDDAY UPDATE

October 27, 1999

http://www.thestreet.com

Market Data as of 10/27/99, 12:54 PM ET:

o Dow Jones Industrial Average: 10,295.16 down 6.97, -0.07%

o Nasdaq Composite Index: 2,782.94 down 28.53, -1.01%

o S&P 500: 1,284.13 up 2.22, 0.17%

o TSC Internet: 700.50 down 22.65, -3.13%

o Russell 2000: 415.84 up 0.05, 0.01%

o 30-Year Treasury: 97 06/32 up 19/32, yield 6.330%

In Today's Bulletin:

o Midday Musings: Nasdaq, DOT Sell Off Hard as Blue-Chips Hang Tough
o Herb on TheStreet: Is Pixar's Most Recent Earnings Story Really as Good as the Coming Toy Story 2?

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Also on TheStreet.com:

Wrong! Dispatches from the Front: Taking Some General Mills Off the Table

And its not because Cramer doesn't like it -- in fact, the company is one of his faves.

http://www.thestreet.com/comment/wrong/805896.html

Options Focus: Early Options Rebate Plans Get Few Takers

Payment for order flow hits the options markets. Will anyone sign up?

http://www.thestreet.com/basics/optionsfocus/805396.html

SiliconStreet.com: High-Tech Chutzpah

Two Israeli Net companies to watch are Alchemedia, which targets the entertainment industry, and NewChannel, which focuses on targeting e-consumers.

http://www.thestreet.com/comment/siliconstreet/805444.html

Dear Dagen: Dear Dagen: In Defense of Stuart

Also, more on the arbitration process and a reader poll on TV pitchmen.

http://www.thestreet.com/funds/deardagen/805727.html

Midday Musings: Nasdaq, DOT Sell Off Hard as Blue-Chips Hang Tough

By

Thomas Lepri

Staff Reporter

10/27/99 12:58 PM ET

October's turbulence was nowhere to be found at midsession, where a mixed but tranquil session was leaving market participants in a state of relative quietude.

The market's most prominent benchmarks were gathered on both sides of break-even. The

Dow Jones Industrial Average

was up 1 to 10,303, held back by the drag of

Hewlett-Packard

(HWP)

, which was off nearly 7%. The

S&P 500

was also modestly higher, up 3 to 1285.

The

Nasdaq Composite Index

was down 27, or 1%, to 2785, weighed down by bellwethers and

Microsoft

(MSFT) - Get Report

and

Intel

(INTC) - Get Report

, which had its earnings estimates trimmed for 1999 and 2000 by

Salomon Smith Barney

today.

Net shares were tanking.

TheStreet.com Internet Sector

index was down 22, or 3.1%, to 701, the

overnight selling in

eBay

(EBAY) - Get Report

having spread throughout the entire sector.

The small-cap

Russell 2000

was up a scant fraction to 416.

Market strategists weren't complaining about the mixed market. "I think the market's holding up extremely well given where the interest rates are," said Barry Hyman, senior market strategist at

Ehrenkrantz King Nussbaum

. "The trading range is the best that could be expected given the environment."

In a short-term sense, a moderate bond market rally was improving that environment somewhat today. The 30-year Treasury was lately up 15/32 to 97 2/32, putting the yield at 6.35%. The long bond futures, which traders tend to watch more closely than the cash bond, were up 14/32 to 111 9/32. (For more on the fixed-income market, see today's early

Bond Focus.)

"If you can muster any strength in the bond market, that's certainly going to help the equity market," Hyman said. "To me, the only impediment is the interest rate picture. If we can continue to rally in the bond market, to me, the upside is very substantial. But I may be a bit presumptuous here, because we have two big sets of numbers coming out tomorrow."

At 8:30 a.m. EDT tomorrow morning, the market will breakfast with the

Employment Cost Index

and initial third-quarter

gross domestic product

figures. Those numbers will give investors their latest read on wage pressures and the growth of the economy, and thus, the likelihood that the

Fed

will raise rates when it meets on Nov. 3.

Taking the long-term view today was Tony Dwyer, chief market strategist at

Kirlin Holdings

, who offered up a simple history lesson. "The driving forces of the market are

price-to-earnings multiple expansion and earnings growth," he said. "We've lost multiple expansion because of its direct correlation to inflation. When inflation goes down, the market's multiple expands. When inflation goes up, the market's multiple contracts, which is what causes corrections. That driving force is gone, and the only thing you can argue for now is earnings growth. Growth is terrific, and that's why the market is holding up so well right now."

He's right about earnings growth. Earnings at the S&P 500 companies that have already reported this quarter are up 21.7% from last year, according to

First Call/Thomson Financial

. And despite all the talk about the how much tougher next year's comparisons are going to be, analysts are estimating S&P 500 earnings growth for fiscal 2000 at 17.4%, having trimmed that number just 0.3 percentage points since the beginning of the month.

"For the first time in a number of years, this is a stock picker's market," Dwyer continued. "One day you get a strong earnings report and a stock goes up big. Another day you get a weak report and a stock goes down big. That's because you're not getting a broad expansion."

Hyman agrees. "You have to be very selective in this market," he said. "You can't bottom-fish yet, as evidenced by what seemed to be a very solid report by

CVS

(CVS) - Get Report

." The beleaguered drugstore chain was lately down about 12% after posting earnings in line with expectations. "So you've got to be careful here and look at this as a sector market," Hyman concluded.

Financial stocks were using the bonds' slight strength to resume the rally they started Monday, the day after lawmakers reached a tentative deal to reform the

Glass-Steagall

act. The

Philadelphia Stock Exchange/KBW Bank Index

was up 2.2%, while the

American Stock Exchange Broker/Dealer Index

was up 2.7%.

Transportation was surging. The

American Stock Exchange Airline Index

was up 3.8%, while the

Dow Jones Transportation Average

was about 2.4% higher.

Market Internals

Breadth has certainly been a lot worse lately than it was at midday.

New York Stock Exchange:

1,600 advancers, 1,236 decliners, 463 million shares. 21 new 52-week highs, 161 new lows.

Nasdaq Stock Market:

1,668 advancers, 1,859 decliners, 597 million shares. 60 new highs, 84 new lows.

Wednesday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Intel was sliding 2 1/16 to 69 5/16 after

Salomon Smith Barney

sliced its earnings estimates. Salomon cut 1999 estimates to $2.23 a share from $2.27 and 2000 estimates were cut to $2.65 from $2.85. Salomon cited "multiple reports that Intel is still having some manufacturing issues this quarter."

Mergers, acquisitions and joint ventures

Unisys

(UIS) - Get Report

slipped 1 to 22 1/8 after saying it has established e-business pacts with

BEA

(BEAS)

,

Intershop

and

Siebel

(SEBL)

. Unisys forecasts that its Internet business will rake in 50% of its revenues. BEA lost 11/16 to 42 1/4, while Siebel climbed 3/4 to 93 1/4.

Earnings/revenue reports and previews

(

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

)

Allegheny Teledyne

(ALT) - Get Report

lost 1/8 to 14 7/8 after it reported third-quarter earnings of 23 cents a share, beating the nine-analyst estimate of 18 cents, but down from the year-ago 33 cents.

Conseco

(CNC) - Get Report

fell 3/16 to 21 13/16 after it posted third-quarter earnings of 73 cents a share, in line with the seven-analyst estimate but down from the year-ago 90 cents.

Consol Energy

(CNX) - Get Report

lifted 1 3/16, or 10%, to 13 1/16 after it posted first-quarter earnings of 13 cents a share, missing the single-analyst estimate of 15 cents and a pro forma year ago 21 cents a share.

Engelhard

(EC) - Get Report

lost 1/16 to 17 7/8 after posting third-quarter earnings of 40 cents a share, which includes gains from a sale. The report beat both the nine-analyst estimate of 36 cents and the year-ago 31 cents.

1-800-Flowers.com

(FLWS) - Get Report

lost 7/16 to 12 9/16 after it posted a first-quarter loss of 31 cents a share, narrower than the two-analyst estimate of a 36-cent loss but wider than the year-ago 5-cent loss.

Nu Skin

(NUS) - Get Report

slipped 1/8 to 11 3/8 after it posted third-quarter earnings of 24 cents a share, in line with the five-analyst estimate but down from the year-ago 30 cents.

Jones Apparel

(JNY)

lost 9/16 to 29 3/16 after it reported third-quarter earnings of 75 cents a share, beating both the 15-analyst estimate of 72 cents and the year-ago 57 cents. J.P. Morgan upped the stock to buy from long-term buy.

Sara Lee

(SLE)

inched up 5/8 to 24 3/8 after it reported first-quarter earnings of 28 cents a share, in line with the 14-analyst estimate and up from operating net of 25 cents a year ago. The company said net income was boosted by strength in its nonfood operations.

Qwest Communications

(QWST)

was unchanged at 34 1/2 after it posted third-quarter earnings of 3 cents a share, in line with the 20-analyst estimate and up from the year-ago pro forma loss of 2 cents.

Offerings and stock actions

Akamai Technologies

(AKAM) - Get Report

said it has upped the expected price range for its 8 million-share IPO to $21 to $23 a share from $16 to $18 a share.

Invitrogen

(IVGN)

lost 3/16 to 25 1/16 after it said it raised the number of shares in it secondary offering by 18%, to 5.9 million, because of an expected increase in demand.

Navistar

(NAV) - Get Report

added 7/8 to 41 3/4 after saying it set a share buyback worth up to $243 million.

Solutia

(SOI) - Get Report

fell 5/16 to 16 15/16 after saying it would buy back 5 million of its 116.5 million shares.

United HealthCare

(UNH) - Get Report

climbed 9/16 to 49 9/16 after it said that it has renewed a share-buyback plan for up to 10% of the company's stock.

Analyst actions

Merrill Lynch

initiated coverage of

Blackrock

(BLK) - Get Report

with a near- and long-term buy rating. Blackrock shares were climbing 1/8 to 14 1/8.

Robertson Stephens

rolled out coverage of

Forest Labs

(FRX)

with a buy rating. Forest Labs was slipping 3/16 to 43 1/2.

J.P. Morgan

rolled out coverage of

Goldman Sachs

(GS) - Get Report

with a long-term buy rating. Goldman Sachs was popping 1 1/4 to 63 1/16.

J.P. Morgan

upgraded shares of

Nortel Networks

(NT)

to buy from hold.

Last night, Nortel posted third-quarter earnings before items of 28 cents a share, 2 cents ahead of the 22-analyst estimate and up from the year-ago 21 cents, which excludes items. Nortel shares were advancing 2 1/8 to 57 5/8.

Warburg Dillon Read

upped its rating on

Owens Corning

(OWC)

to buy from hold. Owens Corning was mounting 3/8 to 18 3/16.

Credit Suisse First Boston upped its rating on

Rayonier

(RYN) - Get Report

to buy from hold. Rayonier was 1 1/16 to 38 9/16.

Deutshe Banc Alex. Brown

cut shares of

Smithfield Foods

(SFD)

to buy from strong buy. Smithfield Foods shares were sinking 1 13/16, or 7.7%, to 21 1/2.

Merrill Lynch started coverage of

Williams Communications

(WCG) - Get Report

with intermediate-term-accumulate and long-term-buy ratings. Shares of Williams were falling 1/16 to 30 7/8.

Miscellany

Metals USA

(MUI) - Get Report

slipped 3/8 to 8 1/4 after it said president and CEO Arthur French has resigned effective immediately. CFO and company director J. Michael Kirksey will become president and CEO.

The

Nasdaq Stock Market

is mapping out plans to roll out a pan-European stock market in early 2001, which would be known as

Nasdaq Europe

,

The Wall Street Journal

reported.

Herb on TheStreet: Is Pixar's Most Recent Earnings Story Really as Good as the Coming

Toy Story 2

?

By

Herb Greenberg

Senior Columnist

10/27/99 6:30 AM ET

Wednesday's Whine

No biz like show biz:

Love that

Pixar

(PIXR)

. Not only did the company report blowout third-quarter earnings earlier this week, but also it said that the year as a whole will beat Wall Street's expectations.

Investors embraced the news, sending Pixar's stock shooting up 7% Tuesday. The imminent release of

Toy Story 2

(go Woody!) didn't hurt. As this column

pointed out not long ago, if Pixar's stock does what it has done before each of the company's prior movies, it's likely to rise even more as the opening nears.

Join the discussion on

TSC

Message Boards.

However, from a fundamental standpoint, did investors overreact? Is the stock's rise based on a misperception of what's really happening to Pixar's earnings? Is this a classic case of a stock being driven by gullible individual investors?

Quite possibly. Institutions own only 23% of Pixar, and what the company did to get those fabulous numbers was little more than shift (very legitimately and above board) earnings from its fourth quarter to its third quarter. Revenue related to

A Bug's Life

-- revenue that is responsible for this blockbuster year -- is merely being recognized earlier than expected.

"We're describing this as a timing issue," says CFO Ann Mather. The company itself has gone out of its way

not

to guide analysts to expect any change in their expectations for total revenue related to

A Bug's Life

, and analysts have done little to change their overall estimates for

A Bug's Life

. "Obviously we're being very conservative," Mather says, adding, "and we're not anticipating an increase in

European sales of

A Bug's Life

" over Christmas.

The translation, according to Pixar short-sellers -- and there are plenty -- is that Pixar's unexpectedly strong year is likely to steal revenue related to

A Bug's Life

from the first, and possibly second, quarter of 2000. What's more, unless

Toy Story 2

does exceptionally well, Pixar may not see revenue from that release until late in next year's second quarter, or at the very earliest, the third quarter (that by the company's own reckoning). That's one reason why some analysts, while boosting their year-end estimates, haven't budged on raising next year's estimates, which many recently trimmed (to $1.23 per share from $1.32 per share, according to

First Call/Thomson Financial

).

In other words, despite what Pixar's stock does, nothing inside the company has really changed.

Money pit:

Couldn't help but notice a bunch of earnings revisions for Internet stocks by

Robertson Stephens

the other day. Note the trend: widening next year's loss expectations for the likes of

Autoweb.com

(AWEB)

,

Exodus Communications

(EXDS)

,

HotJobs.com

(HOTJ)

,

Inktomi

(INKT)

,

NewsEdge

(NEWZ)

,

Packeteer

(PKTR)

,

Phone.com

(PHCM)

,

Preview Travel

(PTVL)

and

Ramp Networks

(RAMP) - Get Report

. And those are only the ones I know about!

But the trend is clear, and according to one of this column's wisest Web watchers, it suggests that many Internet companies are mere fads. "It's harder to make money than they thought it would be," he says. And Wall Street's lack of concern about profits could mean many of these companies are "being sucked into a very uneconomic model."

Public venture is one thing; profitless prosperity is another. It's fine until the cash runs out. (Check out the chart of

Cyberian Outpost

(COOL)

for an example of what happens when costs and cash go in opposite directions. Notice you haven't seen any commercials of gerbils being shot out of cannons lately.)

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