midday10-28-99

Author:: Daniel Ranieri
Publish date:: Oct 28, 1999 2:03 PM EDT

TheStreet.com's MIDDAY UPDATE

October 28, 1999

http://www.thestreet.com

Market Data as of 10/28/99, 1:27 PM ET:

o Dow Jones Industrial Average: 10,605.44 up 210.55, 2.03%

o Nasdaq Composite Index: 2,848.40 up 45.88, 1.64%

o S&P 500: 1,333.32 up 36.61, 2.82%

o TSC Internet: 716.87 up 10.38, 1.47%

o Russell 2000: 421.48 up 4.71, 1.13%

o 30-Year Treasury: 98 05/32 up 28/32, yield 6.257%

In Today's Bulletin:

o Midday Musings: Powerful Rally Storms On With Financials in Vanguard
o Herb on TheStreet: Was It Right for Ancor to Ship a Product Before That Product Had Been Formally Unveiled?

TheStreet.com Community

The Dow is dashing and conversation is happening on today's Hot Boards:

The Dow Rally

http://www.thestreet.com/bbs/Forum2/HTML/000020.html

Herb on TheStreet: Ancor

http://www.thestreet.com/bbs/Forum1/HTML/000048.html

The Market According to Cramer

http://www.thestreet.com/bbs/Forum4/HTML/000025.html

Make sure to visit the Community section often as boards change daily.

TheStreet.com on Fox News Channel

Charles Carlson, co-manager of the Strong Dow 30 Value fund and author of bestsellers "Buying Stocks Without a Broker," "No-Load Stocks" and "The Individual Investor Revolution" will be joining this week's "Word on TheStreet" panel as it tackles the reconstitution of the Dow and how it will affect the individual investor.

Plus, Carlson will do the "Drill" with Herb and Cramer and Adam's back to butt heads with "Chartman" Gary B. Smith.

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

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 http://www.thestreet.com/tv (look for the yellow box in the upper right hand corner).

Also on TheStreet.com:

Wrong! Dispatches from the Front: Swings and Changes

With stock trading, things go right and they go wrong. There are hopes and then hopes get dashed.

http://www.thestreet.com/comment/wrong/806813.html

Building Blocks: REIT Roundtable Steadfast in the Face of Sliding Stock Prices

But investors will have to be more realistic about expectations before there's a rebound.

http://www.thestreet.com/comment/buildingblocks/806465.html

Biotech/Pharmaceuticals: AstraZeneca, Pharmacia Post Solid Earnings

Third-quarter profits rise at the drugmakers

http://www.thestreet.com/brknews/biotech/806563.html

Dear Dagen: Dear Dagen: HOLDRs a Low-Cost Way to Own Internet Stocks

But you'll need roughly $11,000 to buy in.

http://www.thestreet.com/funds/deardagen/806300.html

Midday Musings: Powerful Rally Storms On With Financials in Vanguard

Tara Murphy

Staff Reporter

10/28/99 1:13 PM ET

Financial stocks continued to fuel a big-time rally at midday on Wall Street. The lower-than-expected gain in the third-quarter

Employment Cost Index

report gave market players the green light to buy, despite next month's still-anticipated

Fed

rate hike.

Today's ECI report, a closely watched gauge of wage inflation, came in 0.1 percentage point below analyst expectations at 0.8%. With labor costs rising more slowly than expected, investors got a break from the usual Fed-monitored data that have been pointing toward an interest-rate hike Nov. 16.

The market: Join the discussion on

TSC

message boards.

"We still have risk while we move closer to the

FOMC

meeting," said Alan Ackerman, market strategist at

Fahnestock

, "but the data that came out today relieved some anxiety as we approach the next meeting. Wages and prices seem reasonably benign."

Although the market is enjoying today's hefty rally, Ackerman doesn't feel that inflation fears have slipped investor's minds. "We're in the eighth year of an economic expansion," he said. "This has been a long period of good and plenty. Investors are still concerned about the strong U.S. growth rate and the possibility of it leading to inflation as we move forward."

Without a doubt, the session's surge into positive territory was sparked by the financial services comeback. The interest-rate-sensitive stocks took off on today's ECI news. "The return of financial services is great," said Brian Gilmartin, portfolio manager at

Trinity Asset Management

. "Financial services still trade on interest-rate expectations even though the actual effect of interest rates on a bank's earnings is much smaller relative to 10 years ago. They are much better at managing interest-rate risk and asset liability management."

For a change it was the

Dow Jones Industrial Average

making noise in the market and not the tech-laden

Nasdaq Composite Index

. According to Gilmartin, Y2K is putting a lid on a tech-stock buying spree. He said he sees "a rotation going from tech stocks to financial stocks. Tech hardware is being hurt the most, whereas tech software is seeing the least damage. Whether it is perception or reality, Y2K is an overhang that will dampen earnings expectations through the end of the year."

The Dow was soaring 215, or 2.1%, to 10,610, with

American Express

(AXP) - Get Report

, leading the surge with a leap of 6 7/8, or 4.6%, to 157 1/2. American Express managed to hit 158 1/8 during today's rally, an all-time trading high for the stock.

J.P. Morgan

(JPM) - Get Report

was also enjoying the ride, up 3 1/4, or 2.5%, to 131 3/4.

The Nasdaq Composite Index was advancing 45, or 1.6%, to 2848. Networking stocks were taking the lead in Nasdaq trading, with

Foundry Networks

(FDRY)

up 8 3/4 to 180 3/4 and

Aether Systems

(AETH)

mounting 8 5/8, or 17.3%, to 58 3/8.

On the

New York Stock Exchange

, retailers were showing sizable gains despite being overshadowed by the financials' Big Board party.

Circuit City

(CC) - Get Report

was climbing 2 3/16 to 40 1/4, while

Best Buy

(BBY) - Get Report

was hopping 2 to 52 3/4.

Other major indices were storming higher as well, with the broad

S&P 500

bouncing 36, or 2.8%, to 1332, while the small-cap

Russell 2000

was gaining 5, or 1.1%, to 421.

TheStreet.com Internet Sector

index was climbing 11, or 1.6%, to 717.

Amazon.com

(AMZN) - Get Report

, off 4 5/8, or 6.1%, to 71 1/4, was pushing against the upsurge after yesterday's warning of fourth-quarter margin pressures.

On the Big Board, advancers were leveling decliners 2,036 to 868 on 683 million shares, while on the Nasdaq, leaders were beating laggards 2,137 to 1,516 on 717 million shares. New 52-week lows were leading new highs on the NYSE, 96 to 63, while on the Nasdaq, highs were ahead of lows 107 to 80.

On the bond front, the benchmark 30-year Treasury was up 29/32 to 98 5/32, with its yield at 6.26%. (For more on the fixed-income market, see today's early

Bond Focus.)

Thursday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Mergers, acquisitions and joint ventures

Dura Automotive Systems

(DRRA)

was unchanged at 17 3/4 after it agreed to acquire the seat-adjusting systems business of

Meritor Automotive

(MRA)

for $130 million in cash. Meritor inched up 5/16 to 17 15/16.

Earnings/revenue reports and previews

(

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

)

Aetna

(AET)

lost 2 to 49 3/16 despite posting third-quarter operating earnings of $1.27 a share, beating the 17-analyst estimate of $1.16 and the year-ago 96 cents. The company said it would aggressively repurchase stock as conditions allow.

Amazon.com was sliding 4 5/8, or 6.1%, to 71 1/4 after it posted a smaller-than-expected loss

last night, but warned losses would deepen in the current quarter.

Merrill Lynch

cut its rating on Amazon to near-term accumulate from buy.

Online bookseller

barnesandnoble.com

(BNBN)

climbed 3/8 to 19 7/8 after it posted a third-quarter loss of 15 cents a share, smaller than the four-analyst estimated loss of 23 cents a share and the year-ago loss of 16 cents a share. All figures reflect pro forma consolidated operations.

American General

(AGC) - Get Report

added 2 3/8,to 72 13/16 posted third-quarter earnings of $1.16 a share, in line with the 14-analyst estimate and up from $1.03 a share a year-ago.

American International Group

(AIG) - Get Report

jumped 5 3/4, or 6.2%, to 98 3/4 after it posted third-quarter earnings of 79 cents a share, a penny shy of the 20-analyst estimate but up from the year-ago 69 cents.

CBS

(CBS) - Get Report

jumped 3 5/8, or 8%, to 48 13/16 after it reported third-quarter earnings of 5 cents a share, beating the seven-analyst estimate by a penny and the year-ago 5-cent loss, which includes charges. The company attributed increased revenue to growth at

Infinity

and its television segment.

Clear Channel Communications

(CCU) - Get Report

rose 3 1/2 to 81 1/2 after it posted break-even results for the third quarter, in line with the seven-analyst estimate but down from 5 cents a year ago.

Clorox

(CLX) - Get Report

slipped 1/2 to 40 7/8 after it reported first-quarter earnings of 37 cents a share excluding charges, a penny better than the 13-analyst estimate but lower than a year-ago 42 cents.

R.R. Donnelly

(DNY)

inched up 5/16 to 28 3/8 after it reported third-quarter operating earnings of 67 cents a share, missing the nine-analyst estimate of 69 cents but up from a year-ago 61 cents a share.

BFGoodrich

(GR)

dropped 2 3/16, or 8.3%, to 24 1/8 after it posted third-quarter earnings of 74 cents a share before charges, better than the seven-analyst estimate of 73 cents, but down from a year-ago 76 cents a share.

GPU

(GPU)

rose 7/8 to 34 3/8 after it reported third-quarter earnings of $1.18 a share, beating the 10-analyst expectation of $1.07 a share, and the year-ago $1.01 a share.

Shares of

Hewlett-Packard

(HWP)

rose 3 5/8, or 5.4%, to 70 11/16, after a drop in pretrading. CEO Carly Fiorina said she was comfortable with the latest forecasts after analysts cut profit estimates. TheStreet.com wrote about H-P's

earnings worries yesterday.

Hilton Hotels

(HLT) - Get Report

climbed 3/16 to 9 1/4 after it reported third-quarter earnings of 17 cents a share, in line with the 15-analyst estimate and up from 15 cents a year ago.

Infinity Broadcasting

(INF) - Get Report

jumped 2 3/16, or 6.9%, to 34 after it posted third-quarter earnings of 13 cents a share, a penny better than the 10-analyst estimate and up from a year-ago 10 cents a share which includes a charge.

Kellogg

(K) - Get Report

rose 1/16 to 40 11/16 after it posted third-quarter earnings of 47 cents a share excluding charges, beating the 18-analyst estimate of 41 cents and the year-ago 35 cents.

Kerr-McGee

(KMG)

fell 1/16 to 55 9/16 after it reported third-quarter earnings of $1.20 a share, beating the 13-analyst estimate and the year-ago 30 cents a share.

Milacron

(MZ)

moved down 1/8 to 17 5/8 after it reported third-quarter earnings of 47 cents a share, in line with the 10-analyst estimate and even with the year-ago earnings.

MCI WorldCom

(WCOM)

jumped 5 1/8, or 6.6%, to 82 3/4 after it posted third-quarter earnings of 55 cents a share, a penny ahead of the 25-analyst estimate and up from the year-ago 19 cents.

News Corp.

(NWS) - Get Report

gained 11/16 to 28 3/8 after it reported first-quarter earnings of 16 cents an ADR, better than the five analyst estimate of 14 cents but down from the year-ago 20 cents.

Pharmacia & Upjohn

(PNU)

tose 2 15/16 , or 5.7%, to 54 3/16 after posting third-quarter earnings of 47 cents a share before charges, in line with the 17-analyst estimate and up from the year-ago 41 cents. The company said U.S. prescription sales were up 17% in the latest quarter.

Procter & Gamble

(PG) - Get Report

gained 3 3/4 to 103 1/16 after it posted first-quarter core earnings of 88 cents a share, in line with the 12-analyst estimate but up from 80 cents a year ago.

Warnaco

(WAC)

lost 1/16 to 15 5/8 after it reported third-quarter earnings of 80 cents a share, a penny shy of the 13-analyst estimate but up from 43 cents a year ago.

Offerings and stock actions

Analyst actions

Lehman Brothers cut its 1999 earnings estimates on

CVS

(CVS) - Get Report

to $1.53 from $1.54. Despite the move, CVS rose 1 1/8 to 40 1/8.

Credit Suisse First Boston

upped its rating on

Exxon

(XON) - Get Report

to buy from hold. Exxon gained 2 1/8 to 73 7/8.

Merrill Lynch raised its rating on

Sara Lee

(SLE)

to near-term accumulate from neutral. Sara Lee inched up 15/16 to 26 9/16.

Deutsche Bank Alex. Brown

raised its price target for

Sun Microsystems

(SUNW) - Get Report

to 100 from 93. Sun rose 4 1/8 to 96 3/4.

Brown Brothers Harriman

started

Time Warner

(TWX)

with a buy rating. Time tacked on 3 9/16, or 5.7%, to 66 9/16.

Merrill Lynch raised its price target on

William Wrigley Jr.

(WWY)

to 87 from 81. Wrigley moved up 1 1/16 to 78 7/8.

Miscellany

The Heard on the Street column in

The Wall Street Journal

says some investors have begun to pull back on

Microsoft

(MSFT) - Get Report

after eyeing a drop in its closely watched "unearned revenue" account to $4.13 billion on Sept. 30, from $4.24 billion in June. Microsoft inched down 7/8 to 90.

Herb on TheStreet: Was It Right for Ancor to Ship a Product Before That Product Had Been Formally Unveiled?

Herb Greenberg

Senior Columnist

10/28/99 6:30 AM ET

How common is it for companies to ship products to customers

before

those products have been formally introduced?

Probably all

too

common, but that question is central to the rapidly evolving (and increasingly tense) story surrounding

Ancor Communications

(ANCR)

, which is trying to snare share from industry leader (and

Cramer

Red Hot)

Brocade Communications

(BRCD)

in the super-hot fibre-channel switch industry.

As this column has

previously reported, Ancor recently won a coup when it signed

Sun Microsystems

(SUNW) - Get Report

as a customer (in return for granting Sun warrants on its stock). What hasn't been generally reported, however, is what happened last week when Ancor reported earnings. Deep in its earnings release, Ancor matter-of-factly said that it had started shipping a "next generation" eight-port switch last quarter. Don't get caught up in what an eight-port switch is -- that's not important. What's important is that the company later said that the new switch comprised everything shipped to

MTI Technology

(MTIC)

Herb's Latest: Join the discussion on

TSC

Message Boards.

This is where things get dicey. Shipments of this new switch, according to analysts, accounted for 37% of Ancor's sales in a quarter that handily beat analyst expectations.

What's more, while sales from the prior quarter rose 11%, receivables soared by 70%; results like those often mean customers have been given incentives to take more product than they otherwise might accept. The hint by a number of short-sellers is that by shipping the new product, Ancor helped prop up what would've otherwise been a lackluster quarter.

Ancor, however, says that's not the case. CFO Steve Snyder says the higher receivables reflect the timing of MTI's order, which was late in the quarter. And as for shipping product that hasn't yet been announced, he says: "It's very common for OEM suppliers to do that -- or even those who ship to end users. It is quite a common occurrence to put product out in the field before it is publicly announced. This public announcement is really timed around other events. In this case, we are timing it around an industry event that takes place in early November, so there's nothing really unusual there."

Not so (surprise, surprise), according to Brocade CEO Greg Reyes. (Like you expect him to agree with Ancor?) "It's highly unorthodox to recognize revenue for new products that have not been publicly introduced or proven themselves to be viable new products," he says. He adds that Brocade goes one step further and doesn't recognize revenue until OEMs ship products out to end customers. For example, he says, Brocade shipped a new product to

Compaq

(CPQ)

last April, but didn't recognize that revenue until July, when Compaq starting shipping the product containing the Brocade switches.

Why does any of this matter? 'Cause yesterday

Vixel

(VIXL)

, a competitor of Ancor and Brocade, skidded 20% after reporting its first quarterly results as a public company. Hard to say where the disappointment was, but interestingly, Vixel has a market cap of $635 million and last quarter had revenue of $8.9 million (and it's getting clobbered!). That compares with Ancor, which last quarter had a market cap of $925 million and revenue of $4 million. (Both are puny when compared with Brocade, which has a market cap of $7.3 billion and whose sales last quarter topped $20 million.)

Oh, and one other thing: Brocade hired

KeyLabs

, a respected testing company, to test its switches against Ancor's and Vixel's. The results were overwhelmingly in favor of Brocade. Ancor President Cal Nelson dismissed the test as an unfair comparison, because it tests Ancor's older switch, which isn't the one going to Sun or MTI. "It is totally ridiculous," he told my associate,

Mark Martinez

. "It isn't even the product that they are competing against. In our view, that is a misrepresentation. It is clear that Brocade is trying to manipulate the marketplace. They know that this is not the product that we kicked their butts with. They know this."

Reyes' response to me: "Great, then let's put the allegedly new switch through KeyLabs' test. For months they said theirs was better than ours. They should've qualified their statements because they've been making misrepresentations for months."

Adds KeyLabs CEO J.D. Brisk: "We run a lot of these types of comparisons, and most of these are not published. And Brocade can have this information released or not, depending on how it comes out."

Brisk adds that companies come to KeyLabs with the hopes of looking good. In the end, "they pay us to tell them whether or not the baby is ugly. Sometimes it looks good, and sometimes it looks like a chimp. We don't care one way or the other -- it is simply data to us."

If a company doesn't like what it hears, he adds, there's little chance that anyone will ever know because the results will never be publicized by the company that requested the test in the first place. "We executed the task that we were paid to do," Brisk says. "What a company does with the results is their business. But we are going to call them as we see them."

Amazonian Ambush

Amazon: Join the discussion on

TSC

Message Boards.

From one of this column's

Amazon.com

(AMZN) - Get Report

watchers, after listening to Wednesday's conference call: "I thought the biggest surprise was the comment about portal relationships. I think it was

CEO Jeff Bezos who said, almost at the end of the call, that Amazon may not renew some portal relationships when they expire. If mighty Amazon is questioning the value of those relationships, what does that say for the future ad streams of

Yahoo!

(YHOO)

America Online

(AOL)

, etc.?"

Good question!

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.