midday11-18-99

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TheStreet.com's MIDDAY UPDATE

November 18, 1999

http://www.thestreet.com

Market Data as of 11/18/99, 1:08 PM ET:

o Dow Jones Industrial Average: 10,997.16 up 114.07, 1.05%

o Nasdaq Composite Index: 3,308.85 up 39.46, 1.21%

o S&P 500: 1,416.73 up 6.02, 0.43%

o TSC Internet: 934.00 up 31.63, 3.51%

o Russell 2000: 459.93 up 2.86, 0.63%

o 30-Year Treasury: 99 07/32 down 20/32, yield 6.175%

In Today's Bulletin:

o Midday Musings: Hewlett-Packard Inspires Broad Tech-Led Rally
o Herb on TheStreet: Oh, What a Tangled Web Ray Noorda's MTI and Canopy Weave!

"TheStreet.com" on Fox News Channel

This week on "TheStreet.com": Are there still some screaming buys among the year's most sizzling tech stocks, or are price tags just too high? Get the "Word on TheStreet" from Jim Cramer, Herb Greenberg and guest Todd Eberhard of Eberhard Investment Associates. And Transamerica's Christopher Bonavico is clobbering the S&P 500 with his two mutual funds. What does he like right now? Find out this weekend on "TheStreet.com."

"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! Rear Echelon Revelations: Financial Technology Expo Speech, Part 1

Things change quickly in the dot-com world, and Wall Street will see some of the biggest winners and losers, Cramer says.

http://www.thestreet.com/comment/wrongrear/822367.html

Networking: Defying Gravity, Net-Equipment Makers Keep on Flying High

Many investors refuse to characterize the promising sector's recent success as a manic bubble, but some analysts think emotion is overtaking reason.

http://www.thestreet.com/tech/networking/822061.html

Market Features: What a Mess: Nasdaq 100 Rebalancing Leads to Wacky Weightings

Why is Qualcomm No. 4 instead of No. 9? On the Nasdaq 100, last year's index change meant to clear up problems has created new ones.

http://www.thestreet.com/markets/marketfeatures/821956.html

Dear Dagen: Dear Dagen: Yet Another Way to Invest in the Internet

Salomon Smith Barney is planning an exchange-traded Internet index fund.

http://www.thestreet.com/funds/deardagen/822389.html

Midday Musings: Hewlett-Packard Inspires Broad Tech-Led Rally

By

Tara Murphy

Staff Reporter

11/18/99 1:21 PM ET

Once again, a tech heavyweight managed to pack a punch that kept the major indices soaring in positive territory at midsession.

Hewlett-Packard

(HWP)

was strengthening the

Dow Jones Industrial Average

and, along with its freshly traded spinoff,

Agilent

(A) - Get Report

, adding fuel to the tech sector. The action shows just how one tech large-cap can cause make or break a day on Wall Street.

"There is a lot of focus on Hewlett-Packard and its spinoff," said Bill Schneider, head of equity block trading at

Warburg Dillon Read

. "It's breathing new life into the tech sector. There is very strong buying coming back into the tech sector, with earnings and the

Fed

behind us, there aren't any clouds on the horizon and the market is celebrating that."

Across the board, Wall Street investors agreed that H-P had the spotlight. However, not all insiders thought those better-than-expected fourth-quarter earnings alone were responsible for its big gains.

"Hewlett-Packard is the story," said Ronny Kraft, CEO of

Gotham Capital Management

. "It is the biggest influence on the Dow." Indeed, H-P was contributing about 73 points of the Dow's midday gain of 114, or 1%, to 10,997. "But if it is because of its earnings last night, I would call the move suspect," added Kraft, who attributes H-P's jump to its spinoff of Agilent. "A $13 movement isn't warranted based on the numbers we saw last night. In the IPO market that we are in, stocks like H-P can go up on a mere spinoff."

As Wall Street moves further into a bull resurgence, it comes closer to Y2K D-Day. And as Kraft notes, with the event's uncertainty comes skepticism. "Right now, we're looking for the market to move higher over the next couple of weeks and we would not be surprised to see the Dow and the

S&P 500

hit all-time highs, with continued strength from the

Nasdaq

. However, the one ungaugeable event that alerts us to be cautious is the last two weeks of the year. Y2K is an unprecedented event, but it is our opinion that we'll see some selling in the last two weeks," added Kraft.

The Nasdaq Composite Index was advancing 39, or 1.2%, to 3308. In Nasdaq trading, application server products supplier

Citrix

(CTXS) - Get Report

was soaring 16 9/16, or 20.3%, to 98 1/4 thanks to a price-target boost from

Credit Suisse First Boston

, while

Applied Materials

(AMAT) - Get Report

wasn't getting a lift from H-P. At midday, Applied Materials was off 3 1/4 to 106 13/16 despite beating fourth-quarter consensus earnings estimates.

TheStreet.com Internet Sector

index was just gushing with gains, jumping 31, or 3.4%, to 934, with

America Online

(AOL)

and

CMGI

(CMGI)

leading its components.

In other market news, the oil sector was making some noise thanks to its inflating prices and low production. "With the continued production cuts by

OPEC

, coupled with the continued decreases in oil inventories, we believe that oil can go to the low 30s in the next couple of months," Kraft said, referring to oil's rising price.

Kraft noted that even the oil stocks can't escape the Y2K woes. "One of the issues that could really accelerate an upward move in oil would be Y2K fallout from Russia," he said. "Our research leads us to believe that Russia is extremely unprepared for the millennium date change and, considering their presence in the oil industry, any disruption in the delivery or production could result in higher prices."

The

American Stock Exchange Oil & Gas Index

was lately down 0.6%.

On the

New York Stock Exchange

, the airlines were looking sluggish on concerns that rising fuel prices will make for future turbulent earnings.

AMR

(AMR)

was losing 2 7/8 to 57 1/2, while

Delta

(DAL) - Get Report

was falling 15/16 to 48 15/16.

The

American Stock Exchange Airline Index

was lately down 1.9%.

The Dow, the Nasdaq and the DOT weren't the only major indices in the green, with the broad

S&P 500

bouncing 6 to 1417 while the small-cap Russell 2000 was gaining 3 to 460.

On the bond front, the benchmark 30-year Treasury was 21/32 to 99 7/32, with its yield at 6.18%. (For more on the fixed-income market, see today's early

Bond Focus.)

Market Internals

Breadth was mixed, with volume heavy.

New York Stock Exchange:

1,418 advancers, 1,500 decliners, 619 million shares. 76 new 52-week highs, 101 new lows.

Nasdaq Stock Market:

2,159 advancers, 1,633 decliners, 904 million shares. 180 new highs, 46 new lows.

Thursday's Midday Watchlist

By Eileen Kinsella
Staff Reporter

Computer giant Hewlett-Packard was hopping 12, or 14.8%, to 93 after late yesterday posting fourth-quarter earnings of 75 cents a share, beating the 16-analyst estimate of 73 cents and the year-ago 72 cents.

PaineWebber

increased its rating on Hewlett-Packard to attractive from neutral.

Shares of spinoff Agilent Technologies also began trading today. (See IPO table below.)

For more on H-P, check out additional

coverage from the

TheStreet.com/nytimes.com

joint newsroom.

Mergers, acquisitions and joint ventures

Baxter

(BAX) - Get Report

rose 11/16 to 68 5/16 after saying it will buy

North American Vaccine

(NVX)

in a stock deal valued at $390 million. North American Vaccine rose 1/8 to 5 15/16.

Boeing

(BA) - Get Report

inched up 7/16 to 43 after

The Wall Street Journal

reported it has won at least 30 orders worth more than $2 billion for its new line of Delta IV satellite-launch rockets, citing sources familiar with the development. The story said

Loral Space & Communications

(LOR) - Get Report

placed a significant order. Shares of Loral were rising 7/16 to 18 7/16.

British American Tobacco

(BTI) - Get Report

slipped 3/8 to 11 1/8 after saying it will sell its

Shoppers Drug Mart

unit to leveraged-buyout firm

Kohlberg Kravis Roberts

for $1.8 billion in cash. The deal is subject to BAT completing its acquisition of Canadian conglomerate

Imasco

.

Cygnus

(CYGN)

added 13/16, or 7.6%, to 11 5/8 after saying it would sell its drug delivery business to

Johnson & Johnson's

(JNJ) - Get Report

Ortho-McNeil Pharmaceutical

unit for up to $75 million in cash, depending on certain conditions. Johnson lost 1 1/4 to 104 3/8.

Cable & Wireless

(CWP)

slipped 11/16 to 39 7/8 after it said it formed a global relationship with

Compaq

(CPQ)

to provide small and medium-sized companies with e-business solutions. Compaq was climbing 1 1/4, or 5.3%, to 25. The two companies planned to commit $500 million to the venture over a period of five years.

Knight/Trimark

(NITE)

gained 3 15/16, or 9%, to 47 3/4 after it set plans to enter the options market by buying options-trading firm

Arbitrade Holdings

for $459 million in stock.

TheStreet.com's

Options Buzz had the scoop back on Tuesday.

Major subsidiaries of

NBC

,

MSNBC

and

Washington Post

(WPO)

announced a venture to share news reports on their Web sites. NBC is a unit of

General Electric

(GE) - Get Report

, while

MSNBC

is a joint venture between NBC and

Microsoft

(MSFT) - Get Report

. GE lost 2 9/16 to 138 1/2, Microsoft climbed 1/8 to 85 3/16 and Washington Post added 1/8 to 574 3/4.

Nokia

(NOK) - Get Report

was looking wired, up 8 7/16, or 6.6%, to 135 5/8, after it announced a deal to expand the GSM service of

Globe Telecom

and received kudos from

Merrill Lynch

. Merrill upped local-currency price targets on Nokia and on

Ericsson

(ERICY)

, which was up 3 1/2, or 7.5%, to 50 1/2.

Raytheon

(RTN.A)

lost 1/4 to 29 7/16 despite saying it will receive a $300 million naval support contract in Guam.

Earnings/revenue reports and previews

(

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

)

Applied Materials fell 3 1/4 to 106 13/16 despite reporting fourth-quarter income last night, from continuing operations, of 69 cents a share, beating the 28-analyst estimate of 65 cents and the year-ago operating loss of 45 cents a share. Credit Suisse First Boston,

Lehman Brothers

and Warburg Dillon Read raised 2000 earnings estimates on Applied Materials. See additional

reporting on Applied Materials from

TheStreet.com/nytimes.com's

joint newsroom.

Barnes & Noble

(BKS) - Get Report

slipped 1/2 to 21 11/6 after it posted third-quarter earnings of 5 cents a share, in line with the 10-analyst estimate and up from a year-ago loss of 7 cents a share.

TheStreet.com/nytimes.com

joint newsroom covered the book monster's earnings in a separate

story.

Martha Stewart Living Omnimedia

(MSO)

posted third-quarter pro forma earnings of 4 cents a share, a penny better than the three-analyst estimate but down from the year-ago 9 cents. For more on Martha, check out

TheStreet.com/nytimes.com

joint newsroom

story.

TD Waterhouse

(TWE)

was unchanged at 19 3/8 after it reported fourth-quarter earnings of 8 cents a share excluding charges, beating the seven-analyst estimate of 6 cents a share, and the year-ago 4 cents a share.

Westvaco

(W) - Get Report

rose 1 1/16 to 32 15/16 after it posted fourth-quarter operating earnings of 58 cents a share, beating the nine-analyst estimate of 41 cents and the year-ago 36 cents a share.

Venator

(Z) - Get Report

inched up 11/16, or 10%, to 7 9/16 after it reported third-quarter earnings of 7 cents a share, in line with the seven-analyst estimate and better than the year-ago loss of 29 cents a share.

Offerings and stock actions

Credit Suisse First Boston priced 5.5 million shares of

Retek

(RETK)

at $15 each last night, above the estimated $12 to $14 range. Retek, a spinoff of

HNC Software

(HBCS)

, makes software used by retailers to communicate online with suppliers and distributors.

Jefferies

wasted no time initiating coverage of the new issue, rating it a buy and setting a 12-month price target of 25. Shares were lately popping 15 1/4, or 101.6%, to 30 1/4.

Analyst actions

Deutsche Banc Alex. Brown

said it expects rising fuel prices to limit positive earnings surprises for airlines in the fourth-quarter and possibly cause some companies to miss earnings estimates. However, Deutsche did not make changes to any ratings, saying 2000 estimates are still on track and ahead of forecasts, citing travel agent commission cuts, which should offset any more fuel price increases.

Citrix sailed up 16 9/16, or 20.3%, to 98 1/4 after First Boston boosted its 12-month price target to 145 from 83.

PaineWebber raised its price target for

Exxon

(XON) - Get Report

to 87 from 80. Exxon inched up 7/8 to 81 1/8.

PaineWebber upped its price target on

Kimberly-Clark

(KMB) - Get Report

to 83 from 73. Shares dropped 1 1/8 to 67 1/8 despite the news.

PaineWebber cut

Kodak's

(EK)

price target to 78 from 85. Kodak slipped 3/16 to 66 7/16.

Warburg raised its first-quarter 2000 earnings estimates on

Micron Technology

(MU) - Get Report

to $1 from 40 cents, and 2000 estimates to $3.39 a share from $2.13. Shares of Micron moved up 2 to 65 13/16.

Merrill set a 2001 earnings per share estimate of $4.20 for

Motorola

(MOT)

. Merrill also said it sees a price objective of 140 to 150. Motorola motored up 2 3/8 to 121 3/8, after bouncing off a record intraday high of 122 5/8.

Morgan Stanley Dean Witter

raised

Unisys

(UIS) - Get Report

to outperform from neutral and set a price target of 37. Unisys jumped 3, or 12.7%, to 27 13/16.

Warburg Dillon Read started

United Parcel Service

(UPS) - Get Report

with a buy rating and set a price target of 78. Morgan Stanley started the stock with an outperform rating. Merrill Lynch started UPS with an accumulate rating, while

Donaldson Lufkin & Jenrette

started it as a market perform. UPS was lately off 15/16 to 66 3/4.

Merrill Lynch raised its price target on

Wells Fargo

(WFC) - Get Report

to 58 from 53. Wells Fargo rose 1/4 to 47 3/8.

First Boston raised its price target on

Xilinx

(XLNX) - Get Report

to 110 from 80. Xilinx gained 3 1/2 to 89 9/16.

Miscellany

Marsh & McLennan

(MMC) - Get Report

fell 1 1/8 to 78 5/8 after it named President Jeffrey Greenberg to the position of CEO, succeeding A.J.C. Smith, who will remain chairman until he retires in May.

The Heard on the Street column in

The Wall Street Journal

looks at daytrading firm

Harbor Securities

, which ceased trading for two full weeks after a $600,000 loss by one trader sparked scrutiny by regulators. Regulators also focused on an additional $2.8 million in losses since June. The column discusses the risks associated with daytrading firms that pool their customers' funds.

Herb on TheStreet: Oh, What a Tangled Web Ray Noorda's MTI and Canopy Weave!

By

Herb Greenberg

Senior Columnist

11/18/99 6:30 AM ET

How many times do we have to tell you? The reason you don't rely exclusively on a company's earnings announcement is because you never quite know

how

a company made its earnings until you read the 10-Q, which must be filed 45 days after the end of the quarter.

Case in point:

MTI Technology

(MTIC)

, which makes mega-computer storage systems and is 50% owned by Ray Noorda, former CEO of

Novell

(NOVL)

. The company met analyst forecasts on Oct. 28 when it announced fully taxed earnings of 10 cents per share. The announcement caused MTI's stock to immediately gain several points, on its way to almost doubling! It closed yesterday at 31 15/16.

But it wasn't until the 10-Q was filed late Tuesday that the company disclosed a "related party transaction" with the Noorda-controlled

Canopy Group

. According to that transaction, which was never previously disclosed, the company sold goods and services to Canopy last quarter to the tune of $2.9 million. It was MTI's first sale to Canopy.

Without that deal, it appears MTI's earnings would've come in around 2 cents light.

This is just the latest in a string of controversies surrounding MTI, which earlier this year hit the radar screen of accounting sleuth Howard Schilit of the independent

Center for Financial Research and Analysis

. Most recently Schilit noted that MTI amended its revenue-recognition policy to include what is known as "bill and hold." That means it can bill for products -- and recognize revenue --

before

the products are shipped. MTI also has days outstanding of receivables stretched to 104 days from 96 days (would've been 109 days if it hadn't been for the related-party transaction, says one short-seller). Either way, they're unusually high, suggesting the company is shipping more product than the distribution channel can handle. The company attributed the rise to a higher percentage of sales occurring in the last month of the quarter.

Herb's Latest: Join the discussion on

TSC

Message Boards.

What's more, inventories zoomed to 93 days from 61 days. (The company offered an explanation in its 10-Q, but unfortunately, I don't have a Ph.D. in gibberish. Go see the explanation for yourself.)

Then there's this whole tangled web. The company's relationship with Canopy is only part of it.

In addition to his 50% stake in MTI, Noorda owned more than 99% of

Caldera Systems

, a private provider of Linux operating systems that competes head-on with red-hot

Red Hat

(RHAT)

. He then sold 25% of Caldera to MTI for $3 million in cash, and $3 million in a note. The Caldera stake was subsequently diluted down to 20%. Analysts bullish on MTI are touting the Caldera stake as a potential bonus if Caldera goes public and gets the same treatment as Red Hat, which has a market value of $8.2 billion.

But wait, there's more. According to the latest 10-Q, back in August, when MTI's stock was 18 3/4, MTI issued a warrant for 150,000 shares of MTI stock to an unidentified person at Canopy for consulting services.

And just to show how tangled these webs can get -- MTI, you may recall, was on the receiving end of a new-generation switch from

Ancor Communications

(ANCR)

. An earlier generation of Ancor switches was shown to be inferior to switches from

Brocade Communications

(BRCD)

in a Brocade-sponsored test performed by

KeyLabs

, which is owned by Noorda and Canopy.

Got it?

MTI officials were out of the office yesterday and couldn't be reached.

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.

TheStreet.com Community

TSC is the place for talk! Check out the great conversation going on on our boards and then do some chatting of your own with James J. Cramer on America Online.

Jim Cramer: Financial Technology Expo Speech

http://www.thestreet.com/bbs/Forum4/HTML/000033.html

Q&A with Dear Dagen Today

http://www.thestreet.com/bbs/Forum9/HTML/000004.html

Herb on TheStreet

http://www.thestreet.com/bbs/Forum1/HTML/000050.html

E-Commerce Tea Party: Should Internet Purchases Be Taxed?

http://www.thestreet.com/bbs/Forum7/HTML/000007.html

Then chat with James J. Cramer on AOL at 5 p.m. EST. Find out about everything from recent market movements to the speech he gave at today's Financial Technology Expo. (Keyword: Live)

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