TheStreet.com's MIDDAY UPDATE
November 18, 1999
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.
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 www.thestreet.com/tv. (Look for the yellow box in the upper right-hand corner.)
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.
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.
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.
Dear Dagen: Dear Dagen: Yet Another Way to Invest in the Internet
Salomon Smith Barney is planning an exchange-traded Internet index fund.
Midday Musings: Hewlett-Packard Inspires Broad Tech-Led Rally
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.
was strengthening the
Dow Jones Industrial Average
and, along with its freshly traded spinoff,
, 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
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
hit all-time highs, with continued strength from the
. 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
was soaring 16 9/16, or 20.3%, to 98 1/4 thanks to a price-target boost from
Credit Suisse First Boston
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
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
, 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."
American Stock Exchange Oil & Gas Index
was lately down 0.6%.
New York Stock Exchange
, the airlines were looking sluggish on concerns that rising fuel prices will make for future turbulent earnings.
was losing 2 7/8 to 57 1/2, while
was falling 15/16 to 48 15/16.
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
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
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
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.
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
Mergers, acquisitions and joint ventures
rose 11/16 to 68 5/16 after saying it will buy
North American Vaccine
in a stock deal valued at $390 million. North American Vaccine rose 1/8 to 5 15/16.
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
placed a significant order. Shares of Loral were rising 7/16 to 18 7/16.
British American Tobacco
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
added 13/16, or 7.6%, to 11 5/8 after saying it would sell its drug delivery business to
Johnson & Johnson's
unit for up to $75 million in cash, depending on certain conditions. Johnson lost 1 1/4 to 104 3/8.
Cable & Wireless
slipped 11/16 to 39 7/8 after it said it formed a global relationship with
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.
gained 3 15/16, or 9%, to 47 3/4 after it set plans to enter the options market by buying options-trading firm
for $459 million in stock.
Options Buzz had the scoop back on Tuesday.
Major subsidiaries of
announced a venture to share news reports on their Web sites. NBC is a unit of
is a joint venture between NBC and
. 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.
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
and received kudos from
. Merrill upped local-currency price targets on Nokia and on
, which was up 3 1/2, or 7.5%, to 50 1/2.
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,
and Warburg Dillon Read raised 2000 earnings estimates on Applied Materials. See additional
reporting on Applied Materials from
Barnes & Noble
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.
joint newsroom covered the book monster's earnings in a separate
Martha Stewart Living Omnimedia
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
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.
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.
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
at $15 each last night, above the estimated $12 to $14 range. Retek, a spinoff of
, makes software used by retailers to communicate online with suppliers and distributors.
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.
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
to 87 from 80. Exxon inched up 7/8 to 81 1/8.
PaineWebber upped its price target on
to 83 from 73. Shares dropped 1 1/8 to 67 1/8 despite the news.
price target to 78 from 85. Kodak slipped 3/16 to 66 7/16.
Warburg raised its first-quarter 2000 earnings estimates on
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
. 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
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
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
to 58 from 53. Wells Fargo rose 1/4 to 47 3/8.
First Boston raised its price target on
to 110 from 80. Xilinx gained 3 1/2 to 89 9/16.
Marsh & McLennan
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
, 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!
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
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:
, which makes mega-computer storage systems and is 50% owned by Ray Noorda, former CEO of
. 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
. 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 --
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
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
, a private provider of Linux operating systems that competes head-on with red-hot
. 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
. An earlier generation of Ancor switches was shown to be inferior to switches from
in a Brocade-sponsored test performed by
, which is owned by Noorda and Canopy.
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
email@example.com. Greenberg also writes a monthly column for Fortune.
Mark Martinez assisted with the reporting of this column.
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
Q&A with Dear Dagen Today
Herb on TheStreet
E-Commerce Tea Party: Should Internet Purchases Be Taxed?
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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