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midday12-20-99's MIDDAY UPDATE

December 20, 1999

Market Data as of 12/20/99, 12:51 PM ET:

o Dow Jones Industrial Average: 11,205.74 down 51.69, -0.46%

o Nasdaq Composite Index: 3,782.28 up 29.22, 0.78%

o S&P 500: 1,421.50 up 0.45, 0.03%

o TSC Internet: 1,112.98 down 0.11, -0.01%

o Russell 2000: 467.64 up 1.43, 0.31%

o 30-Year Treasury: 96 17/32 down 3/32, yield 6.379%

In Today's Bulletin:

o Midday Musings: Nasdaq Keeps Powering Ahead as Talk Turns to Value Resurgence
o Herb on TheStreet: How AHL Makes Its Financial Performance Look Better Than It Really Is Community

You know's the place for great market commentary, but did you know it's also the place for intelligent investing discussion? Whether it's "This Week in IPOs" or "Women & Investing," we bring the conversation straight to you. Check out all the great talk going on today in the Community section:

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Midday Musings: Nasdaq Keeps Powering Ahead as Talk Turns to Value Resurgence


Justin Lahart

Associate Editor

12/20/99 12:58 PM ET

Heading into the lunch hour, the

Dow Jones Industrial Average

was down, the

Nasdaq Composite Index

was up, and the

S&P 500

was floating somewhere in between. It was, in short, a typical day in the stock market.

Or at least typical for what we have seen over the past year or so. The big techs that dominate the Nasdaq run hardest, the broader list of large-capitalization stocks represented by the S&P come in next, and the Dow, saddled with companies in old-line businesses like paper and chemicals, brings up the rear.

Beneath the surface, more run-of-the-mill stocks struggle to keep their heads above the flat line. Market breadth is poor today, and that's nothing new either.

"We've seen instances like this before, where the market has favored a very narrow band of stocks," said Robert Dickey, managing director of technical analysis at

Dain Rauscher Wessels

in Minneapolis. "But it's been just one of the most dramatic periods where we've seen these kinds of divergences that I can recall."

Many on Wall Street believe that tax concerns have contributed to the market's narrowness lately.

"Those who are holding positions in tech that are way up are waiting to defer their selling until next year," said Stanley Nabi, chief investment officer at

DLJ Investment Management

. "On the other hand, you see many of the stocks that have not done well under severe pressure from tax-loss selling."

There are a number of good stocks, with earnings growth and low price-to-earnings ratios, that have been scorned. "

Furniture Brands International


," said Nabi, pointing to a stock he owns. "Largest home furniture company in the country, for the last few years it's grown at 20% or better, very positive cash flow -- and nobody gives a damn. The stock is down 40% from its high."

One hears a lot of these stories lately. There's been chatter that many of these value plays are going to head higher in 2000 -- or get taken private by people like

Kohlberg Kravis Roberts


"The main thing I'm seeing is there have never been more stocks at great levels to buy since 1994," said Sam Ginzburg, managing director of equity trading at


. "I would think at the beginning of the year you start seeing people talking about them, you see a lot of analyst upgrades. People are looking at these things."

Yet a rotation out of the narrow band of highflying techs into the broader market may not come quickly. "There's a new generation now that is used to a fast-moving market, and these are not fast-moving stocks," said Nabi. And Dickey reckons that any broadening of the market won't come without some sort of disruption in the leaders.

"Sometime value buying will be in vogue again," he said. "But not until the momentum and growth buyers have been disappointed for a time. In the meantime, value buyers just have to be patient and put with the frenzy going on around them. It's hard though. It's hard to resist."

The Dow was lately off 54 to 11,203, while the S&P was unchanged at 1421.

The Nasdaq was up 28, or 0.7%, to 3781. Internet Sector

index was down a fraction to 1113.

The small-cap

Russell 2000

was up 1 1/2 to 468.

The 30-year Treasury was down 5/32 to 96 15/32, putting the yield at 6.39%.

Market Internals

Breadth was poor on healthy volume.

New York Stock Exchange:

1,340 advancers, 1,642 decliners, 489 million shares. 67 new 52-week highs, 174 new lows.

Nasdaq Stock Market:

1,843 advancers, 2,170 decliners, 738 million shares. 150 new highs, 111 new lows.

Monday's Midday Watchlist

By Tara Murphy
Staff Reporter


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


Mergers, acquisitions and joint ventures

Pharmacia & Upjohn





agreed to a merger of equals estimated at $29 billion -- or at least it


estimated at that, before the market took both stocks lower on the news. Pharmacia lately was off 3 9/16, or 7%, to 46 11/16, while Monsanto was down 4 7/8, or 11.6%, to 36 13/16.

The merger creates the world's 11th-largest drug company, with a market capitalization of about $50 billion and total sales of $17 billion. The partners see cost savings of about $600 million a year.


slashed Monsanto to neutral from buy, citing disappointment that the deal included no premium for Monsanto's


drug unit.

Allegheny Energy


was slipping 1/16 to 26 7/8 after it said it has entered a deal to purchase

Energy Corp. of America


Mountaineer Gas

for $323 million.

Burlington Northern Santa Fe



Canadian National Railway


agreed to link up in a $19 billion stock merger. The partners expect the combined company, to be called

North American Railways

, to realize $500 million to $600 million in improved income during its first three years. Shares of Burlington were Northern Santa Fe were losing 1 5/8, or 5.7%, to 26 13/16, while Canadian National was up 15/16 to 30 11/16.



was climbing 2 1/4 to 101 7/8 after it announced that it will buy the optical networking systems business of Italy's


for $2.15 billion.



was declining 5 1/8, or 7.3%, to 64 9/16 after it agreed to buy

Maker Communications


in a $990 million stock deal. Maker holders will receive 0.66 of a Conexant share for each Maker share. Maker Communications was adding 6 1/2, or 19.2%, to 40 1/4.

Interpublic Group


said it has entered a $580 million stock deal to buy

NFO Worldwide


. The terms call for Interpublic to pay $26 a share for each NFO share upon the deal's completion. The deal includes a collar that if exceeded would allow either Interpublic or NFO to renegotiate the transaction. Shares of NFO were at 14, while Interpublic was at 58 1/16. Both stocks had not been trading today.

MCI WorldCom


was up gaining 1 1/4 to 81 3/8 after

Der Spiegel

reported that

France Telecom



Deutsche Telekom


both plan to bid for control of

Global One

, their joint venture with



. WorldCom is in the process of acquiring Sprint. Shares of France Telecom were bouncing 1 1/2 to 114, while Deutsche Telecom was lifting 2 13/16 to 61 3/16.

SBC Communications


was sliding 5/8 to 50 3/4 after it said it has agreed to buy an interest in Brazilian wireless provider


. SBC said

Telefonos de Mexico


also plans to invest in the company, while

Williams Communications


will slice its interest in Algar to 50%. Shares of Williams were losing 1/2 to 26 7/16; Telmex was off 3/16 to 112 1/8.

Vodafone AirTouch


said it plans to post its offer document for



on Thursday and will leave its hostile bid open until Feb. 7. Vodafone's bid for Mannemann, launched in November, currently values Mannesmann around $135 billion. Vodafone was skidding 1 1/8 to 48 1/8, while Mannesmann, which had not traded, was at 238 1/2.

World Access


was adding 7/16 to 20 15/16 after it agreed to acquire

Star Telecommunications


in a $650 million stock swap. The deal values Star at $10.50 a share. Combined with World Access' acquisition of privately held

Long Distance International

, the Star buy gives World Access an annual revenue run rate of more than $2.3 billion. Shares of Star Telecom were gaining 1 15/16, or 28.1%, to 8 13/16.

Earnings/revenue reports and previews

Novellus Systems


was soaring 19 3/4, or 23.1%, to 105 after saying late Friday it expects its fourth-quarter earnings to beat the 22-analyst forecast of 65 cents a share. The company also set a 2-for-1 stock split.

Warburg Dillon Read

today upgraded the stock to strong buy from buy and boosted its price target to 120 from 90.

A.G. Edwards


was mounting 5/16 to 27 15/16 after it reported third-quarter earnings of $1.23 a share, crushing the two-analyst estimate of 81 cents and the year-ago 70 cents.

International Multifoods


was lifting 5/8, or 5%, to 13 after it reported third-quarter earnings of 43 cents a share, a penny better than the six-analyst outlook and up from the year-ago 14 cents (not including discontinued operations). The company said it's comfortable with estimates of $1.30 to $1.35 for fiscal 2000; the current First Call/Thomson Financial view calls for $1.31.



was edging up 13/16 to 21 5/16 after it said it expects its fourth-quarter earnings to exceed the six-analyst estimate of 14 cents a share. The company earned 15 cents in the year-earlier period.

Morgan Stanley Dean Witter


was climbing 1 15/16 to 130 after it reported fourth-quarter earnings of $2.84 a share, far ahead of the 14-analyst estimate of $1.96 and up from the year-ago $1.49.

Red Hat


was tacking on 9 5/116 to 262 despite reporting a third-quarter loss of 5 cents a share, a penny wider than the three-analyst expectation and down from the year-ago break-even result. The Linux distributor also set a 2-for-1 stock split and said it may pursue a secondary share offering.

Offerings and stock actions

Check Point Software Technologies


was sliding 3 15/16 to 194 1/16 after it set a 2-for-1 stock split for shareholders of record "at or around" Jan. 23 of next year.



set a 2-for-1 stock split for shareholders of record Dec. 30. The company split its stock 3-for-2 just this past February. Oracle was hopping 5 13/16, or 6.4%, to 96 1/2.

Analyst actions

Merrill Lynch cut it rating on



to intermediate-term neutral from accumulate. Shares of Aetna were slipping 1 5/8 to 49 7/8.

Credit Suisse First Boston

analyst Lise Buyer initiated coverage of

Digital Impact


with a buy rating. Credit Suisse was the lead underwriter on the firm when it went public last month. Shares of Digital were leaping 5 1/2, or 12.2%, to 50 1/4.

Bear Stearns

initiated coverage of


with a buy rating and a price target of 63. Shares of were bouncing 2 1/2, or 7%, to 38.

First Boston analyst Stephen DeNelsky initiated coverage of



with a strong buy rating and a price target of 35. Shares of InfoCure were jumping 3 1/16, or 12.9%, to 26 7/8.

Merrill Lynch

sliced its rating on



to intermediate-term neutral, long-term accumulate from intermediate, long-term buy. Shares of Lason were plummeting 12 5/8, or 52.3%, to 11 9/16.

PaineWebber upgraded

May Department Stores


to buy from neutral and upped



to attractive from neutral. Shares of May Department Stores were losing 3/8 to 30 3/8, while Saks was popping 1/8 to 15 9/16.

Salomon Smith Barney

rolled out coverage of



with a buy rating and a price target of 230. Shares of SDL were pumping up 11 1/8, or 6.7%, to 176 7/8.

Morgan Stanley Dean Witter upped its fiscal 1999 estimate on

Sotheby's Holdings


to 54 cents a share from 42 cents. Shares of Sotheby's were climbing 4 13/16, or 18.1%, to 31 3/8.

Merrill Lynch said it upped its rating on



to a near-term buy from accumulate. Shares of Vimpel were gaining 3 1/4, or 14.2%, to 26.

Morgan Stanley Dean Witter

initiated coverage of



with a strong buy rating and a price target of 80. Shares of Viatel were edging up 2 1/2, or 5.1%, to 51 3/8.

Herb on TheStreet: How AHL Makes Its Financial Performance Look Better Than It Really Is


Herb Greenberg

Senior Columnist

12/20/99 6:30 AM ET


From the Quality of Earnings Department:

How was I supposed to know that Howard Schilit's

Center For Financial Research and Analysis

would come out with a report on

AHL Services


the same day I was writing up AHL? Well, that's just what happened Friday, but that's no reason for this column to avoid the story, especially since it deals with issues apparently not mentioned by Schilit, whose report I haven't seen. However, I'm told he delved into a number of balance-sheet items, including a continuing cash-flow deficit, weaker-than-apparent revenue growth and increased debt.

I stumbled on AHL last week when talking to one of my short-selling sources, who had mused how the company's shares shot up last month after announcing a new deal involving its

, which was created just a month earlier. Atlanta-based AHL is in the business of providing blue-collar workers to handle such jobs as baggage handling at airports. However, this new dot-com -- which, as a Web site, is little more than an advertisement -- appears to be just an e-name for the company's

Gage Marketing Services

, which provides staff for such e-commerce chores as manning phones to filling orders in a warehouse.

But it's not the sudden e-fatuation with AHL over e-commerce that attracted short-sellers to the company's stock


Schilit's piece and long before the creation of e-fulfillment. It was those balance-sheet items, plus one issue that Schilit didn't mention.

Herb's Latest: Join the discussion on

TSC message boards.

The shorts' concern was the way the company boosted its operating margin (earnings before interest and taxes as a percentage of revenue) from around 3.3% a year and a half ago to 7.3% as of the end of the last quarter. The rise, however, can largely be attributed to a nonoperating item: The company lowered the reserve it set aside for workers' compensation claims.

Had the reserve stayed the same, at 4.85% of revenue, the operating margin would've grown to only 5.4%, rather than 7.3% -- which means that AHL's earnings before taxes wouldn't have been quite what the company reported.

AHL officials did not return several calls for comment.

Who knew what when, a week and a half ago,



issued a news release addressing the recent weakness of its share price? In the release, the outsourcing company said it had no idea why its stock had fallen by nearly 15% the day before, and why it was down almost 50% from early November: "We are concerned about our stock price drop and its volatility, and we are not aware of any reason for Lason's share price decline," declared CEO Gary Monroe. (A year ago Lason was the

focus of an item here headlined, "Is Lason Printing Fiction or Nonfiction Earnings?")

Fast forward to last Friday: After the market closed, Lason issued a news release with a number of announcements, including that the company is exploring the idea of spinning off its e-commerce biz and discontinuing some operations and services, which it says "are no longer consistent with Lason's long-term growth strategy."

Oh, and by the way, it said also, way down at the bottom of the release, that earnings


discontinued operations and other charges will be 31% to 38% lower than analyst estimates.

And they didn't know


bad news a week ago? Well, somebody obviously did.

Lason officials did not return our call seeking comment.


Just a note of thanks to the dozens of you who emailed your approval and disapproval of my comments

here last week, in response to


, on the issue of stock splits. Wished, however, that you'd posted your thoughts on the

boards with others who did. That would have helped investors form their own opinions on what is always an emotion-filled topic.

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.

Copyright 1999,