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July 19, 2000

Market Data as of 7/19/00, 11:50 AM ET:

o Dow Jones Industrial Average: 10,704.57 down 35.35, -0.33%

o Nasdaq Composite Index: 4,093.91 down 83.26, -1.99%

o S&P 500: 1,483.26 down 10.48, -0.70%

o TSC Internet: 835.24 down 32.54, -3.75%

o Russell 2000: 529.88 down 6.40, -1.19%

o 30-Year Treasury: 104 22/32 down 1/32, yield 5.904%

In Today's Bulletin:

o The TaskMaster: Bears Set a Trap but Tech Stocks May Wriggle Free
Wrong! Tactics and Strategies: What Can Go Wrong? Everything, Part 2

When a company can't meet estimates, the stock is likely to take a beating.

Herb on TheStreet: How Good Were Earnings


Scroll to Continue

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David Kurapka: With a Tax Burden Light as a


, German Market Lifts

New tax reform will stimulate Germany's equity market, corporate earnings and foreign investment.

Networking: Lucent, Nortel Facing the Strong-Demand Music

Margins and revenue growth will get the most scrutiny as investors weigh whether the companies are keeping up.

This Week's Secondaries: Chips 'N' Dip

This week's secondaries are all about semiconductors, but you have to wonder about the timing.

Dear Dagen: Of All Brokers Great and Small, Which Is Right for You?

A recent column offered eight steps to take before hiring a broker. Here are a few amendments.

Analyst Actions: Analyst Actions: Microsoft, Tricon, Associates First, Bausch & Lomb, Boston Scientific

The TaskMaster: Bears Set a Trap but Tech Stocks May Wriggle Free


Aaron L. Task

Senior Writer

7/18/00 9:32 PM ET

SAN FRANCISCO -- You knew it was coming. Did you bake a cake?

It, of course, being the setback the

Nasdaq Composite

sustained Tuesday. When I

forecast as much last week (admittedly, 100 Comp points too soon), many readers emailed to say, in so many words: "Well, duh."

Now that the pause is apparently here, investors seem pretty sanguine. The Nasdaq fell 2.3% Tuesday but closed above its late-morning lows of 4161.89. Similarly, the

Dow Jones Industrial Average

fell 0.6% and the

S&P 500

shed 1.1%, but closed above their respective intraday lows.

"The bears will say it's the end of the correction to the upside and there's a big downturn coming," Gregg Schreiber, vice president of institutional futures sales at

Bear Stearns

, said of Tuesday's action. "But if earnings are going to keep coming in positive, that's going to be wrong."

After the close of trading Tuesday, two of the most gargantuan tech behemoths did their part to ensure the bearish argument proves too cold.


(INTC) - Get Intel Corporation Report


second-quarter earnings of 50 cents a share (postsplit), a penny better than expectations. Revenue of $8.3 billion was at the high end of the expected range. Additionally, the company forecast strong demand continuing in the second half.


(MSFT) - Get Microsoft Corporation Report

was less ebullient about its

forward outlook -- forecasting roughly 15% revenue growth for fiscal 2001 -- although dowdy guidance is consistent with the company's

modus operandi

. The software colossus reported fiscal fourth-quarter earnings of 44 cents a share, 2 cents better than expectations. The company produced revenue of $5.8 billion, roughly in line with expectations.

Shares of both companies were up in after-hours trading, suggesting investors were not disturbed by the positive impact from investment income -- $2.3 billion at Intel (vs. initial guidance of $725 million) and $1.1 billion at 'Soft.

But there could be cause for concern at Microsoft.

CFO John Connors said in the company's conference call that its first-quarter earnings would be 41 cents a share. The consensus estimate is 43 cents, according to

First Call/Thomson Financial

. Connors did say the company would meet the full-year estimate of $1.88, meaning he thinks the company can recoup those 2 cents somewhere in the next 12 months.

Ulric Weil, technology strategist at

Friedman Billing Ramsey

in Arlington, Va., wasn't terribly concerned about the projections, noting the company's penchant for conservatism.

Furthermore, as Microsoft's shares fell in the wake of its legal troubles and disappointing fiscal third-quarter, the valuation on its stock has come down considerably vs. peers such as


(CSCO) - Get Cisco Systems, Inc. Report

. Thus, Microsoft "doesn't have to make promises they'll have a tough time keeping," he said. "If Cisco said something like

Microsoft said, their stock would get hurt badly. Microsoft can afford to be very cautious."

Kudos, then, to Microsoft for turning vice into virtue. But another area of potential concern is the company's terse statement that it is not reinstating its buyback program, a decision for which it offered little rationale. Institutional investors, such as Gary Kaminsky at

Neuberger & Berman

, were anticipating a

buyback announcement and could be disappointed none was forthcoming. (Kaminsky was unavailable for comment Tuesday evening.)

But as with the earnings guidance, Weil was unconcerned about the lack of buyback news.

"For all we know,

Microsoft may not want to make a display of doing well," he said. "They're in the midst of a legal battle, and it doesn't help them to appear flush."

Despite his general

laissez faire

attitude, the analyst forecast the stock will not make much progress until corporate demand for PCs firms up.

On a somewhat surreal note, the antitrust case got nary a mention in Microsoft's conference call, save for the very end. COO Robert Herbold said the company expects the

Supreme Court

to rule in September on whether it will hear the case or refer it first to the

U.S. Court of Appeals for the District of Columbia Circuit


All in Stride

Prior to the Microsoft-Intel double bill, Rick Ziesing, founder of

Versant Advisors


Bonanza Capital Management

) in Kennett Square, Pa., expressed little concern about Tuesday's decline.

"We were due for a little setback, as the money we have made in the last week has been obscene," the hedge fund manager observed.

Versant's main hedge fund was up 20.4% net of fees for the year as of July 17, due largely to a fortuitous decision to go to 100% cash on March 13. The roughly $15 million fund is currently 120% long and 5% short.

"We have been easing back in to our present margined state over the past month or so," Ziesing explained. "We think the


is on hold and the market is primed to run."

The hedge fund manager said earnings in sectors such as semiconductors, optical networking and components, wireless devices, and data storage are "just smoking," giving him faith there's more room for appreciation in growth stocks.

Some of Ziesing's favorite longs include Cisco,




JDS Uniphase



Applied Micro Circuits



Vitesse Semiconductor





, and

RF Micro Devices



Like most investors, Ziesing did not feel compelled to take action during Tuesday's setback.

"I cannot trade a tape where stocks and indexes move multiple percentage points in a day -- or hour -- so we place our bets and wait for the rest of the herd to figure out what we think we already know," he said.

Indeed, several of Ziesing's long positions had big moves Tuesday:




Sycamore Networks


, and



each fell more than 5%, while

Mercury Interactive


rose 5.8%. (After the close, Broadcom reported second-quarter earnings of 23 cents per share, 4 cents ahead of expectations.)

"We remain bullish, and we think that in the end, growth in revenues and real earnings will always be the most intelligent way to deploy funds," he said.

The fund is also long smaller tech plays such as













Cobalt Networks






Conversely, his shorts are focused on consumer-oriented companies such as


(CLX) - Get Clorox Company Report


Colgate Palmolive

(CL) - Get Colgate-Palmolive Company Report


Avon Products

(AVP) - Get Avon Products, Inc. Report

, believing they may be susceptible to (additional) weakness if the economy continues to slow.

Aaron L. Task writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at .

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