TheStreet.com's WEEKEND BULLETIN

October 2, 1999

http://www.thestreet.com

Market Data as of Close, 10/1/99:

o Dow Jones Industrial Average: 10,273.00 down 63.95, -0.62%
o Nasdaq Composite Index: 2,736.85 down 9.31, -0.34%
o S&P 500: 1,282.81 up 0.10, 0.01%
o TSC Internet: 647.12 down 0.26, -0.04%
o Russell 2000: 423.53 down 3.77, -0.88%
o 30-Year Treasury: 99 26/32 down 1 09/32, yield 6.145%

For the week:

o Dow Jones Industrial Average: down 0.1%
o Nasdaq Composite Index: down 0.1%
o S&P 500: up 0.4%
o TSC Internet: up 4.8%
o Russell 2000: up 1.5%


Companies in Today's Bulletin:

Amazon.com (AMZN:Nasdaq)
LaserPacific Media (LPAC:Nasdaq)


In Today's Bulletin:

o Stock Mart: LaserPacific Media
o Wrong! Dispatches from the Front: Drugs Up as Boring, Slow Money Pours In
o Evening Update: Sun Seeks Stock Split; Intel Drops After Hours on Barron's Story
o Bond Focus: Treasuries Collapse Under Manufacturing Survey's Weight


TheStreet.com on the Fox News Channel

Gruntal's Peter Green does the "Drill" with Herb Greenberg and Dan Colarusso. Find out which stocks the technical analyst likes and which ones he'd most like to short.

And Gary B. Smith goes head-to-head with Adam Lashinsky over two top market indexes in Chartman. Will it be buy, sell or hold for the Nasdaq and the S&P 500?

Also, Jim Cramer's calling for a rough road in the month ahead. He'll tell how he plans to dodge the missiles of October.

"TheStreet.com" on the 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 the 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:

The Coming Week: Market on Edge Ahead of FOMC Meeting Tuesday

Though the FOMC is unlikely to hike rates, some economists foresee a shift to a tightening bias. What do you think about the week ahead? Tell us on our message boards.

http://www.thestreet.com/markets/thecomingweek/790024.html

Internet: Action in z-Domain Names Heats Up as Amazon Starts Buying

A man calling himself a Canadian lawyer has bought domain names that Amazon has confirmed it acquired.

http://www.thestreet.com/tech/internet/789982.html

Trade Winds: A Revealing Incident Sheds Light on China's Government and Global Economic Attitude

The one-day-only visit to Washington seems to indicate that the Chinese are lukewarm to a trade deal.

http://www.thestreet.com/int/tradewinds/789809.html

Internet: Rumors of a Split Fail to Distract Excite@Home's Stevens From the Art of the Deal

Excite@Home's Mark Stevens continues to project a bright future for the company's hybrid model of content and access.

http://www.thestreet.com/tech/internet/789984.html


Stock Mart: LaserPacific Media

By Alex Berenson
Senior Writer
10/1/99 8:52 PM ET

If you're looking for cheap, undiscovered media companies, pay attention to Russell Anmuth.

Last year, Anmuth, a hedge fund manager at Gotham Holdings, pounded the table on Gemstar ( GMST), the leader in the obscure but profitable business of programming guides like VCR Plus+. Since a July 1998 TSC story highlighting his comments, shares of Pasadena, Calif.-based Gemstar have quadrupled, adjusted for a split.

Earlier this year, Anmuth struck again, recommending 4Kids Entertainment ( KIDE). That New York company licenses products for Pokemon, the Japanese sensation that's become a hit with U.S. kids. Since March, when TSC wrote about 4Kids, the stock has -- you guessed it -- more than quadrupled, adjusting for two stock splits. (For the year, 4Kids is up eightfold, though some analysts wonder how long the Pokemon craze can last.)

Now Anmuth is excited about another small media company. Like 4Kids and Gemstar, it operates in a backwater of the entertainment industry, ignored by most analysts. Like 4Kids and Gemstar, its stock is already moving as savvy investors notice its potential. And like 4Kids and Gemstar, it has both improving financials and fundamental trends moving its way.

So will LaserPacific Media ( LPAC) join 4Kids and Gemstar as Anmuth's next four-bagger? The fund manager, who owns more than 200,000 shares of LaserPacific, some 2.5% of the company, sounds confident. "This is a company that could really grow exponentially over the next three to five years," he says. His price target for the stock, which now stands at 9? "Higher."

With more than 200 employees, Hollywood-based LaserPacific is a leader in television and film "postproduction." That's the grunt work of editing movies and television shows for color and sound, along with adding credits, music and minor special effects.

Postproduction has been steadily increasing thanks to the explosion of new networks producing original programming, but it has historically been competitive, low-margin work. The studios keep some work in-house, and dozens of independent labs fight for the rest.

The thin margins of standard postproduction work left LaserPacific struggling in the mid-1990s. The company saw revenue fall to $28 million in 1997 from $30 million in 1994, and after turning in a profit of $481,000 in 1994, Laser lost a total of $3.25 million in the next three years. Investors noticed. Laser's stock, which went public at 6 in 1991, fell as low as 1/8 in late 1997.

To get out of its hole, Laser needed to refocus on higher-margin services. So the company sold its Canadian subsidiary, which provided postproduction services for movies and television shows made in Vancouver, and staked its future on digital services, including digital video discs and high-definition television.

"I felt it was a better strategy to redeploy those funds from the Vancouver lab in expanding our high-definition capabilities here in Los Angeles," LaserPacific Chairman James Parks says.

That decision was a risky one. DVD was an expensive new technology with limited consumer acceptance two years ago, and HDTV basically didn't exist at the retail level. Even now, fewer than 3 million U.S. homes have DVD video players, and most Americans have never seen an HDTV broadcast.

But the move toward digital is inexorable, and it's gaining momentum. Sales of DVD video players were up more than fourfold in the first half of the year compared to 1998. By 2002, more than half of all U.S. homes are expected to have a DVD device, including computers equipped with DVD drives, according to Strategy Analytics, a British electronics consulting company.

As for digital television, the Federal Communications Commission has mandated that all broadcasters provide a digital signal nationally by 2006, although it's still unclear whether they will offer true HDTV or just a slightly enhanced version of a standard analog broadcast. (HDTV, which provides a film-quality picture on television, requires more bandwidth than a less-sharp digital picture, so broadcasters like CBS ( CBS) will eventually choose whether to offer one channel of HDTV or several standard-quality digital channels in their broadcast spectrum.)

Either way, demand for digital television postproduction services is certain to increase, LaserPacific Chairman Parks says: "To do something a little bit better than standard television means you still have to have digital processing."

And thanks to its aggressiveness last year, Laser is the leader in HDTV services. This season, there are expected to be 15 or 16 network shows offered in HDTV, all on CBS, courtesy of Mitsubishi, which is sponsoring the shows as a way to build demand for HDTV and sell its pricey new digital televisions. LaserPacific is working on nine of those shows.

"We are the only facility that can actually complete a show in high definition right now, and we are the only facility that has actually completed a show in high definition," Parks says. A spokeswoman for Sony Pictures' Digital Studios Division, which is both a partner and competitor for Laser, agrees that Laser has an excellent reputation in the digital services division.

"The company has turned the corner in a very big way. ... They are, without a doubt, the leader in high definition," says Burnham Securities analyst Bruce Galloway, who specializes in following turnarounds and is the only analyst to cover LaserPacific. (Burnham, a regional New York investment bank, has not performed any underwriting for Laser.)

So far, the company's edge in digital work hasn't translated into bottom-line gains. The digital business more than doubled in the first six months of 1999 but still represented only about 10% of LaserPacific's total business. Overall, LaserPacific recorded about $13.5 million in sales in the first six months of 1999, up from $12 million in 1998, not including 1998 revenue from its Canadian subsidiary. But profits were flat, and small, in both periods -- about $550,000 in total, or 7 cents per share.

But that's about to change, Galloway and Anmuth say. Fall and winter are the fat seasons for television production, as networks order fresh episodes. Galloway expects that strong sales from LaserPacific's traditional postproduction business, along with fast growth and wider margins from the digital business, will push third-quarter profits to 12 to 15 cents per share compared to 2 cents in the prior-year period.

For the fourth quarter, Galloway's expecting earnings of 35 cents a share or more vs. 29 cents last year. That would give Laser full-year earnings of better than 50 cents per share. For next year, the analyst is even more optimistic, predicting earnings of 75 cents or more. Laser stock has already nearly quadrupled this year, as micro-cap investors get wise to its prospects. But with its price now around 9 and a market cap of roughly $70 million, the company still trades at only 12 times 2000 earnings forecasts.

In addition, Liberty Media ( LMG.A), John Malone's $40 billion media holding company, recently took control of postproduction companies Todd-AO ( TODDA) and Soundelux Entertainment Group and is rumored to be talking to other companies in the industry. If Liberty does make more acquisitions in an effort to "roll up" the fragmented industry for economies of scale, LaserPacific is a natural target, Anmuth says. (Liberty did not return calls for comment.)

"Some reasonably smart guys think this is the future," Anmuth says. "The arrows all point in the same direction."

Recent Stock Mart Inventory
Stock Story Date Initial Price Thurs. Close % Change % Chg. of
S&P 500, Russell 2000
Stride Rite
(SRR)
Sept. 17 8 7 -13% -3.9%,
-1.6%
Gainsco
(GNA)
Sept. 10 76 9/16 6 3/16 -5.7% -5.1%,
-3.1%
Arkansas Best
(ABFS)
Sept. 3 13 5/16 12 3/8 -7% -5.5%,
-2%
Priority Healthcare
(PHCC)
August 27 25 3/8 30 7/8 +22% -4.9%
-1.2%
UnitedAuto
(UAG)
Aug. 20 12 1/2 12 11/16 +1.5% -4%,
-1.6%
L-3 Communications
(LLL)
Aug. 13 40 1/4 37 3/4 -6.2% -3.4%,
-1.6%
Caremark Rx*
(CMX)
Aug. 6 7 9/16 5 3/4 -24% -1.4%,
-0.2%
Electroglas
(EGLS)
July 30 18 7/8 23 3/8 +24% -3.5%,
-3.9%
American Medical Security
(AMZ)
July 23 10 1/8 6 1/2 -36% -5.5%,
-4.7%
J&J Snack Foods
(JJSF)
July 16 24 1/16 19 3/4 -18% -9.6%,
-8.2%
*Formerly traded as MedPartners (MDM:NYSE).




Wrong! Dispatches from the Front: Drugs Up as Boring, Slow Money Pours In

By James J. Cramer

10/1/99 4:09 PM ET

How in heck can Merck ( MRK) be up four? On a day when the bonds are terrible?

How about Lilly ( LLY)? Believe me, it is not just the fundamentals.

Here's how I think it occurs. At the end of a quarter people sell all of their dawgs. The drugs have been total pounders.

Amazingly, this is how these stocks look WITHOUT SELLERS. That's what happened. The sellers finished. Normal S&P buying at the beginning of a quarter is now coming in. These stocks are heavy in the S&P. When that boring, slow money comes in, it moves up anything where there are no natural sellers. (This is what has happened for the last five years, so I hope it doesn't seem too revelatory).

So the drug stocks all moved today.

Remember this pattern. It happens quite frequently. I detailed it the other day about why I bought Bristol Myers ( BMY). It leads to some good trading.

********

James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund was long Bristol-Myers Squibb. His fund often buys and sells securities that are the subject of his columns, both before and after the columns are published, and the positions that his fund takes may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at jjcletters@thestreet.com.


Evening Update: Sun Seeks Stock Split; Intel Drops After Hours on Barron's Story

By Tara Murphy
Staff Reporter
10/1/99 8:52 PM ET

According to a Securities and Exchange Commission filing, Sun Microsystems ( SUNW) has asked its shareholders to approve a 2-for-1 stock split, which would double its authorized stock to 3.6 billion. The stock split, which will be voted on by shareholders Nov. 10, would be payable Dec. 9.

After-Hours Markets

CNBC, in its weekly Barron's preview, revealed that Intel ( INTC) would be the subject of a negative cover story to be released this weekend. The news, which broke around 7 p.m. EDT, sent Intel's stock down in after-hours trading on Island ECN.

Nonetheless, Friday night trading is thin and tonight is no exception. Aside from Intel, not much else was moving on Island ECN. Digital Insight ( DGIN) continued trading on the popularity of its IPO, while tech stocks dominated the rest of the chart.

10 most active stocks on Island ECN (8 p.m. EDT)
Name Price Change Session Volume
Digital Insight (DGIN) 32 1/8 +1/8 39,372
Dell (DELL) 42 1/2 +1/16 37,732
Excite@Home (ATHM) 45 7/16 +7/8 28,128
Oxford Health Plans (OXHP) 12 5/8 +1/16 26,460
Sun MicroSystems (SUNW) 92 3/8 +3/8 24,220
Intel (INTC) 72 1/2 -2 7/16 23,498
Amazon.com (AMZN) 77 -5/16 14,634
Microsoft (MSFT) 90 1/4 +1/4 14,028
Acclaim Entertainment (AKLM) 8 9/16 +3/8 12,800
CMGI (CMGI) 99 3/8 +3/16 10,464

Island ECN, owned by Datek Online, offers trading, mainly in Nasdaq-listed stocks, from 8 a.m. to 8 p.m. EDT. Prior to Sept. 15 Island offered trading from 8 a.m. to 5:15 p.m. EDT.

-- Eric Gillin

Major Indices
INDEX CHANGE % VALUE YR TO DATE
Dow
63.95
-0.6% 10,273.00 +11.9%
S&P 500
0.10
+0.01% 1282.81 +4.4%
Nasdaq
9.28
-0.3% 2736.88 +24.8%
Russell 2000
3.77
-0.9% 423.53 +0.4%
TSC Internet
0.26
-0.04% 647.12 +59.3%
BOND CHANGE PRICE YIELD
30-Year Treasury
1 5/32
99 26/32 6.139%

In other postclose news (earnings estimates from First Call/Thomson Financial; earnings reported on a diluted basis unless otherwise specified):

Mergers, acquisitions and joint ventures

CMGI's ( CMGI) Web search engine AltaVista said it inked a three-year $65 million agreement with HealthCentral.com that calls for the site to supply content for AltaVista's health channel, which is set to debut in late fall. HealthCentral.com will pay a small amount of the $65 million in equity, while the remaining payment will depend on quantity of traffic that is directed to the site from the channel.

Earnings/revenue reports and previews

Ceridian ( CEN) warned investors that its fourth-quarter earnings would be 25 cents to 27 cents a share, missing the 10-analyst estimate of 31 cents. The company blamed the disappointing results on Y2K complications. Ceridian said, however, that it expects third-quarter and fiscal 2000 earnings to meet the 11-analyst estimate of 24 cents a share and the 11-analyst estimate of $1.31, respectively.

Olsten ( OLS) revised its results for its second quarter, third quarter and fiscal 1998 along with its 1999 first and second quarter. The company posted a revised loss of 44 cents a share for fiscal 1998, greatly differing from its initial report of a 5-cent profit. For its first quarter 1999, Olsten restated its loss to 28 cents a share, better than first report of a 77-cent loss. The company said the revisions, which were necessary to account for $56 million special charge from a two health-care investigation settlements and roughly $2 million in other charges, should not alter the details of its planned merger with Adecco ( ADECY).

Offerings and stock actions

REIT Manufactured Home ( MHC) said it will add 1 million shares to its existing share repurchasing program.

Miscellany

Aetna ( AET) said a Philadelphia federal judge rejected a class-action lawsuit brought on by the Foundation for Taxpayer and Consumer Rightsand three plaintiffs claiming that the company breached federal racketeering statutes and state law.

Broadcom ( BRCM) founder Henry Nicholas said he did not intend to buy a sports team, squashing rumors that the billionaire was pinning Disney's ( DIS) Anaheim Angels and Mighty Ducks as possible acquisitions. Nicholas did say, however, that his company was attempting to help Disney forge a deal with another undisclosed buyer that partial to lending Broadcom media and interactive rights to the teams.

The Teamsters union said that it has granted the request of Union Pacific ( UNP) division Overnite Transportation to allow workers to elect union representation. A Teamsters spokesperson said the union decided to allow the vote after Overnite's Sept. 29 press release urging it to let the "democratic process decide" if its workers wanted Teamsters representation.

Merck ( MRK) said it will request Food and Drug Administration approval for its male osteoporosis treatment Fosamax. A spokesperson for Merck was not sure when the company would submit its request but said that it will use positive results from the drug's Phase V trial to support its application.

Mesaba ( MAIR) said it has tapped former Atlas Air ( CGO) vice president Paul Foley as its new president and CEO. Foley will replace Bryan Bedford, who departed from the company to become president and CEO of US Airways ( U) affiliate Chautauqua Airlines.




Bond Focus: Treasuries Collapse Under Manufacturing Survey's Weight

By Elizabeth Roy
Senior Writer
10/1/99 5:17 PM ET

Bond prices collapsed today, more than giving back yesterday's big gain to push yields higher than they've been in months. The day started out badly because of hawkish chatter by the European Central Bank chief economist, and only got worse when the Purchasing Managers' Index, a key manufacturing sector indicator, set all kinds of records for strength.

The numbers made economists and bond traders reassess the odds of an additional interest-rate hike by the Fed this year. The Fed's next meeting is on Tuesday, and while most Fed watchers still expect no change in the fed funds rate this month, the idea that Chairman Alan Greenspan and the gang will adopt an official bias to hike rates, and then possibly act in November, gained more than a few adherents today.

"It definitely increases the probability that they may go this year," said Jerry Lucas, government bond strategist at Merrill Lynch. And "it definitely increases the probability that they will go for a tightening bias on Tuesday."

The benchmark 30-year Treasury ended the day down 1 5/32 at 99 28/32, lifting its yield 8 basis points to 6.13%, its worst close since Aug. 12. Shorter-maturity note yields underperformed, rising anywhere from 10 to 12 basis points.

The carnage started early, when ECB chief economist Otmar Issing was quoted in Europe saying that the risk of rising prices is greater than the risk of falling prices. (Seems obvious enough, but in bondland such pronouncements mean that prices -- of bonds -- may be too high.) Issing's remarks spread "fear of higher rates, fear of growth, and that pressured fixed-income assets," Lehman Brothers economist Joel Kent said.

Then, once the New York session was under way, the Purchasing Managers' Index struck its blows.

The index, which signals manufacturing sector expansion when it's over 50 and contraction when it's under 50, rose to 57.8 in September, the highest reading since November 1994, from 54.2 in August. The consensus forecast of economists polled by Reuters was for a very slight rise to 54.3.

A key sub-index of the report by the National Association of Purchasing Management, measuring export orders, rose to 56.6, its highest level since before the Asian economic crisis, First Union economist Mark Vitner observed in a published comment.

But perhaps most important, a sub-index measuring prices paid by manufacturers for raw materials rocketed to 67.6 from 59.8, stoking fear that rising materials prices will eventually translate into higher prices at the consumer level.

"For a while we had a strong-growth, no-inflation story," said Mike Cloherty, senior market economist at Credit Suisse First Boston. "Now we have strong growth and some commodity price pressures. We're not seeing it in final goods at all, and we're not anticipating it," he continued, "but that's raising some fears."

"The mitigating factor," KeyCorp chief economist Ken Mayland said in a published comment, "is that this pricing strength may be only narrowly felt, in the form of higher oil prices, which is probably close to being done." Crude oil has risen from under $12 a barrel in March to over $24 at today's close.

Tell it to the bond traders. Or to the fed funds futures traders, for that matter. At the Chicago Board of Trade, where those contracts are listed, the odds of an October hike got upped to 29% from 17% yesterday, while the chances of a November hike shot to 95% from 66%.

Economists say the strength of the economic data between now and the November meeting will determine whether the Fed hikes rates, but for now, there's no appetite for taking chances.

TO VIEW OUR ECONOMIC DATABANK, SEE:

http://www.thestreet.com/markets/databank/789088.html


Street Sightings:

Vern Hayden will be on Bloomberg Television's "Bloomberg Personal" starting at 6:30 a.m. EDT, Sat., Oct. 2 on the USA Network.


Copyright 1999, TheStreet.com

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