<THE EVENING NEWS>
Thursday, December 17, 1998
DJIA 8875.82 +85.22 (+0.97%) S&P 500 1179.98 +18.01 (+1.55%) Nasdaq 2043.88 +34.52 (+1.72%) Value Line ndx 877.37 +7.54 (+0.87%) 30-Year Bond 103 20/32 -10/32 5.01% Yield
Internet venture capitalist CMG Information Services (Nasdaq: CMGI) gained $10 7/8 to $91 3/8 after announcing the close of its @Ventures III venture fund, a $272 million emerging technologies fund with an all-star roster of investors. CMG owns about one-fifth of the fund, with the rest of the money coming from a wide variety of sources, including the likes of luxury goods maker LVMH Moet Hennessy Louis Vuitton (Nasdaq: LVMHY), BancBoston Capital and CMG part-owners Microsoft (Nasdaq: MSFT), and Japanese bank Sumitomo. CMG's money can be found around a lot of the action on the Internet these days, including portal giants Lycos (Nasdaq: LCOS) and GeoCities (Nasdaq: GCTY). Also fueling the rise was news that CMG plans a 2-for-1 stock split effective Jan. 11, and residual optimism from Tuesday's upbeat earnings report. Ahead of the game, the Fool spoke with CEO David Wetherell in October; a visit by the company to the Daily Trouble file a week later has since proved moot.
A small group of top U.S. banks got a boost today after Chase Manhattan (NYSE: CMB) said it expects fourth-quarter earnings to top Wall Street's $1.07 per share estimate. Chase, which credited strong derivatives and currency trading, improved consumer and investment banking, and a rise in corporate loans for the projected windfall, deposited a gain of $6 3/8 to $69 7/8 today. Optimism was fueled by the company's suggestion that EPS could set a new high when it reports in late January, beating the $1.20 figure set in Q2. Top bank BankAmerica (NYSE: BAC) grabbed $4 3/8 to $60 1/4 today on the Chase news, while Fleet Financial (NYSE: FLT) advanced $2 1/4 to $43 5/16 and Citigroup (NYSE: C) gained $2 3/8 to $50. The strength wasn't felt across the board, however, as J.P. Morgan (NYSE: JPM) and Bank One (NYSE: ONE) only managed negligible moves. To please investors in the fourth quarter, financial institutions will likely need to emulate Chase and demonstrate strong sources of income beyond securities investments.
QUICK TAKES: Desktop publishing software maker Adobe Systems (Nasdaq: ADBE) ran ahead $5 3/4 to $43 7/8 after late yesterday reporting Q4 EPS of $0.76 (excluding a $0.02 gain), up from $0.56 (not counting an $0.08 gain) a year ago. The number crushed analysts' First Call mean estimate of $0.64... Dynamic random access memory (DRAM) chip maker Micron Technology (NYSE: MU) jumped ahead $6 to $52 7/8 after BancBoston Robertson Stephens set a three-year price target of $200 per share... RightCHOICE Managed Care (NYSE: RIT) advanced $2 1/16 to $10 15/16 after it said Blue Cross & Blue Shield of Kansas City is interested in buying the healthcare provider for about $278.2 million as an alternative to a settlement agreement the companies reached in September.
Federal Express parent FDX Corp. (NYSE: FDX) delivered gains of $4 5/16 to $76 5/16 after it announced fiscal Q2 EPS of $1.23, up from $1.00 last year and ahead of analysts' projections of $1.06... Polymer manufacturer GenCorp (NYSE: GY) bounced up $1 1/16 to $26 1/4 after it reported Q4 operating EPS of $0.66, beating First Call's four-analyst $0.59 consensus estimate and last year's $0.52 figure. GenCorp also announced plans to spin off its Performance Chemicals and Decorative & Building Products businesses to shareholders, creating a new publicly traded company... Laser vision correction products manufacturer and former Daily Double VISX (Nasdaq: VISX) beamed up $3 to $77 7/8 after it set plans for a 2-for-1 stock split on Dec. 28... E-commerce outsourcing solutions specialist Digital River (Nasdaq: DRIV) flowed ahead $4 1/4 to $29 1/8 after announcing a partnership to provide software to Wal-Mart Stores' (NYSE: WMT) online store.
Pharmaceutical contract research organization (CRO) Quintiles Transnational Corp. (Nasdaq: QTRN) improved $2 1/2 to $48 3/8 today after losing $10 5/16 yesterday on news of plans for a $1.7 billion purchase of Envoy (Nasdaq: ENVY), a leading provider of electronic data interchange (EDI) services to the healthcare market. Bear Stearns upgraded Quintiles to "buy" from "attractive" this morning... Ohio-based banking company Wood Bancorp (Nasdaq: FFWD) grew $3 1/4 to $19 1/8 after it announced plans to sell itself to Sky Financial Group (Nasdaq: SKYF) in a stock deal valued at $59 million... Cruise-line operator Carnival Corp. (NYSE: CCL) sailed ahead $2 13/16 to $39 11/16 after it reported fiscal Q4 EPS of $0.37, up from $0.26 last year and beating Wall Street's $0.33 estimate... Financial information provider Market Guide (Nasdaq: MARG) won $2 3/8 to $11 3/8 today after announcing Q3 EPS of $0.04 compared with breakeven last year, a penny above Street projections.
Internet advertising firm DoubleClick (Nasdaq: DCLK) snagged $5 11/16 to $45 3/16 after BT Alex. Brown resumed coverage of the company with a "buy" rating... Online development services firm USWeb Corp. (Nasdaq: USWB) advanced $3 1/8 to $26 5/8 after the company announced the closing of its merger with new media marketing company CKS Group... Computing products direct marketer Insight Enterprises (Nasdaq: NSIT) raced ahead $3 1/8 to $45 1/4 after agreeing to buy German company Computerprofis Computersysteme for about $8.4 million in cash and stock... Banking company Vermont Financial Services (Nasdaq: VFSC) jumped $3 3/4 to $32 3/4 after Chittenden Corp. (NYSE: CHZ) agreed to buy the company in a $454 million stock deal in which Vermont shareholders would get 1.07 Chittenden shares for each one of theirs.
3D graphics accelerator chipset maker S3 Inc. (Nasdaq: SIII) accelerated $1 3/8 to $6 13/32 after it announced a 10-year cross-licensing agreement with Intel (Nasdaq: INTC) on the patents of certain semiconductor products... GaSonics International (Nasdaq: GSNX), which makes cleaning tools for semiconductor manufacturing, bubbled up $13/16 to $7 15/16 after announcing plans to buy back 500,000 shares of company stock... Artificial Life (Nasdaq: ALIF), which develops business "robot" software for the Internet, shot up $15 1/2 to $23 1/2 in its first trading session. The company sold 1.6 million shares yesterday at $8.50 per share... Recent IPO Infospace.com (Nasdaq: INSP), an Internet content aggregator, grabbed $7 1/16 to close at $33 13/16 today.
Internet-based administrative services provider Concur Technologies (Nasdaq: CNQR), which grabbed $7 in its first day of trading yesterday, took on another $2 3/16 to $21 11/16 this morning... Coronary stent and medical device maker Guidant Corp. (NYSE: GDT) advanced $6 3/8 to $99 1/2 after CIBC Oppenheimer reiterated a "buy" rating on the stock... Acquisition-minded advertising conglomerate Interpublic Group of Companies (NYSE: IPG) attracted $5 to $71 3/4 after it agreed to buy privately held Austin Kelley Advertising of Atlanta for an undisclosed sum... Online lottery services company GTECH Corp. (NYSE: GTK) won $1 1/16 to $24 1/8 after it reported Q3 EPS of $0.64, up from $0.57 last year and a nickel above Street estimates.
Office furniture supplier Herman Miller (Nasdaq: MLHR) hammered on $2 5/16 to $24 1/4 after turning in fiscal Q2 EPS of $0.45 last night, beating the year-ago $0.33 and Wall Street's $0.38 figure... Direct marketing services provider LCS Industries (Nasdaq: LCSI) mailed in gains of $1 3/4 to $17 1/4 after it agreed to be bought by subsidiary of Canadian company Onex Corp. for $17.50 per share... Measurement, color printing, and video and networking firm Tektronix Inc. (NYSE: TEK) added $3 5/8 to $28 3/16 today after Goldman Sachs upgraded to company to "market outperform" from "market perform"... Greeting card maker American Greetings (NYSE: AM) popped up $3 5/8 to $40 3/4 after it reported Q3 EPS of $1.18, ahead of last year's $1.07 figure and in line with market estimates... Office staffing firm Interim Services (NYSE: IS) rose $2 to $19 3/4 after it was upgraded to "buy" from "outperform" by Stephens & Co... Airline operator Continental Airlines Inc. (NYSE: CAI.B) lifted off $3 1/16 to $32 7/8 after PaineWebber upgraded the company to "buy" from "attractive."
If you're a retailer selling items such as "the slasher dress" and Johnny the Homicidal Maniac comic books, you have to figure that bad karma is going to get you some day. Today, teenage goth clothing and accessories seller Hot Topic (Nasdaq: HOTT) took a field trip to the graveyard, falling $8 7/16 to $13 9/16 after reporting that its same-store sales have fallen 10.2% so far during the fourth quarter from their levels a year ago. The company blamed the drop-off on lighter-than-expected mall traffic from its vampire-wannabe customers, who may have stayed away from shopping centers due to the sunshine associated with recent unseasonably warm weather. BT Alex. Brown, itself an old hand in the bloodsucking retail brokerage business, lowered its rating today to "market perform" from "strong buy."
Lancaster, Pennsylvania-based floor coverings manufacturer Armstrong World Industries (NYSE: ACK) was strong-armed $4 3/16 lower to $61 after warning that lower-than-expected sales of vinyl flooring in North America will result in Q4 earnings of $1.15 to $1.20 per share, even with or slightly higher than the $1.15 per share earned a year ago. Analysts surveyed by First Call had been hoping for earnings of $1.24 per share, continuing the earnings growth momentum from Q3 when the firm topped estimates with earnings of $1.53 per share. During that quarter, Armstrong's key residential sheet flooring business drove profits, recovering from a lousy Q2. After the bumpy ride this year from the good quarter-bad quarter syndrome, investors may be wondering if the company's Q4 problems are tied to the cyclical nature of the building materials business or to more ominous execution concerns.
QUICK CUTS: Less-than-truckload freight hauler and logistics company Consolidated Freightways (Nasdaq: CFWY) downshifted $3 1/8 to $14 5/8 despite pre-announcing Q4 EPS of about $0.50 (excluding charges), which is well above the First Call mean estimate of $0.28. However, traders focused on the firm's announcement last night that it has ended merger talks with an unspecified third party without reaching an agreement. Morgan Stanley Dean Witter lowered its rating to "neutral" from "outperform"... Business and education presentation and display products maker Hunt Corp. (NYSE: HUN) dropped $2 11/16 to $10 3/8 after saying its fiscal 1998 earnings will fall below the $1.10 per share the company said analysts had been expecting.
Telecom and medical equipment external power conversion products maker Ault Inc. (Nasdaq: AULT) fell $5/8 to $6 1/4 after reporting fiscal Q2 EPS of $0.11, down from $0.12 last year and short of the First Call mean estimate of $0.16... Skiing and outdoor apparel maker The North Face (Nasdaq: TNFI) skidded $1 3/4 to $9 7/8 following a downgrade from BT Alex. Brown to "market perform" from "buy"... Copper electrical wire and cable maker Encore Wire Corp. (Nasdaq: WIRE) snapped for a $7/8 loss to $8 13/16 after Schroder & Co. reduced its rating on the company to "neutral" from "buy"... Adult higher education programs operator Apollo Group (Nasdaq: APOL) slid $4 3/4 to $25 1/8 after reporting fiscal Q1 EPS of $0.17, in line with the First Call mean estimate. However, the company added that seasonal effects will have an impact on Q2 results.
Oil prices gave back yesterday's gains and then some on news that U.S. air strikes did no damage to Iraq's oil production infrastructure. In response, several oil and gas services firms and contract drillers dropped as the global oil glut persists. Schlumberger (NYSE: SLB) slipped $1 3/4 to $44 15/16, BJ Services (NYSE: BJS) sank $1 to $15 1/16, Smith International (NYSE: SII) slumped $1 13/16 to $25 1/2, Rowan Companies (NYSE: RDC) drifted down $1 1/4 to $10 3/16, R&B Falcon (NYSE: FLC) slid $1 1/8 to $8 3/4, and Global Marine (NYSE: GLM) fell $1 to $10... Mammography equipment maker Trex Medical (AMEX: TXM) was zapped $3/4 to $14 11/16 after the FDA said it is considering the company's application for a full-field digital mammography system "withdrawn" due to a lack of data analysis from the company.
Construction cements maker Giant Cement Holding (Nasdaq: GCHI) cracked $2 7/8 to $20 3/8 following a downgrade to "hold" from "buy" by Warburg Dillon Read... Online retailer Amazon.com (Nasdaq: AMZN) slid $12 1/4 to $276 3/4 after Wheat First Union lowered its rating to "hold" from "outperform," citing concerns that investors' Q4 sales expectations for the firm may be too high... Aircraft cabin interiors maker BE Aerospace (Nasdaq: BEAV) fell $1 7/16 to $21 11/16 in anticipation of the company's fiscal Q3 earnings report. After the bell, the firm reported EPS of $0.59, $0.06 short of the First Call mean estimate, due to a $0.07 per share increase in amortization charges stemming from the reallocation of the purchase price of its fiscal 1999 acquisitions.
CNBC and the Price of Frankness
Will frankness get you in trouble? Apparently. The powers that be at CNBC decided yesterday that, until further notice, James Cramer, a hedge fund manager and co-founder of TheStreet.com, would be barred from making his biweekly appearance as a guest analyst on the network's Squawk Box program. Under normal circumstances, I'd say that's their prerogative. It's their show, and he has no contract. However, this decision implicitly comes with the allegation that Cramer may have engaged in unethical behavior. And that would mean that Cramer is simply lying, which I don't believe. So it appears that what's really at stake is whether CNBC is willing to cave in to outside pressure, including pressure from a company, when a guest analyst speaks his mind. The issue, then, is not Cramer's integrity but the network's integrity, and that's of considerable interest to all investors who rely on CNBC as a source of financial news.
The controversy turns on comments Cramer made regarding WavePhore Inc. (Nasdaq: WAVO) during the December 2 broadcast. That company's stock had soared $7 1/2 to $15 1/4 the day before on volume of 32 million shares after it had announced plans for a new online shopping area available through its WaveTop Internet broadcast service. As is often the case with such moonshots, the company's CEO, David Deeds, was scheduled to appear on Squawk the next day.
Cramer led off the program by telling a story. He said he had contacted the stock loan department at Goldman Sachs that morning and said, "Listen, I want to short twenty-five thousand WavePhore because I think this thing is a big speculative bubble." Goldman said, "Not on your life. It can't be borrowed." Cramer then launched into an explanation of how short squeezes work and why, in his view, WavePhore's run-up was "not a fundamental move" and that speculators involved in the stock were "playing with fire."
Somewhere in the mix, though not in the transcript CNBC sent me (I saw it live), Cramer said he had no position in WavePhore; he talked generally about "Fraud-U-Nets," companies that are Internet wannabes; and he said that Federal Reserve Chair Alan Greenspan "doesn't like WavePhore going up." Shortly thereafter, anchors Joe Kernen and David Faber conducted a hard-hitting interview with Deeds, who said the company hoped to turn a profit by the end of '99 but might need to raise more cash during the first half of next year. Cramer asked whether Deeds had plans to sell stock. Deeds responded, not at this price, "I think it's undervalued now."
That day, WavePhore's shares plunged 38% to close at $9 1/2. The next day, the company issued a press release saying it had asked the SEC and Nasdaq to "investigate these events to determine whether applicable laws and regulations have been violated." The company said Nasdaq was reviewing the matter. Neither the SEC nor the Nasdaq has said a peep since. Cramer has said publicly, and told me privately, "I had no intention of shorting WAVO. I just wanted to demonstrate that it could not be borrowed and was therefore subject to a short squeeze." In other words, he had just done his homework to make sure that what he sensed was the truth, and what he planned to say on the air, was in fact accurate.
CNBC spokesperson George Jamison told me yesterday that the network has no reason to believe that Cramer violated any of CNBC's disclosure policies. He said the network expects its guests to act with objectivity and professionalism, and, given a number of negative responses from viewers, CNBC simply needed more time to evaluate what happened. Jamison suggested that the way Cramer expressed his views may have created unnecessary confusion. He said the network is also reviewing its own standards.
That, at any rate, is the gist of what Jamison said. I was so steamed about the controversy that my interview notes are a bit incomplete. Did Cramer short the stock? He says no. Is it unethical to talk badly about a company on CNBC? No, no more than it's unethical to speak well of a company. So where's the problem?
Let's take it a step further. What if Cramer had said, "I called Goldman and shorted 25,000 shares this morning because I think this stock is garbage." Considering that money managers get on CNBC all day long and talk their positions (with CNBC's knowledge, I have no doubt), what's wrong with a short-seller coming on and talking his position while also disclosing it very publicly? Nothing. Indeed, when you think about it, the only guy on CNBC that morning with a position in WavePhore was Deeds, and he didn't hesitate to tout it.
The Motley Fool doesn't see eye to eye with Cramer when it comes to investing. We think that for most people, buy-and-hold works best, and academic evidence supports that view. Cramer has some long-term investments, but he's also a very active trader. Yet, since he beat the S&P 500 index every year between 1988 and 1996 (we don't know his record the last two years), he's got a track record that makes him worth listening to even if you don't agree with his approach. Moreover, despite our differences, we're both in the business of educating investors. Going on CNBC and trying to explain to investors why there have been such amazing spikes in third-tier Internet stocks is fine by me. If they stuck me on the show, I'd say the same thing, just with a lot less flair. I consider it a public service, and one that CNBC's Squawk Box audience particularly needs to hear.
Is WavePhore really in the "Fraud-U-Net" camp? I haven't looked at it closely, so I can't say. But it's worth putting Cramer's comments in context. CNBC was at least partly responsible for WavePhore's rise in the first place. By Joe Kernen's own admission, WavePhore was "up a point or two" on "a million and a half shares" on December 1 before he mentioned it on one of his Stocks to Watch features. "[N]ext thing you know, the stock soared another 60 percent and the volume surged from about two million to over 32 million shares," Kernen told viewers. Drawing linear cause and effect conclusions from that may misrepresent the story, but maybe not much.
Jamison told me that this controversy is not a big issue and that Cramer could be back soon. If that's really the case then that's great because I think Cramer's one of the only members of Wall Street's Wise that holds himself aggressively and Foolishly accountable for what he says. Considering how much he says, that's quite an accomplishment. While CNBC has itself done a progressively better job of disclosing its guests' financial interests and holding them accountable for their track records, hopefully this controversy will lead the network to adopt an even more proactive stance. CNBC's first step should be apologizing to Cramer for causing him embarrassment. He's a big boy, but it can't be a pleasant experience to have Dow Jones report that you may have acted unethically. CNBC's second step should be apologizing to viewers for even hinting that guests should offer something less than their colorful, candid opinion. It simply sets a dangerous precedent if a company can rattle some swords and intimidate or even silence an honest critic.
Please see the Motley Fool's Conference Calls page for call information and links to synopses.
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