Monday, February 22, 1999
DJIA            9552.68    +212.73     (+2.28%)
S&P 500         1272.14     +32.95     (+2.66%)
Nasdaq          2342.01     +58.41     (+2.56%)
Russell 2000     397.82      +5.52     (+1.41%)
30-Year Bond   98 14/32     +15/32  5.35 Yield


Online broker E*Trade Group (Nasdaq: EGRP) traded up $8 7/16 to $48 9/16 today on speculation in The Wall Street Journal's "Heard on the Street" column that Goldman, Sachs & Co. might form a business relationship with the company as a springboard into the Internet brokerage business. According to the article, E*Trade and Goldman have already jointly invested in Archipelago, a new electronic trading system, and Goldman cut E*Trade customers in on two of last year's Internet IPOs, eBay (Nasdaq: EBAY) and GeoCities (Nasdaq: GCTY). No deal or transaction is imminent, as Goldman just formed an exploratory committee in the past two weeks to determine how the company should use the Internet in the future. However, the speculation at least adds some legitimacy to the aggressive online broker's business maneuvering, which was examined in more detail in today's Fool Plate Special.

Aviation electrical, mechanical, and power systems maker Sundstrand Corp. (NYSE: SNS) took flight for a $10 1/4 gain to $68 1/4 after agreeing to be acquired for $4.3 billion in cash and stock by conglomerate United Technologies (NYSE: UTX). Sundstrand will be folded into United Technologies' Hamilton Standard aviation components unit, which will be renamed Hamilton Sundstrand. The purchase price, which will be paid 50% in stock and 50% in cash, works out to a minimum of $70 per share -- a nifty 21% premium to Sundstrand's closing price of $58 per share on Friday. Hamilton's digital engine controls, fuel meters, and flight control systems will mesh nicely with Sundstrand's electric power generation and fluid pumping systems, leading United Technologies to forecast that the deal will add "slightly" to fiscal 1999 EPS with accelerated accretion in the years to follow.

QUICK TAKES: PC boxmaker Gateway (NYSE: GTW) moo-ved ahead $6 7/16 to $79 5/16 after Piper Jaffray analyst Ashok Kumar boosted his Q1 EPS estimate to $0.90 from $0.59 and his fiscal 1999 estimate to $3.87 from $2.82. According to Reuters, Kumar believes the company's Country Store retail outlets will lead to higher-than-expected growth this year... Chip enhancement technologies developer Rambus (Nasdaq: RMBS) ran $9 9/16 higher to $80 9/16 after BancBoston Robertson Stephens raised its rating to "buy" from "long-term attractive" and set a price target of $90 per share... X86 PC chip maker Advanced Micro Devices (NYSE: AMD) gained $1 11/16 to $19 5/16 after saying it is shipping its new 400 MHz K6-III processor and is sampling a 450 MHz version of the chip to original equipment manufacturers.

Security services provider Pinkerton's Inc. (NYSE: PKT) jumped $11 11/16 to $28 9/16 after agreeing to be acquired by Swedish security firm Securitas AB in a deal valued at $384 million, or $29 per share in cash... Gas distribution company Southern Union Co. (NYSE: SUG) was lifted $1 13/16 to $19 3/4 after offering $32 per share in cash for Southwest Gas Corp. (NYSE: SWX), sending Southwest's shares up $1 3/4 to $28 3/8. More on the consolidation of the gas distribution business can be found in today's Breakfast With the Fool... Casino operator Mirage Resorts (NYSE: MIR) rolled $1 15/16 higher to $20 11/16 after reporting that its new Bellagio resort brought in more than $3 million a day in gross revenues by itself in its first 77 days of business. BT Alex. Brown and NationsBanc Montgomery Securities both raised their ratings on the company to "buy" today.

Wireless phone maker Qualcomm (Nasdaq: QCOM) tacked on $6 1/2 to $71 3/8 after The Wall Street Journal said the company is close to signing a patent dispute settlement with Ericsson (Nasdaq: ERICY) that would give the rivals access to each other's respective CDMA and GSM wireless technology patents. Ericsson picked up $1 3/8 to $27 15/16... Online software retailer Beyond.com (Nasdaq: BYND) ventured $1 13/16 higher to $26 9/16 after agreeing to buy privately held software retailer BUYDIRECT.COM for 5.4 million shares, or roughly $134 million... Cable set-top box maker General Instrument (NYSE: GIC) gained $3 3/16 to $34 11/16 after SoundView Technology Group started coverage of the company with a "buy" rating.

Biomedical company Biomatrix (NYSE: BXM) rose $4 11/16 to $52 3/16 after the FDA approved the company's Synvisac treatment for knee osteoarthritis... Telecommunications systems engineering and construction services firm Dycom Industries (NYSE: DY) added $5 15/16 to $38 1/2 on reporting fiscal Q2 EPS of $0.29, beating the First Call mean estimate of $0.25... Networking products maker 3Com (Nasdaq: COMS) advanced $1 5/8 to $34 13/16 after unveiling its Palm V and Palm IIIx personal digital assistants (PDAs)... Networking systems designer Xylan Corp. (Nasdaq: XYLN) moved up $2 3/4 to $22 5/8 on rumors that it may be acquired, possibly by French telecom products maker Alcatel (NYSE: ALA).

Tax preparation services provider H&R Block (NYSE: HRB) gained $3 3/8 to $44 1/2 after saying it is discussing "a possible business combination" with accounting and consulting firm McGladrey & Pullen LLP... Financial services provider Nationwide Financial Services (NYSE: NFS) rose $3 7/16 to $45 1/2 thanks to a Morgan Stanley Dean Witter upgrade to "strong buy" from "outperform." After the bell, the company said it will buy CalFarm Insurance Co. from Zenith National (NYSE: ZNT) for unspecified terms... PC input/output integrated circuits maker Standard Microsystems (Nasdaq: SMSC) was lifted $1 7/16 to $8 7/8 after announcing that its upcoming microprocessor chipsets will be fully licensed under patents belonging to chip giant Intel (Nasdaq: INTC).

Electronics retailer Best Buy Co. (NYSE: BBY) climbed $4 1/8 to $90 after announcing a two-for-one stock split... Women's casual clothing retailer AnnTaylor Stores (NYSE: ANN) sashayed its way $2 7/16 higher to $38 1/8 courtesy of a Bear Stearns upgrade to "buy" from "neutral"... Online services conglomerate America Online (NYSE: AOL) picked up $12 5/8 to $173 after an executive reportedly told the BancBoston Robertson Stephens Technology '99 conference that the last 41 days were "very, very strong" in terms of new users, according to Dow Jones... Regional Bell Operating Company BellSouth (NYSE: BLS) gained $2 11/16 to $48 after an article in Barron's added to recent rumors that the company may merge with telecom services firm Sprint (NYSE: FON). Sprint rose $3 7/8 to $85 5/8.


Telxon Corp. (Nasdaq: TLXN) lost $13/16 to $8 9/16 as news spread that the wireless equipment systems company's quarterly SEC filing last week included news that the agency is conducting a preliminary inquiry into unusually heavy trading in Telxon stock in mid-December. The company restated fiscal Q2 earnings on Dec. 11. Late last month the SEC issued an order to take testimony from company officers concerning "trading and specified accounting matters," and company documents were subpoenaed Feb. 11. According to reports, trading in Telxon put options, bought in the expectation that a stock's price would fall, was significantly heavier than usual ahead of the company's announcement. The restated earnings are expected as early as next week, according to The Wall Street Journal. Two dozen shareholder lawsuits were filed against Texlon in connection with the restatement news.

Marshall Industries (NYSE: MI) tumbled $3 13/16 to $15 1/2 after the industrial electronics and production supplies maker said it expects fiscal third quarter earnings to come in between $0.14 and $0.17 per share, well below the $0.30 per share consensus estimate of five analysts recorded by First Call. The company issued a similar warning for Q2, blaming weak customer demand and industry-wide pricing and margin pressures, but a new factor was added this time: a pact with Xilinx Inc. (Nasdaq: XLNX) ended Dec. 31 as the specialty semiconductor designer's plans to streamline its North American distribution network didn't include Marshall. Marshall has just met or missed the market's earnings projections in seven of the last 10 quarters. The stock is down about one-third since the summer of 1996.

QUICK CUTS: Drug developer NeoPharm Inc. (AMEX: NEO) gave back $1 5/8 to $15 7/8 today. The company announced an agreement to develop two of its cancer products with Pharmacia & Upjohn (NYSE: PNU) that includes an initial $15 million payment from Pharmacia & Upjohn as well as other development payments, overseas royalties, and other financial terms... America West Holdings Corp. (NYSE: AWA) lost $1 3/8 to $21 3/8 today after rising Friday following reports that United Airlines parent UAL Corp. (NYSE: UAL) bid for the company... Lubrizol Corp. (NYSE: LZ) steamed off $13/16 to $19 3/16 as the specialty chemicals company announced plans to develop and market products and services for managing critical fluids in diesel electric powered locomotives and off-highway vehicles with General Electric's (NYSE: GE) transportation systems division.

Virginia Power parent company Dominion Resources (NYSE: D) dropped $2 1/4 to $40 after it and natural gas pipeline and oil & gas exploration and production company Consolidated Natural Gas (NYSE: CNG) agreed to a $6.3 billion stock swap. CNG shareholders will receive 1.52 shares of Dominion for each CNG share, which puts the offer price at $64.22, or 14% above Friday's closing price. For more on this story, click here... Website software developer WebTrends (Nasdaq: WEBT) lost $2 7/16 to $24 5/8 in its second day of trading, while Vignette (Nasdaq: VIGN), another Friday IPO, moved back $2 7/8 to $39 13/16. Among other recent new issues moving down today, nutritional supplements company Mannatech Inc. (Nasdaq: MTEX) slid $5/8 to $14, and Internet services provider Prodigy Communications (Nasdaq: PRGY) gave back $1 3/8 to $31 1/8.

Computer products distributor Ingram Micro (NYSE: IM) dropped $1 3/16 to $25 1/16 after the company completed its tender offer for Electronic Resources Ltd. by its Singapore subsidiary. Ingram now owns about 95% of the company... Hanger Orthopedic Group (AMEX: HGR), an orthotics and prosthetics services company, lost $1 3/4 to $16 7/8 after it bought Universal Orthotics & Prosthetics Inc. and Medical Center Brace Co. for undisclosed amounts... Cosmetics and pharmaceuticals company Del Laboratories (AMEX: DLI) fell $1 3/8 to $22 1/2 after reporting a Q4 loss of $0.05 per share, down from last year's $0.36 per share profit.

General Motors (NYSE: GM) unit Hughes Electronics (NYSE: GMH) lost $1/2 to $47 1/2 following reports in the Financial Times that the Clinton administration intends to ban the $450 million sale of a telecommunications satellite to China... Accounts receivable management services company NCO Group (Nasdaq: NCOG) moved back $3 3/16 to $28 13/16 despite earning a new "strong buy" rating from Prudential Securities and reporting Q4 EPS of $0.26, a penny above estimates, on Friday... Streaming audio and video company InterVu Inc. (Nasdaq: ITVU) lost $2 1/4 to $20 1/2 today after reporting a deal to provide streaming media and broadband solutions with digital broadcast network, a private network computer and communications company.

Airborne and online retailer SkyMall Inc. (Nasdaq: SKYM) jettisoned $1 to $13 3/4 as the company's e-tailing division hired former N2K Inc. (Nasdaq: NTKI) executive Curtis Brown to be its chief technology officer. The company's stock powered ahead Friday on news of a catalog and marketing deal with Northwest Airlines (Nasdaq: NWAC)... Chip performance accelerator technology developer NeoMagic Corp. (Nasdaq: NMGC) retreated another $1 5/16 to $11 5/16 after losing $1 1/2 on Friday when it announced Q4 EPS of $0.34, $0.02 above last year's number but flat with market projections.

Telecommunications systems constructor Able Telecom Holdings Corp. (Nasdaq: ABTEE) sank $1 9/16 to $7 3/16 after investment firm Asensio & Co. issued a press release calling statements in a company release from Friday "false and fraudulent"... Healthcare information systems company IDX Systems Corp. (Nasdaq: IDXC), which today announced the launch of a new Web-based practice management system, lost $3 to $30... Technical, embedded, Web, e-commerce, and enterprise information systems software developer Rational Software Corp. (Nasdaq: RATL) calmed $2 9/32 to $29 9/32 today. First Albany Corp. reiterated an "accumulate" rating on the stock this morning.

An Investment Opinion
by Alex Schay

A Little Dow History

If you don't know where you're going, any road will take you there. It seems like the perennial questioning about the significance, or lack thereof, of the Dow Jones Industrial Average is back again. This issue seems to make the rounds through various financial media every year, but if you subscribe to the notion that you can't proceed with any forward-looking discussion about a topic unless you know where you've been, you' might enjoy the following research piece on Charles Dow. It was originally published back in 1996, and co-authored with former Fool Randy Befumo. The first part deals with the history of the Dow, which may be of interest to investors seeking ammunition in the "significance debate."

A Little Dow History

Charles Dow came from humble origins, yet managed to transform the world of investing more than any high-powered money manager or investment banker. He wasn't born in the center of cosmopolitan New York and he wasn't a financial child prodigy who scanned the stock tables for price/earnings ratios at a tender age. Dow was born in 1851 on a farm in Connecticut. He worked odd, menial-labor jobs from the age of six to help support his family after the death of his father. Although writing appealed to Dow, he did not finish secondary school. Despite this, at the age of 18 he got a job as a reporter for the Springfield Daily Republican. The Republican was a newspaper of national repute edited by newspaper giant Samuel Bowles, renowned for establishing the credentials of aspiring journalists.

Dow continued his reporting work at another prominent newspaper, The Providence Journal, in Rhode Island. He worked under the leadership of George W. Danielson, another outstanding editor of the day. Through a series of articles, Dow established himself as an insightful historian of the local scene with a keen interest in financial affairs. From tracing the corporate transactions of steamship companies to discussing investments in Newport real estate, Dow found that financial reporting not only matched his interests but also suited his temperament.

After a move to New York and a stint with the Kiernan News Agency in 1882, he started Dow Jones & Co. with two partners, Edward Jones and Charles Bergstresser. They first published a two-page daily called The Customer's Afternoon Letter in early 1883. By 1889, The Customer's Afternoon Letter evolved into The Wall Street Journal.

The Customer's Afternoon Letter was nothing short of revolutionary. In Dow's time, consolidated stock tables published every day did not exist. Information about a company's balance sheet was rarely published, with managements often attempting to hide and obscure the full value of their company for fear of takeover. The Letter not only reported consolidated stock tables, but also made public quarterly and annual information regarding company financials -- something only available to insiders before this. Dow's publication leveled the playing field between the Wall Street elite and the individual investor. It would not be until the Securities Act of 1934 that companies would be required to file 10-Ks and 10-Qs that all investors could look at. So for more than fifty years, the only place for the individual investor to get the straight poop on company financials was The Customer's Afternoon Letter and then The Wall Street Journal.

In addition to founding the first daily publication dedicated to the financial world, Dow Jones & Co. was the first to see the need for an index that could be used to gauge the activity of the New York Stock Exchange as a whole. The first Dow Jones Index, the precursor of the Dow Jones Industrial Average, included 11 stocks -- 9 railroads, Western Union, and Pacific Mail Steamship. At that time, railroad stocks represented a key growth industry and were among the the only shares that traded in large volume on the NYSE. That is why they were chosen. The initial average was simply the price of all eleven stocks added up and divided by the number of companies.

Although Charles Dow never wrote anything that claimed he invented the average and, in fact, never really wrote anything at all about his thoughts on investing, the record left by his contemporaries clearly shows that he was the idea man behind all of Dow Jones & Co.'s endeavors, while his partners managed the employees and kept the books. Dow continued to tweak the list of companies making up his average until his death in 1902. Charles Dow left behind the first market average, a barometer for the general pressure of the "market." The investment world would be a very different place without the kind of reporting and financial disclosure pioneered in The Wall Street Journal or the notion of an average used to measure where the broader market was at any given point.

Charles Dow had one goal in mind when he created the Dow Jones Industrial Average: to measure the market as a whole rather than simply focusing on individual stocks. He wanted to make this average and the others he developed the foundation of a comprehensive theory that could be used to explain and predict general market movements. Dow was originally credited with creating the first general market average in July of 1884, although he later modified this and began to publish separate Industrial and Railroad Averages on May 26, 1896. These averages are the foundation of Dow Theory.

What we know today as Dow Theory was actually posthumously attributed to Mr. Dow by S.A. Nelson in his 1902 book, The ABC of Stock Speculation. Dow never wrote a book on investments and confined his opinions to anonymous editorials in The Wall Street Journal. Nelson clearly identified Dow as the intellectual force behind The Wall Street Journal, and lamented that Dow never published a comprehensive text on "speculation." Nelson believed Dow's position at the center of Wall Street would have uniquely qualified him to write such a tome.

Further Reading:
-- Dow Investing Area
-- Dow 9000 -- Who Cares?

Discuss this column on the FOTH message board.


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