THE MARKET MIDDAY
DJIA 9455.91 +115.96 (+1.24%) S&P 500 1256.46 +17.27 (+1.39%) Nasdaq 2308.80 +25.20 (+1.10%) Russell 2000 397.02 +4.72 (+1.20%) 30-Year Bond 98 9/32 +10/32 5.37 Yield
E*Trade Books Gain
Online broker E*Trade Group (Nasdaq: EGRP) traded up 16.7% ($6 11/16) to $46 13/16 this morning 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.
Putting takeover speculation aside, I have to give credit to E*Trade's management for taking aggressive steps to become one of the premier names in online trading. Although the company posted positive earnings through June 1998, it decided to rapidly boost marketing expenditures last September at the cost of incurring operating losses. While such a move is disconcerting to traditional value investors, the truth of the matter is that moving quickly and aggressively is quite important in the Internet arena. Last quarter, the aggressive advertising campaign brought in 132,000 new accounts, bringing the total number of customer accounts to 676,000.
Bringing in a "critical mass" of accounts is important to be able to cost-effectively offer other services that will maintain E*Trade's leadership as an online financial service provider. The company has already started to offer an online tax filing service and mortgage service. In addition, the company just launched its first proprietary mutual fund, the E*Trade S&P 500 Index fund. The company also has taken an ownership interest in E*Offering, a fledging full service online investment banking firm. Broadening the company's offerings beyond the virtually commoditized online brokerage business should help justify the company's expenditures to expand its customer base.
While E*Trade has made a number of terrific moves, the importance of core competencies cannot be forgotten. Earlier this month, the company's website crashed four times in three days. Such situations are unnerving to customers and cost enormous amounts of goodwill. While rapid growth is important, satisfied customers are even more important. Switching accounts is not too challenging in today's e-world. The major marketing forays will be for naught if E*Trade can't hold onto its customers.
Aviation electrical, mechanical, and power systems maker Sundstrand Corp. (NYSE: SNS) took flight for a $10 1/8 gain to $68 1/8 after agreeing to be acquired in a $4.3 billion cash and stock deal by conglomerate United Technologies (NYSE: UTX). Sundstrand will be folded into United Technologies' Hamilton Standard aviation components unit, which will be renamed Hamilton Sundstrand.
Boxmaker Gateway (NYSE: GTW) moo-ved ahead $5 5/8 to $78 1/2 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 $8 5/8 higher to $79 5/8 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 3/8 to $19 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 3/4 to $28 5/8 after agreeing to be acquired by Swedish security firm Securitas AB in a deal valued at $384 million, or $29 per share in cash.
Natural gas pipeline operator and energy services firm KN Energy (NYSE: KNE) rose $1 3/16 to $22 11/16 after agreeing to merge with gas utility Sempra Corp. (NYSE: SRE) in a deal valued at about $6 billion in cash, stock, and assumed debt. Also, gas distribution company Southern Union Co. (NYSE: SUG) was lifted $2 5/16 to $20 1/4 after offering $32 per share in cash for Southwest Gas Corp. (NYSE: SWX), sending Southwest's shares up $1 15/16 to $28 9/16 this morning. More on the consolidation of the gas distribution business can be found in today's Breakfast With the Fool.
Packaging products and auto parts company Tenneco (NYSE: TEN) picked up $1 1/2 to $29 1/4 after a report in Barron's stated that the company has "hard offers" for its auto parts business, which it expects to shed by the end of Q1 in a deal worth upwards of $4 billion.
Casino operator Mirage Resorts (NYSE: MIR) rolled $1 higher to $19 3/4 after reporting Q4 EPS of $0.20, down from last year's $0.26 and $0.02 shy of the Zacks mean estimate. The results excluded $88 million in costs associated with the opening of the firm's new Bellagio resort, which Mirage said 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 $5 11/16 to $70 9/16 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 to $27 9/16, even though other news reports suggested that the two companies still have some details to iron out before a settlement can occur.
Online software retailer Beyond.com (Nasdaq: BYND) ventured $1 3/4 higher to $26 1/2 after agreeing to buy privately held software retailer BUYDIRECT.COM for 5.4 million shares, or roughly $134 million.
Marshall Industries (NYSE: MI) tumbled $3 13/16 to $15 1/2 after the industrial electronics and production supplies maker said it expects fiscal Q3 earnings to come in below the $0.30 per share consensus estimate five analyst gave First Call. The company issued a similar warning for Q2, blaming weak customer demand and industrywide pricing and margin pressures, but this time added the Dec. 31 loss of a pact with specialty semiconductor designer Xilinx Inc. (Nasdaq: XLNX) to the mix.
Drug developer NeoPharm Inc. (AMEX: NEO) moved back $11/16 to $16 13/16 this morning. 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.
Virginia Power parent company Dominion Resources (NYSE: D) dropped $1 3/4 to $40 1/2 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 would 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, order up a second helping of today's Breakfast With the Fool.
Website software developer WebTrends (Nasdaq: WEBT) lost $2 7/16 to $24 5/8 this morning in its second day of trading, while Vignette (Nasdaq: VIGN), another Friday IPO, moved back $2 11/16 to $40. Among other recent new issues moving down today, nutritional supplements company Mannatech Inc. (Nasdaq: MTEX) slid $1 1/16 to $13 9/16, and Internet services provider Prodigy Communications (Nasdaq: PRGY) gave back $1 1/4 to $31 1/4.
Lubrizol Corp. (NYSE: LZ) steamed off $1 7/8 to $18 1/8 this morning. 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.
Airborne and online retailer SkyMall Inc. (Nasdaq: SKYM) jettisoned $1 3/8 to $13 3/8 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).
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.
Bicycle maker Cannondale (Nasdaq: BIKE) braked for $1/2 to $10 3/4 after pedaling up $2 1/4 Friday on news of an upgrade from Hambrecht & Quist.
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David Marino-Nachison (TMF Braden), a new Fool