THE MARKET MIDDAY
DJIA 9873.02 +100.18 (+1.03%) S&P 500 1298.01 +11.17 (+0.87%) Nasdaq 2427.80 +21.80 (+0.91%) Russell 2000 402.93 +1.81 (+0.45%) 30-Year Bond 95 16/32 unch 5.56 Yield
Schwab's Mea Culpa
In the kind of face-saving gesture one would expect from the leading online broker, Charles Schwab (NYSE: SCH) has decided to settle complaints from investors who tried but failed to cancel their orders for theglobe.com (Nasdaq: TGLO) on its crazy first day of trading, according to an article in today's Wall Street Journal. Since the online community came public last November, reports have circulated about investors who placed market orders for theglobe, hoping to buy shares somewhere close to the $9 IPO price, only to find that they actually purchased the stock at the $90 first-trade price or higher. The stock quickly retreated, closing the day at $63 1/2; it hasn't topped $75 since. Many investors lost thousands of dollars almost instantaneously.
What wasn't known is just how many people tried to head off these disastrous trades but to no avail. The Schwab settlements make clear that even this top discount broker couldn't process some 300 of the 1,500 cancellation orders it received through its website or by phone on that first day of trading. Some investors may have tried to cancel their orders after the issue had been officially priced by the underwriters but before it had actually begun trading, an interim period when market orders usually can't be cancelled. According to the Journal, Schwab general counsel Hardy Callcott put the average trade lot at 100 to 200 shares. Assuming investors sold their shares by day's end for about a $20 per share loss, Schwab is reimbursing between $0.6 million and $1.2 million. However, the brokerage firm apparently has no plans to address complaints from investors who can't prove they tried to cancel their orders. That includes folks who placed orders in IRA accounts but clearly didn't have the funds on hand (as they must) to cover a trade that went off at a price 10 times above what they might have expected.
All of this is a tricky business that will surely be left to the lawyers to settle. What's clear is that Schwab has already taken protective action by requiring customers to place first-day orders for IPOs over the phone, where a Schwab representative can insist that the customer use a limit order stating the maximum price he's willing to pay for the security. Schwab is also beefing up its online capacity by adding mainframes, Web servers, and IT support staff to deal with the spike in online trading volume. It's obviously in the firm's interest to offer the most responsive service, indeed, to set the standard. Putting theglobe.com fiasco behind it as quickly as possible also makes sense, especially in light of reports that the SEC is planning greater oversight of the online brokerage industry.
While some Schwab customers may still have legitimate complaints that should be addressed, the main lesson of theglobe.com episode is that investors need to know what they're doing before they throw money into the stock market. Taking responsibility for making your own investment decisions means you actually need to educate yourself about some basics. For example, when placing an order for a volatile security, you should set your own price by using a limit order -- or pretty much expect the worse. To buy or sell at market is to let the market set the price for you. That's just the way it works.
Bookseller Barnes & Noble (Nasdaq: BKS) booked a $2 7/8 gain to $30 after reporting fiscal 1999 EPS of $0.76 (excluding a $0.59 loss related to its barnesandnoble.com online unit), which was in line with a profit warning from the company last month. The firm said operating profits at its retail business increased 16% year-on-year as operating margins for the business rose to 6.3% from 5.8%.
Networking products company 3Com (Nasdaq: COMS) moved up $1 11/16 to $26 5/16 after saying it will join forces with Microsoft (Nasdaq: MSFT) to develop co-branded home networking products, including traditional Ethernet and home phone line networking kits initially, followed by radio frequency (RF) and power-line carrier (PLC) kits. The companies expect to release their first jointly developed products to original equipment manufacturers (OEMs) this summer, with retail kits scheduled to debut in the fall.
Biotechnology firm and Rule Breaker portfolio component Amgen (Nasdaq: AMGN) rose $4 3/8 to $74 7/8 after announcing it has signed an agreement with Cambridge, Massachusetts-based Praecis Pharmaceuticals Inc. for the rights to market the privately held company's prostate cancer drug abarelix in the U.S., Canada, Australia, Asia, and several secondary markets. For more details on the deal, see this morning's Breakfast With the Fool.
Several major integrated oil and gas firms rose again this morning, adding to yesterday's gains as oil ministers from Saudi Arabia, Venezuela, Iran, Algeria, Mexico, and Norway meet in Amsterdam to discuss the possibility of new production cuts to ease the global oil supply glut. BP Amoco (NYSE: BPA) rose $6 1/4 to $99 3/8, Texaco (NYSE: TX) added $2 13/16 to $56 15/16, Royal Dutch Petroleum (NYSE: RD) climbed $3 3/16 to $51 1/8, and Chevron (NYSE: CHV) advanced $2 15/16 to $86 3/16.
Web portal Yahoo! (Nasdaq: YHOO) gained $8 7/8 to $182 1/2 after its Yahoo! Germany subsidiary signed a deal with German telecommunications services provider Mannesmann Arcor to provide automatic, single click, dial-up access to Yahoo's homepage through a new service called Yahoo! Online.
Mobile telecommunications technologies firm Ericsson (Nasdaq: ERICY) picked up $1 3/16 to $25 1/16 after its Ericsson UK subsidiary was awarded an $11 million contract to design, install, and support a nationwide Internet Protocol (IP) telephony system for Spain's Interoute Telecommunicaciones SA.
Managed care provider Oxford Health Plans (Nasdaq: OXHP) added $1 1/8 to $16 3/8 after BT Alex. Brown raised its rating on the firm to "buy" from "market perform" with a 12-month price target of $19 per share. Fellow HMO WellPoint Health Networks (NYSE: WLP), which was upgraded to "strong buy" from "buy" by the brokerage, rose $4 to $74 1/8.
Online services conglomerate America Online (NYSE: AOL) moved ahead $3 1/4 to $96 1/16 after signing a deal with SBC Communications (NYSE: SBC) to offer a high-speed asymmetrical digital subscriber line (DSL) upgrade to AOL users in SBC's DSL-ready service areas, including California, Texas, Missouri, Oklahoma, Arkansas, and Kansas, this fall.
Carbonated beverages marketer Coca-Cola Co. (NYSE: KO) was lifted $2 to $64 7/8 by an upgrade to "buy" from "market perform" from Donaldson, Lufkin & Jenrette, which has a 12-month price target of $79 per share.
Aurora Foods (NYSE: AOR) rose $2 3/16 to $15 13/16 after the maker of Duncan Hines cake mixes and Van de Kamp's frozen fish said it will acquire privately held Sea Coast Foods, which owns the Chef's Choice brand of skillet meats, for $50 million. The deal is expected to add to Aurora's earnings this fiscal year, and Aurora expects to double the Chef's Choice brand's sales to about $100 million over the next two years.
Monster.com career portal operator TMP Worldwide (Nasdaq: TMPW) scared away $3 to $66 7/8 after agreeing to buy executive search firm LAI Worldwide Inc. (Nasdaq: LAIX) in a stock swap in which each LAI share will be exchanged for 0.1321 of a TMP share. The deal values LAI at about $9.23 per share, about a 38% premium on yesterday's closing price.
Financial and mortgage guaranty reinsurer Capital Re Corp. (NYSE: KRE) slid $4 1/8 to $14 5/8 this morning. Moody's cut its rating on Capital Re's senior long-term debt to Aa2 from AAA yesterday, and Capital Re said a previously announced $75 million equity investment by ACE Group was contingent upon a triple-A rating. Capital Re is currently in talks with the ACE Group about the potential impacts of the rating action on the pending investment.
Wireless phone distributor Brightpoint Inc. (Nasdaq: CELL) was crushed for a $7 3/32 loss to $5 31/32 after warning that it won't meet analysts' expectations for first-quarter revenue and that it will have a breakeven quarter, missing the First Call mean estimate of earnings of $0.22 a share. Trouble obtaining products in the Asia-Pacific region and the devaluation of Brazil's currency were among the culprits blamed.
Cigar distributor and retailer 800-JR Cigar (Nasdaq: JRJR) burned away $6 1/2 to $8 3/4 after reporting Q4 EPS of $0.15, well below First Call's $0.49 two-analyst estimate. Operating profits fell 5.8% from year-ago levels to $22.5 million.
Men's sportswear designer Nautica Enterprises (Nasdaq: NAUT) capsized this morning, dumping $1 5/16 overboard to $12 1/16, after saying weak 1998 fall and holiday sales are expected to bring fiscal Q4 EPS to between $0.24 and $0.26, compared with First Call's $0.31 consensus projection. The company said full-year fiscal 2000 EPS is expected to be between $1.25 and $1.30, down from the market's $1.51 estimate. Q1 EPS, meanwhile, is seen between $0.10 and $0.15, missing the Street's $0.24 figure.
Commodity chemicals manufacturer Georgia Gulf Corp. (NYSE: GGC) steamed off $1 5/8 to $12 15/16 after saying it expects Q1 EPS to be "less than half" First Call's $0.15 consensus estimate. The company blamed a slowdown in the caustic soda and methanol markets and unexpected downtime at its chloralkali and vinyl chloride monomer plants. The company expects caustic soda pricing trends to hurt results throughout the year.
Web content integrator and aggregator InfoSpace.com (Nasdaq: INSP) shrunk $8 7/16 to $76 1/2 after saying it plans a secondary offering of 2.8 million shares of company stock, increasing the total outstanding by about 15%.
Computer products distributor Ingram Micro (NYSE: IM) slipped $11/16 to $17 15/16 after announcing that Q1 EPS is expected to be between $0.27 and $0.30, well off First Call's $0.42 consensus estimate. The company also announced a restructuring -- including a 1,400-person work force reduction -- expected to produce cost savings beginning in Q2.
Banking company Hibernia Corp. (NYSE: HIB) chilled $15/16 to $14 15/16 after it said it expects Q1 EPS to come in about a dime below Wall Street's $0.28 projection. The company blamed a larger-than-planned loan loss provision and costs related to its acquisition of MarTex Bancshares, which closed Monday.
Network software company Citrix Systems (Nasdaq: CTXS), which announced plans to sell $300 million in convertible subordinated notes to raise working capital, lost $3 7/8 to $83 1/8 this morning.
Steve Jobs's computer animation studio Pixar Inc. (Nasdaq: PIXR) blurred $7/8 to $40 3/8 after CFO and Executive Vice President Lawrence Levy said he will resign at the end of March and join the company's board of directors. Levy said he was stepping down "to take personal time" after four years at Pixar.
Extended stay real estate investment trust (REIT) Innkeepers USA Trust (NYSE: KPA), downgraded to "hold" from "buy" at NationsBank Montgomery Securities, dropped $13/16 to $10 3/16 this morning.
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