Tuesday, June 29, 1999
DJIA 10682.06 +26.91 (+0.25%) S&P 500 1334.63 +3.28 (+0.25%) Nasdaq 2614.07 +11.63 (+0.45%) Russell 2000 450.96 +2.35 (+0.52%) 30-Year Bond 88 22/32 +7/32 6.08 Yield

An Investment Opinion
by Rick Aristotle Munarriz


Today, as nervous investors, yield seekers and homebuyers are left biting their collective nails the Federal Open Market Committee (FOMC) begins its two day session that will ultimately dictate the direction of the Federal Funds rate.

Yes, unless you were housed under a rock over the past few weeks, or prefer to pad your pillow with your life savings, you have probably been anticipating this meeting of the Greenspanesque minds for quite some time. The meeting is not news. Actually, the final verdict won't be all that new either.

Interest rates have been charging up over the past few months to the point where the all-but-certain rate hike has been discounted by the financial markets. The one lingering mystery is whether the Fed will hike rates by 25 or 50 basis points. Whatever the case, it will probably not fully offset the 75 basis point decline we got in the fall. Conflicting data on the exact buoyancy of the stateside economy is what has analysts guessing, and Alan Greenspan wouldn't have it any other way. He, and his fellow Federal Reserve members, would prefer to be effective over predictable.

So as the pundits whip out Ouija boards and Magic Eight Balls only to find "Ask Again Later" triangles revealed, the market has gone along for the ride. Over the past three weeks both the stock and bond markets have gone down, up, and down, respectively, as the consensus on the extent of the rate hike gets batted about. Yesterday the market rallied despite the Commerce Department news that consumer spending had outpaced personal income for the month of May. This morning, in a show of force that just the notion of the Fed firing a warning shot is enough to temporarily stun inflation, reports indicated that home sales fell last month and retail sales dipped this month. That seems to be strong fodder to support the growing majority who now expect the rate hike to be the smaller 25 basis point increase option. Yet nothing is a given until it's given. It's rudderless. It isn't obvious. And, again, Greenspan wouldn't have it any other way.

In the end, we are Fools. Sure, we may have personal matters at stake here. If you are pondering the refinancing of your home or if your pension, salary, or present mortgage are pegged to adjustable rates, then you will be glued to your screen between now and tomorrow afternoon. That's fine. Just don't let the short-term gyrations interfere with your long-term investing strategy. The quest for quality equities goes above and beyond which way the nays and yeas line up this time.


CustomTracks (Nasdaq: CUST), a recent Foolish Double, recorded gains of $4 15/16 to $54 1/2 this morning on last night's news that it won Commerce Department approval for its ZixIt digital signature and encryption technology. The company plans to use the technology in ZixMail, a secure e-mail messaging system, and ZixCharge, an Internet transaction processing application.

Internet venture capital company CMGI (Nasdaq: CMGI) climbed $8 3/4 to $106 7/16 after taking an 84% stake in PC maker Compaq's (NYSE: CPQ) popular AltaVista Web search service. CMGI will give Compaq common and preferred stock, plus a three-year note that will total a more than a 16% stake in the company.

Meanwhile, computer products e-commerce technologies provider pcOrder.com (Nasdaq: PCOR) bagged gains of $4 1/4 to $35 3/4 after announcing a joint alliance with Compaq to provide the PC company's resellers and customers with e-commerce services. Financial terms of the deal weren't disclosed.

Computer maker Sequent Computer Systems (Nasdaq: SQNT) rose $3 15/16 to $17 15/16 following reports in The Wall Street Journal that the company may soon be acquired by IBM (NYSE: IBM). A deal could be announced in the next few days, though the terms haven't been finalized, according to the newspaper. Sequent's market capitalization stands at around $588 million. For more on the news, head back to this morning's Breakfast With the Fool.

Tucker, Georgia-based bank holding company Merit Holding Corp. (Nasdaq: MRET) merited a rise of $3 1/4 to $22 1/2 after inking a merger agreement to be bought by Synovus Financial (NYSE: SNV) in a stock swap. The deal values Merit at $24.02 based on yesterday's closing price, a 26% premium to Monday's close. The companies first announced their intentions in March.

Biotechnology firm Inhale Therapeutic Systems (Nasdaq: INHL) breathed in $1 3/4 to $24 13/16 on news that it began the third and final phase of clinical testing for inhaleable insulin. The trial is being managed by Inhale partner and Rule Maker Pfizer Inc. (NYSE: PFE).

Internet investment banking and brokerage firm Wit Capital (Nasdaq: WITC) gained $7 5/16 to $34 3/8 this morning. Both Bear, Stearns & Co. and Thomas Weisel Partners started coverage of the company with a "buy" rating. Bear, Stearns also set a 12-month share price target of $51.

International telecommunications and Internet services company Worldport Communications (Nasdaq: WRDP), crushed for a loss of $4 27/32 yesterday after saying it's under review by a Nasdaq panel and may be delisted, recovered $3/4 to $4 1/4 this morning.

Finnish mobile phone company Nokia's (NYSE: NOK) American depositary receipts dialed up gains of $2 13/16 to $88 1/8 this morning as the company announced its 640 mobile phone, expected to launch in Q3.

Online brokerage National Discount Brokers (NYSE: NDB), which Deutsche Banc Alex Brown started with a "strong buy" rating, jumped $5 3/4 to $41 3/4 this morning.


Seagate Technology (NYSE: SEG) sank $2 7/16 to $27 3/16 after warning that weaker-than-anticipated demand and worse-than-expected price deterioration for its disk drive products will result in fiscal Q4 EPS between $0.32 and $0.37, below its previous expectation of $0.45. Revenues will likely fall 6% sequentially, and the "extremely aggressive pricing environment" will probably wallop Seagate's Q1 results as well.

Enhanced directory assistance call centers operator Metro One Telecommunications (Nasdaq: MTON) dropped $2 3/8 to $12 7/8 after forecasting Q1 EPS of $0.01 on revenues of $17 million to $17.5 million, missing the First Call mean estimate by $0.10. The company said it increased its staffing and infrastructure spending in anticipation of increased call volume from a major customer group, which never materialized. On a brighter note, the company said it has signed a multi-year services contract with wireless firm Nextel Communications (Nasdaq: NXTL).

Winemaking and processing services firm Golden State Vintners (Nasdaq: VINT) was crushed $5/8 to $6 1/4 after saying pricing and volume softness has hurt its bulk wine sales and will lead to fiscal Q4 earnings below analysts' estimates. Full-year fiscal 1999 EPS is now seen between $0.70 and $0.75, short of the First Call mean estimate of $0.99. Considering the company has already reported $0.92 in earnings through the first three quarters, Golden State investors appear to be looking at a Q4 loss between $0.17 and $0.22 per share. The company said it has hired Goldman Sachs to explore strategic and financial alternatives.

Newspaper advertising inserts company Big Flower Holdings (NYSE: BGF) wilted $3 7/16 to $32 1/16 after agreeing to a $1.9 billion recapitalization plan involving investment companies Thomas H. Lee Co. and Evercore Capital Partners. Under the plan, each publicly held share of the company will be converted into $30 in cash and 0.21 of a share of payment-in-kind (PIK) preferred stock with a liquidation value of $25 per share. Judging by the market's reaction, that's a discount to yesterday's closing price of $35 1/2 per share.

Payroll processor Paychex (Nasdaq: PAYX) slipped $1 7/8 to $30 3/16 despite reporting fiscal Q4 EPS of $0.15, up from $0.11 a year ago and in line with the First Call mean estimate. Total revenues increased 14% in the period to $305 million.

Shares of teeth whitening technologies developer BriteSmile (AMEX: BWT) lost more of their bite today, falling $1 5/8 to $7 15/16 after declining 18% yesterday on worries about the company's ability to turn a profit and the safety of its treatment.

Mahwah, New Jersey-based bank holding company Hudson United Bancorp (NYSE: HU) lost $3 1/4 to $31 11/16 after agreeing to buy Philadelphia-based JeffBanks (Nasdaq: JEFF) and Southern Jersey Bancorp (OTC BB: SOJB) for a combined $425 million in stock.


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