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By Igor Greenwald
August 16, 2002
WALL STREET BULLS stuck close to the barn on Friday, nibbling on telecom and tech stocks after lifting the broader market to its best level since early July.
The Dow eased up 40 points to 8778, while the Nasdaq rallied 16 to 1361. The S&P 500 dropped a point-plus to 928. Economic worries took their toll on paper and aluminum producers, oil drillers, household goods suppliers and retailers.
Housing starts dropped 2.7% for a second straight month, disappointing expectations for a small gain. The Michigan index of consumer sentiment index slipped two-tenths of a point to 87.9, following a sharp drop in July in the wake of heavy stock-market losses.
With many other stocks already at one-month highs despite concerns about sluggish growth, investors flocked to such recent laggards as regional Bells SBC Communications (SBC) and Verizon (VZ), which gained 2% and 4%, respectively.
Another weakling, Walt Disney (DIS), rose 5% after embattled boss Michael Eisner backed his promises to revive the Magic Kingdom's sagging fortunes by spending $10 million of his own money on Disney shares mired near an eight-year low. Rival media straggler AOL Time Warner (AOL) added 6%.
Shares of home-improvement giant Home Depot (HD) lost 3% ahead of rival Lowe's (LOW) earnings first thing Monday and its own accounting the next day. Both are at the mercy of distracted consumers.
"We anticipate that both companies will make cautious comments regarding the second half of 2002 but nothing alarming," forecast CIBC World Markets. "Such guidance is appropriate in light of weak economic conditions and profit warnings from Best Buy (BBY) and Maytag (MYG)."
If the U.S. economy is headed for a double dip, it's news to the dudes at Dell (DELL) and the gals at Kohl's (KSS).
The strongest PC marketer and fast-growing retailer continued to meet ever-rising expectations by stealing business from struggling competitors. But their stocks didn't run far after the companies extended their streak of strong earnings reports.
Dell Computer's stock added 1% after the company topped Wall Street's sales estimates with revenues that rose some 12% in a year's time. Net earnings of 19 cents a share matched expectations raised last month, and are expected to continue rising now that Dell has boosted its third-quarter sales forecast. The low-cost producer increased its global shipments 18% despite a PC market that's struggling to match last year's anemic pace. Its dominance there asserted, Dell continues to prepare its assault on the markets for printers and hand-held organizers.
Meanwhile, Kohl's topped estimates with a nifty 44% year-over-year rise in profits on the back of aggressive growth and gangbusters demand for its discounted offerings of brand-name apparel. Same-store sales were up more than 10%, while overall revenues grew 27% in a year's time. That left the chain on track for its seventh straight year of 30% earnings growth, noted Merrill Lynch, though it cautioned that Kohl's shares could tumble unless the company continues to exceed expectations. The stock slipped less than 1%.
Top bank Citigroup (C) saw its stock drop 3% after The Wall Street Journal reported investigators' suspicions that it favored some corporate executives with discounted shares in hot initial public offerings in order to win their business. The man at the center of the bank's ill-fated romance with the telecom industry, the controversial analyst and investment banker Jack Grubman, resigned from Citigroup's Salomon Smith Barney unit.
At the peak of his power, Grubman used increasingly arcane metrics to justify recommendations of overvalued stocks whose companies did business with Citigroup. In the end though, his career came down to the two most basic accounting terms: asset and liability. Grubman turned into the latter as lawmakers and journalists began to question his close ties to such executives as ousted WorldCom (WCOEQ) boss Bernard Ebbers.
Grubman left complaining that "the current climate of criticism has made it impossible to perform my work." But not impossible to pocket a severance package pegged at $32 million.
Elsewhere, Morgan Stanley reined in its expectations for Intel (INTC), trimming 2002 and 2003 profit estimates as well as the price target "based on our belief that PC demand remains sluggish." The chip leader's stock still rose 1%.
Analog Devices (ADI) shares soared 10% after the company met estimates, even though the integrated-circuit supplier trimmed its earnings forecast for the next quarter.
[Harry: Possible short???]
Two stocks decimated by selling in recent days headed in opposite directions. Shares of United Airlines parent UAL (UAL) rallied 20% from historic lows reached after the airline threatened to file for bankruptcy unless it wrings big cost concessions from its unions. There was no obvious explanation for the gains. But Franco-American conglomerate Vivendi (V) slid another 10% as Wall Street analysts continued to worry that this is a bad time for distressed sales of media properties bought helter-skelter in better times with borrowed money.
Inflation remained a nonissue, with consumer prices rising just 0.1% in July. But bonds continued to get hit hard as rumors of another big drop in consumer confidence proved unfounded. The yield on the 10-year Treasury note leapt to 4.31% from 4.17% late Thursday, while the two-year note yielded 2.22%, up from 2.17% a day earlier. |
