MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY DECEMBER 29, 1997 (1)
Tuesday, December 30, 1997
STOCK MARKETS
Canadian stocks rose as investors bought banks and utilities seen as inexpensive in view of expected earnings
The Toronto Stock Exchange 300 composite index rose 110.46 points, or 1.7%, to 6649.96, the highest since Dec. 10. Only 59.5 million shares changed hands, the same as during Wednesday's half-day session.
BCE Inc. (BCE/TSE) rose $2.05 to $48.35, Royal Bank of Canada (RY/TSE) jumped $1.95 to $75.85 and Canadian Imperial Bank of Commerce (CM/TSE) rallied $1.65 to $44.20.
Bank and utility stocks, which together represent 31% of the TSE 300 index, pay steady dividends. "The banks are favored because they have definitive earnings growth," said Kim Shannon, senior portfolio manager at AMI Partners Inc.
Bank of Nova Scotia (BNS/TSE) jumped $2.60 to $65.60, Toronto-Dominion Bank (TD/TSE) climbed $1.40 to $53.65 and Bank of Montreal (BMO/TSE) rose $2.45 to $62.70.
TransAlta Corp. (TA/TSE) rose 30› to $22.75 and Telesystem International Wireless Inc. (TIW/TSE), which runs wireless phone systems in emerging markets, rose 50› to $20.25. Manitoba Telecom Services Inc. (MBT/TSE) fell 5› to $15.95 on volume of 1.2 million shares, the most actively traded stock.
Northern Telecom Ltd. (NTL/TSE), 51.7% owned by BCE, soared $6, or 5%, to $126.50. Newbridge Networks Corp. (NNC/TSE) climbed 50› to $49 as concern eased their profits will be hurt by slowing economies in Asia.
Other Canadian markets firmed. The Montreal Exchange portfolio rose 89.23 points, or 2.7%, to 3398.32. The Vancouver Stock Exchange index edged up 3.57 points, or 0.6%, to 604.66.
HOT STOCKS OVER PAST TWO TRADING DAYS IN CANADA
Mackenzie Financial Corp. (MKF/TSE), up $1.05 to $17.65, on volume of 301,684 shares. With Canadians poised to sock billions into mutual funds before the March 2 registered retirement saving plan deadline, it is little wonder players like Mackenzie are looking good. However, analysts said yesterday's advance had more to do with investors' festive cheer, which helped drive up the Toronto Stock Exchange 300 composite index. "We may be in for a bit of a year-end rally," Fred Ketchen, senior vice-president and director of equity trading at ScotiaMcLeod, told Reuters.
BCE Inc. (BCE/TSE), up $2.05 to $48.35, on volume of one million shares. In times of uncertainty big, well-run utilities become havens for cautious investors looking to ride out a potential economic downturn. With its record of steady, high dividends, BCE was yesterday's haven of choice.
Yesterday, Bank of Nova Scotia (BNS/TSE), up $2.60 to $65.60, on volume of 480,988 shares. Bank of Montreal (BMO/TSE), up $2.45 to $62.70, on volume of 609,814 shares. Toronto Dominion Bank (TD/TSE), up $1.40 to $53.65, on volume of 639,966 shares. Like utilities, bank stocks make a good defensive play when the economic outlook turns cloudy. "Bank earnings are going to be OK, and with their share prices down 10% from their highs, they are reasonably priced," John Kinsey, a portfolio manager with Caldwell Securities Inc told Bloomberg.
Barrick Gold Corp. (ABX/TSE), down $1 to $26.85 yesterday, on volume of 980,927 shares. TVX Gold Inc. (TVX/TSE), down 25› to $4.50, on volume of 188,728 shares. After sinking to 18-year lows earlier in the month, the price of gold has staged a small recovery. However, gold producers slid yesterday amid profit taking after the price of bullion fell US$3.40 to US$291.80 an ounce on the Comex division of the New York Mercantile Exchange.
Pan American Silver Corp. (PAA/TSE), rose 55› Wednesday to $15.50, on volume of 6,350 shares. Silver prices have been climbing steadily and are not expected to level off any time soon. "Silver still has a lot of upside, with Indian demand good, worldwide stocks continuing to drop, and the traditionally busy March to May period still ahead when silver tends to make big moves," Andrew Hecht, managing director of Cantor Fitzgerald Associates commodity broking unit, told Reuters. On Wednesday silver climbed US13.5› to US$6.395 an ounce on the Comex division of the New York Mercantile Exchange. The metal lost US3› to US$6.365 and ounce Friday. Despite the slide, one trader said the metal is "still very much in play." "There is going to continue to be a lot of activity and volatility in the silver market," the trader said, noting that Comex silver stocks, which were 202 million troy ounces in June, now total only 110.7 million ounces.
Barrick Gold Corp. (ABX/TSE), climbed $1 on Wednesday to $27.85, on volume of 1.2 million shares. TVX Gold Inc. (TVX/TSE), up 40› to $4.75, on volume of 472,870 shares. Gold prices came back to life early this week on expectation that central bankers have stopped selling off reserves of the precious metal. The price of bullion jumped US$2.40 to US$298.20 an ounce on the Comex division of the New York Mercantile Exchange on Wednesday.
Teleglobe Inc. has been hit with a regulatory decision that, while not unforeseen, could carve into its $1-billion-a-year Canadian phone business sooner than expected. The Canadian Radio-television & Telecommunications Commission has ruled it is legal for Canadian telecommunications carriers to send traffic overseas without having to use Teleglobe's facilities.
The decision advances by more than two years the end of Teleglobe's monopoly, which initially had been negotiated as part of this year's World Trade Organization pact on telecommunications. Carriers wanting to compete with Teleglobe had expected to wait until March 1, 2000, when Ottawa planned to relax restrictions on how international telephone calls could be sent. The CRTC's decision means companies such as AT&T Canada Long Distance Services Co. can use their own networks, or those of other companies, to deliver phone calls to high-volume destinations such as London or Hong Kong. From there, carriers can redirect calls to other global destinations.
The ruling may be good news for companies conducting a lot of overseas business. "Liberalized routing will bring down international prices for customers," said Mark Wallace, AT&T Canada Long Distance's vice-president of law and regulatory matters. For publicly traded Teleglobe (TGO/TSE), the CRTC ruling could result in a big loss of business. Its shares closed up 40› Wednesday at $44.40.
Philip Services Corp.'s shares stabilized Friday after losing more than 20% of their value in the past two weeks. Shares of the Hamilton-based industrial services and metals recovery company (PHV/NYsE) closed Friday at US$11 7/8, down 1/16.
Analysts suggested several reasons for the stock's recent decline, including concerns about its bid for the world's largest chemical and oil recycler and doubts about how quickly it will be able to integrate recent acquisitions. Paul Knight, an analyst with Salomon Brothers Inc., said Philip's US$1.8-billion bid for Safety-Kleen Corp. could have some investors fearing a bidding war with hostile suitor Laidlaw Environmental Services Inc. of Columbia, S.C. "We've seen some of their margins increase, but we're still concerned about the pace of acquisitions and the fact that we don't know what they're doing to integrate them properly," Shim said. The company has spent more than $1 billion to buy 13 companies in 1997, more than doubling revenue to about US$1.7 billion.
Petrochemicals giant Methanex Corp. has moved to clarify its position on a Revenue Canada claim for $113 million plus interest that stems from its 1991 income tax return. The Vancouver based company has obtained a copy of a writ filed on Dec. 22 on behalf of Revenue Canada in the Supreme Court of British Columbia. It also confirmed the claim relates to a series of decade-old transactions involving its subsidiaries and a methanol plant at Kitimat, B.C.
Spokesman Michael Macdonald said the company has not yet been served with the writ, which cites a number of co-defendants, including former president Brooke Wade and ex-vice-president and general counsel Ronald Russell. However, he said the company became aware of the writ's existence only after a copy was obtained by Canada Stockwatch in Vancouver.
"We don't want people to think that this is something new when in fact it is not,'' he said. As Methanex has been in discussions with Ottawa for some time, he said, Revenue Canada may be attempting to "preserve its options for the future.''
Methanex shares (MX/TSE) fell 40› Wednesday to $11.05.
Struggling Geographics Inc., once one of the hottest issues on the Toronto Stock Exchange, was booted off Nasdaq's smallcap market this week as the hunt to find life- saving financing intensified. The specialty paper maker has a deal to sell its lettering and paper product lines for US$7.5 million, but the deal needs shareholder approval and is not scheduled to close before March. Geographics is in the final days of an agreement with its principal lender to provide a revolving credit facility, which expires Dec. 31.
"Geographics is currently in discussions with its lender to seek an extension," the company said. Without an extension, it will need to obtain alternative financing pending completion of the sale." The Blaine, Wash.-based firm acknowledged if it fails to nail down a deal with its bankers "there can be no assurance that the company will be able to identify alternative financing sources or secure additional financing in an amount sufficient to satisfy its working capital requirements." It also acknowledged there is no guarantee the sale will go through, or that the money will be enough to keep the company afloat.
Company shares (GGI/TSE), which lost 15› to close Wednesday at 50›, will continue to trade on the electronic bulletin board and on the TSE. But losing the Nasdaq listing "could have an adverse effect on the liquidity of the market," the firm acknowledged.
Geographics rocketed on to the TSE in 1995 and hit a high of $9.40 in June 1996. But there has since been a dramatic slide in its fortunes. The firm was hit by a rash of class action lawsuits this year after angry investors alleged they were misled by false financial and inventory statements. Geographics said the claims are without merit and it will defend itself vigorously.
Geographics reported a US$8.1-million fourth-quarter loss in August, which it blamed on "an overstatement of gross margin and inventories."
NEW YORK COMMENTARY
More of the same, only less -- that's the expectation for Tuesday's trading. Additional gains on top of Monday's rally are likely, but perhaps with a bit less punch and probably lower volume as well, ahead of Thursday's New Year's Day closure.
With the news from Asia looking better for the time being, no major economic data on tap (save for the consumer confidence figures) and little in the way of corporate dealings likely (neither merger-and-acquisition activity nor new offerings), stocks are expected to move higher again Tuesday.
In fact, many traders are hopeful that the much-heralded but ill-fated "Santa Claus" rally will re-emerge in the form of some year-end buying. Heading into the last days of the year and into the first weeks of 1998, stocks are expected to benefit from the so-called "January effect." This moniker is alternatively used to describe two distinct, but related phenomena: The gains reaped by individual stocks sold late in a given year for tax reasons and then repurchased in January. And the advance broader indices make as money flows into 401(k)s and IRAs in a New Year for reasons related to tax avoidance.
Looking beyond this week's trading and into 1998, there's a growing debate among Wall Street's top prognosticators about what the New Year will hold. Many believe the first half of the year could be rough but may give way to a rebound, while a few expect the reverse to occur.
"I think you're going to see a tremendous amount of volatility in the first part of 1998 as we continue to sort through what the real impact on earnings are going to be from Asia," said Robert Froehlich, chief investment officer at Kemper Funds.
But like many pundits, Froehlich is optimistic that the fundamental factors that drove 1997's advance -- namely, unrepentant mutual-fund inflows, low interest rates and a solid U.S. economic performance -- will overcome the worries about Asia's financial unrest.
"I remain bullish," he said. "The demographics in this country mean you'll continue to see unbelievable flow into the stock market. And anyone overseas that wants any returns is eventually going to make their way to our equity markets. I don't see many alternatives. That's going to be the story of 1998."
That said, the strategist believes the difficult times will continue for tech stocks and capital goods in 1998 due to the impact of the slowdown in Asia. The "semi-classical" defensive sectors -- like health care, drugs, and consumer products -- are the place to be in the coming year as the U.S. economy slows, Froehlich said.
But his favorite sector for the new year remains the financials, "even though there's still downside risk with contamination from Asia."
"The World Trade Organization just opened up all those markets," Froehlich said. "It may not be a great play over the next couple of months, but as those economies turn around -- and they will -- the major winners are the financials" who will help recapitalize those now-ailing Asian economies.
Taking the opposite tack on broader market trends is Greg Nie, chief technical analyst at Everen Securities, who believes the aforementioned "January effect" will help boost stocks early on, but thinks the second half of the year could be dicey.
"I think the best game plan for next year is going to be one that revolves around preparing for change," Nie said. This is an exceptional market by definition, given that we'll still end up with gains above historic norms for the third consecutive year, barring some dramatic moves this week. To expect that for a fourth year is unrealistic."
Nie says the fact that major indices powered higher by more than 20% for the third straight year emboldens the bullish argument, but cautions that the fourth quarter -- for which the Dow, S&P 500, and Nasdaq will likely show declines -- is ammunition for a bearish 1998.
That "tug of war" will play itself out as 1998 unfolds, he said, and "I think we'll be able to navigate the first half but I'm not willing to vouch for the second half."
From a technical perspective (and that is what he's paid for), Nie said the "peak" in the advance/decline line, which he pegs as happening in November, is the first "precondition pointing to a serious downturn." Typically, a break in breadth indicators leads to a reversal in the market's trend six or seven months later, he said.
That being said, Nie believes "the bulls deserve the benefit of the doubt early on," given the market's performance in the past three years.
However, if the "January effect" suffers the same fate as the Santa Claus rally and inflows are "disappointing" Nie said "that would be part and parcel of sloppy market action associated with a change in pattern."
A bear market, that is.
AFTER THE BELL
The Justice Department sued Aluminum Company of America (AA) in an effort to prevent the Dow component's purchase of a Reynolds Metals (RLM) plant in Alabama. Justice said the move would lead to higher costs of canned beverages.
International Telecommunication Data Systems (ITDS) said it will acquire a unit of Computer Sciences (CSC) for $100 million in cash and stock.
U.S. Can (USC) warned that its fourth-quarter earnings will not meet expectations.
Newly formed power company AMEREN (AEE) will replace Union Electric (UEP) in the S&P 500.
Rochester Medical Corp. (ROCM) said it expects first-quarter sales to be lower than those posted in its fourth quarter.
Bridgeport Machines (BPTM) said its third-quarter earnings will be well in excess of Wall Street's expectations.
MONDAY'S MARKETS
Getting a jump-start on the New Year's celebration, investors were in a jubilant mood Monday, sending the Dow up 113 points while the Nasdaq gained 26. Prospects for additional financial relief for South Korea and anticipation of the much-vaunted "January effect" had traders in party mode in a relatively quiet, but decidedly upbeat, session.
Word that major U.S. banks will roll over Korea's debt obligations and are working on additional loans to the economically strapped nation helped soothe sentiment among Korean investors and those in the U.S. Big-bank stocks were among the leaders on Wall Street Monday, as were the technology, drug, and oil-drilling and equipment sectors.
The Dow Jones Industrial Average ($INDUA) shot higher from the opening bell by more than 70 points on optimism that Korea's fiscal woes have reached a nadir. The blue-chip index then mainly chopped higher in a tight range between 90 and 100 points up in a quiet session. The index ended 113.09 points higher at 7,792.41.
The Nasdaq Composite Index (COMP) also climbed at the opening bell and steadily built on its early advance as the day progressed. The tech proxy index closed up 26.14 points at 1,537.52.
The S&P 500 jumped 16.91 points to 953.37, while the small cap Russell 2000 Index closed up 5.17 to 426.66.
On the NYSE, a relatively modest 455 million shares were trading while advancing issues swamped decliners by a 21-to-8 margin. In Nasdaq activity, 649 million shares were exchanged and advancers bested declining stocks by a slim 23-to-22 spread.
Korea's markets were closed Monday, and Japan's Nikkei slid marginally, but Hong Kong's Hang Seng Index rose 1.5% on the hope that the negotiations will help Korea climb out of its financial malaise sooner.
Such anticipation helped send U.S. Treasury prices -- which benefit from unrest overseas -- lower in a quiet, technically driven session. Bond prices fell nearly 3/8 of a point, sending the yield of the benchmark 30-year bond up to 5.92%.
TECHNOLOGY STOCKS
Microsoft (MSFT) continued to attempt to recover from the whipping it took in the second half of December, when worries about its battle with the Justice Department helped send the stock to a six-month low last week. Shares of the software giant climbed 5 1/2 to 126 1/4 on Monday to lead the Nasdaq's advance.
Other names leading the Nasdaq included tech bellwethers: Cisco Systems (CSCO), which rose 2 15/16 to 56; Dell Computer (DELL), which surged 4 1/2 to 82 7/8; Sun Microsystems (SUNW), which climbed 1 1/4 to 39 15/16; and PeopleSoft (PSFT), up 1 5/16 to 36 7/16.
On the NYSE, IBM (IBM) rose 1 1/16 to 102 3/4, Compaq Computer (CPQ) gained 1 27/32 to 55 1/8, Computer Associates (CA) rose 3 1/16 to 51, and Gateway 2000 (GTW) climbed 2 1/8 to 34 3/4 amid ongoing rumors that it is a buyout target.
Hewlett-Packard (HWP) agreed to acquire medical-device maker Heartstream (HTST) in a stock swap valued at approximately $140 million. Dow component Hewlett-Packard rose 9/16 to 60 15/16 while Heartstream shares fell 1 1/8 to 10 3/4.
Lucent Technologies (LU) gained 2 11/16 to 80 5/16 thanks to a bullish article in the current issue of Barron's, which said a change in the AT&T (T) spin-off's accounting could allow it greater flexibility to make acquisitions.
Among other wireless plays, Ericsson (ERICY) rose 2 to 38 1/8 and Nokia (NOK/A) closed up 3 7/8 to 69 7/8, while Motorola (MOT) overcame early weakness to rise 1/16 to 56 1/16.
Internet-related stocks were mainly higher, although industry giant America Online (AOL) slid 5/16 to 86 5/8. Gainers were led by Amazon.com (AMZN), up 2 3/4 to 57; Yahoo! (YHOO), which climbed 2 13/16 to 68 15/16; and AmeriTrade Holdings (AMTD), which closed up 1 7/8 to 26 3/8.
Missing out on the broader tech advance were semiconductor and equipment stocks, which fell victim to further worries about a slowdown in Korea. While the Morgan Stanley High Tech Index (MSH) gained 13.43 points to 438.87, the Philadelphia Semiconductor Index (SOX) only turned positive in the last hour of trading, rising 0.32 points to 259.16.
Among chip makers, industry leader Intel (INTC) ended fractionally higher at 70 59/64, Advanced Micro Devices (AMD) shed 1/8 to 17 7/16, and National Semiconductor (NSM) slid 3/4 to 24 15/16, while Micron Technology (MU) gained 3/16 to 25 1/4 and Texas Instruments (TXN) pushed up 17/64 to 45.
Bucking the trend were SGS-Thomson Microelectronics (STM), which posted a solid gain of 2 1/8 to 60 1/8, and Altera (ALTR), which rose 3/4 to 34 3/8.
In the equipment group, there was mainly fractional weakness among the industry leaders amid fears that Korean chip makers will scale back their growth plans.
Data-storage firm EMC Corp. (EMC) rose 1 1/2 to 25 5/8 thanks to an upgrade to "buy" from "hold" at Soundview Financial.
Policy Management Systems (PMS) benefited from a new "buy" rating at Raymond James, rising 1 5/16 to 67 15/16.
A positive article in Barron's helped shares of contract manufacturers like Jabil Circuits (JBIL), which rose 2 15/16 to 40 11/16, SCI Systems (SCI), which climbed 1 5/8 to 40 3/8, and Solectron (SLR), up 2 1/4 to 39 9/16.
ACTIVE ISSUES
J.P. Morgan (JPM) climbed 2 3/16 to 113 5/8 to lead the Dow amid excitement about the bailout/relief package being negotiated for South Korea. Other banks involved in the talks also rose on the session. Included in the group are: Chase Manhattan (CMB), which rose 2 to 108 11/16, Citicorp (CCI), which jumped 4 1/16 to 126; BankAmerica (BAC), up 1 1/2 to 72 5/16; Bankers Trust (BT), which climbed 2 7/8 to 114 1/2; and Bank of New York (BK), which gained 1 5/8 to 56 5/8. The Philadelphia KBW Banking Index (BKX) gained 11.8 points to 742.36.
Other Dow leaders included Allied Signal (ALD), which benefited from a positive mention in Barron's to rise 2 7/16 to 38 1/4. Chevron (CHV) gained 2 3/16 to 77 1/2 thanks, in part, to some positive comments from Prudential Securities' chief technical analyst, Ralph Acampora. Elsewhere, Procter & Gamble (PG) rose 2 3/16 to 79 13/16 and Walt Disney (DIS) closed up 1 15/16 to 97.
3M (MMM) was the lone Dow loser on the day, falling 1/2 to 83 1/16.
Colgate Palmolive (CL) shares jumped 1 7/16 to 70 7/16 amid excitement about the consumer-product company's new toothpaste, Total. Colgate is set to unveil a $100 million marketing campaign to hawk the toothpaste, which includes a germ fighter, according to The Wall Street Journal.
Computer Motion (RBOT) climbed 3 11/16 to 11 13/16 after the Food & Drug Administration approved the use of its robotic surgical arm during some heart surgery procedures.
Lockeheed Martin (LMT) parlayed a bullish article in Monday's Wall Street Journal and an upgrade to "attractive" from "neutral" at PaineWebber to gain 2 1/8 to 95 15/16.
A rebound in international markets and a reiterated "buy" rating at ING Barings helped send shares of Telebras (TBR) up 3 15/16 to 114 1/16, while Telefonos de Mexico (TMX) gained 2 1/4 to 56 1/4.
Progen Pharmaceuticals (PGNX) rose 2 5/16 to 14 7/16, thanks to some positive comments from CIBC Oppenheimer, which reiterated its "strong buy" rating on the drug maker.
Among big drug stocks, Warner-Lambert (WLA) climbed 1 5/8 to 125 1/8, Pfizer (PFE) rose 1 3/4 to 73 11/16, Eli Lilly (LLY) rose 2 to 69 13/16, and Bristol-Myers Squibb (BMY) closed up 2 7/8 to 93. Hoechst (HOE) rose 1 5/8 to 35 1/2 on word it is pulling its Seldane allergy drug off the market but that the FDA has approved its Allegra decongestant.
The other big group on the rise Monday was the oil-drilling and equipment sector. Leading the way were: Smith International (SII), up 1 5/8 to 58 1/4; Schlumberger (SLB), which climbed 2 1/4 to 75 3/16; Halliburton (HAL), which gained 1 3/8 to 48 5/8; Falcon Drilling (FLC), which rose 2 3/16 to 32 9/16; Transocean Offshore (RIG), which gained 1 9/16 to 44 5/16; and Nabors Industries (NBR), up 1 3/8 to 29 15/16.
Multi-line insurers were also big gainers, led by Cigna (CI), up 3 5/8 to 170, and Allstate (ALL), which rose 3 1/4 to 90 3/8.
Right Management Consultants (RMCI) benefited from a positive mention in the current issue of Barron's, rising 1 1/2 to 13.
Retailer Gadzooks (GADZ) climbed 3 to 22 3/8 after predicting that its fourth quarter earnings will exceed expectations due to stronger than predicted holiday sales.
So strong was the upward bent on Wall Street Monday that Great Lakes Chemical (GLK) shares rose 1 17/32 to 43 5/8 despite the company's announcement that it will incur fourth quarter charges of $2.52 per share. Investors chose to focus on the reason behind those charges: the company's exit from some "non-core" assets that will allow it to improve its operating margins going forward.
An upgrade from Merrill Lynch to "buy" from "accumulate" did little to help shares of Asia Satellite Telecom (SAT), which fell 3 1/2 to 16 15/16. The announcement of a third delayed launch of an AsiaSat communications satellite overshadowed the Merrill upgrade.
In de-merger news, MOYCO Technologies (MOYC) rose 3/4 to 5 3/4 after terminating negotiations with a unit of Ashland(ASH), which closed up 1/4 to 51 3/8.
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