Articles & Journals

	Articles & Journals

	Stocks on the Move: Market Feels Confidence Boost 27 March 2001 - Elizabeth Armbuster Stocks gained Tuesday, after March consumer confidence numbers came in higher than expected. By midday, the Dow Jones Industrial Average and the S&P 500 gained just under 2%, and the Nasdaq jumped 2.7%. Leaders Several big names got an emotional boost from the strong consumer confidence report, which led some investors to conclude there may be some hope for the economy after all. Software giant Microsoft MSFT rose 3.6% to $58.06, and consumer-goods conglomerate General Electric GE gained 4% to $41.82. Many of the biggest technology names gained as well. While solid consumer confidence can translate into better earnings for many companies, a number of factors could keep this rally from growing legs, said Morningstar stock analyst and market commentator Harry Milling. The confidence report lessens the likelihood of an inter-meeting interest-rate cut by the Federal Reserve, and it doesn’t mean the economic slowdown’s prime causes--such as cautious lending and inventory glut--have been fixed, he said. Wireless-system builder Ericsson ERICY jumped 11.2% to $6.50 after announcing it will lay off around 3,300 employees, or 3% of its workforce. "Anything remotely positive, at this point, will breathe life into this corpse," said Morningstar stock analyst Todd Bernier. The company has been plagued by losses in its handset business, as it continues to lose market share to industry leader Nokia NOK. Its strength in wireless networks is marred by the fact customers have slowed spending in this area. Moreover, service providers are cautious about spending money on next-generation wireless systems, or wireless Internet networks, and that could impact Ericsson’s future earnings, Bernier said. Laggards Vitesse Semiconductor VTSS dropped 12.7% to $29.63 after the company warned investors for the second time this month of a decrease in quarterly sales. Three weeks ago, Vitesse said sales will fall between 3% and 9% from the previous quarter. Late Monday it said sales will fall between 24% and 27%. Management's poor grasp of the company's short-term prospects reveals either ineptitude or an incredibly uncertain market environment, said Morningstar stock analyst Jeremy Lopez. Though Vitesse maintains a solid position in the optical-networking market, its shares aren't very attractive given the company's current problems, Lopez said. Software maker Manugistics Group MANU lost 4.3% to $24.88 despite matching analysts' estimates with fourth-quarter earnings of $0.05 per share. The company also saw a 123% jump in license revenue from the prior-year period. Though this is all good news considering the general slowdown in information-technology spending, Manugistics is far too expensive, said Morningstar's Bernier. The stock is trading at about 100 times management's earnings estimates for fiscal 2002, and those estimates could very well prove wrong, Bernier said. Economic conditions are too uncertain right now to command this much of a premium, he said. Investors can get a better price with Manugistics' more-profitable rival, i2 Technologies ITWO, which trades at 44 times forward earnings estimates, Bernier said. I2 shares fell 1.2% to $15.25. Warnaco Group WAC, a company that makes clothes for names such as Fruit of the Loom, Calvin Klein, and Ralph Lauren, lost 52.9% to $1.98. Warnaco said its loss in 2000 will be larger than the $0.30 per share it originally forecasted. Sales at the company--which leases the trademark names--have been terrible since last year, said Morningstar stock analyst Corey McElveen. This latest news makes the stock even riskier than before, he said. Low sales numbers, increasing debt, and a liquidity crunch make this company one to avoid, he said.

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