Toronto stocks shed more than 840 points at open

Market keeps anxious eye on Nortel stock Nortel pushes down U.S. stocks in London

By JOHN McHUTCHION CANOE Money TORONTO (CANOE) -- The Toronto Stock Exchange 300 composite index plunged 823 points within moments of the opening of trading Wednesday as investors dumped shares of Nortel Networks Corp. (NT.TO) .

The masive selloff came a day after the company released its third quarter results. The market dropped down 9,528.70, a loss of 843.40 points, by 9:43 a.m.

Nortel squeaked past analysts' profit expectations, but came up the low end of observers' revenue projections.

The company posted operating profits of US$574 million, or US$0.18 per share. However, when acquisition and stock option compensation were factored in, the company posted a net loss of US$586 million.

The company said revenues increased 42 per cent to US$7.31 billion for the third quarter of 2000 from US$5.15 billion in the same period in 1999.

However, investors and analysts seemed to be concerned about lower revenues in the company's optical division.

"They had been talking about $12 billion in optical and now they're talking about just over $10 (billion) and that's why the stock is down," Paul Sagawa, an analyst at Sanford C. Bernstein told Reuters.

"And they're suggesting that all is hunky dory for 2001, but to be honest with you, if all they do is 30-35 per cent growth next year, there's a lot of investors who are going to be disappointed."

Nortel's revenues grew by 90 per cent over last year. But that was short of several analysts' estimates of 120 to 125 per cent growth.

Those concerns helped send the down in the order of 20 per cent in North American after hours trading and on European bourses.

In the wake of the results, several brokerages downgraded their outlook for the company on Wen

UBS cut its 12-month target for the company from US$115 to US$60, with a possibility the stock could drop as low as $40 "given the uncertainty."

Lehman Brothers downgraded the stock from outperform to buy.

On the flip side, Merril Lynch reaffirmed its near-term and long-term buy rating on the company.

While investors bloodied Nortel on equity markets, company president and CEO John Roth defended the stock during a morning television appearance.

"We've consistenly met or beat our guidance to the marketplace," Roth said.

"Our revenue is very strong, but the street was looking for more growth in optics business," he said on ROB TV.

Addressing the concerns for the optics business, Roth said their are limits to what the market can absorb.

"The real restriction is how fast customers can deploy this technology," he said, adding that the networks his company creates cannot be installed until customers' building are ready for them.

Roth encouraged investors to maintain a long-term view of the company and called the market turbulence generated from Nortel "a great time to buy."

"Some analysts may take one quarter and see that as a trend, and that would be a mistake," Roth added.

--------------------------------------------------------------------------------http://www.canoe.ca/MoneyNews/mw_torstocks.html

-- Carl Jenkins (Somewherepress@aol.com), October 25, 2000

Answers

October 25, 2000 TSE index flirts with 1,000-point loss amid Nortel Networks blackout

TORONTO (CP) -- Canada's benchmark stock index fell as much as 940 points Wednesday as market giant Nortel Networks shed more than $70 billion in value after its latest financial report. Trading in Nortel was so heavy that it bogged down the Toronto Stock Exchange computer system following the Canadian high-tech heavyweight's results that were near analyst expectations but provoked anxiety about ongoing growth. The TSE 300 composite opened down 745 points and after an hour it was down 939.66 at 9,412.44. By 2 p.m. EDT it stood at 9,521.74, down 830.36. On American markets, the tech-oriented Nasdaq was down 144.67 at 3,275.12 at midafternoon as traders sold Nortel and other fibre-optic and telecom issues. The Dow Jones industrial average gave up a slim gain and was down 7.77 to 10,385.30. The Canadian Venture Exchange fell 45.97 points to 3,275.37; its small-cap tech stocks gave up 2.2 per cent. The Canadian dollar was quoted at 2 p.m. at 65.89 cents US, down 0.18 cent. On the TSE, trading in Nortel, which accounts for more than 30 per cent of the 300 index, was halted at midday. The stock was down $24.55 at $71.55 on volume of 10.8 million shares, after going as low as $69.85. The trading halt was forced by "unprecedented volume that created delays in our ability to process orders," said TSE spokesman Steve Kee, adding that trading in Nortel continued in New York. While Nortel surrendered more than one-quarter of its value, it was followed down by other high-tech issues. The TSE industrial products index lost 18.7 per cent, with JDS Uniphase down $29.80 at $115.00 and C-Mac Industries down $19.75 to $86.25. There also were losses of five per cent or more for Celestica, Mitel, CGI Group, ATS Automation and Bombardier. Meanwhile, in the old economy, the pipelines rose 3.2 per cent, transportation issues moved up 2.9 per cent and the financial services sector gained 1.8 per cent. Overall, nine of the 14 TSE industry groups were higher, and aside from the industrial-products meltdown the sectoral damage was minor. "I don't think by any means that this has bottomed out yet," said Anthony Anirud, senior Internet and telecommunications analyst at IDC Canada. "Even if we see a bouncing back over the next week or so, what you're seeing is a general downward trend that will continue, probably into the second quarter of next year." Anirud added: "There's a so-called new economy. It's not a lot different than the old economy." However, Nortel chief executive John Roth characterized the morning as a "buying opportunity" for his company's shares -- which closed at $122 on Sept. 1 when the TSE index peaked at 11,388.82. Tom Caldwell, chairman of Caldwell Securities Ltd., agreed. "We're on the buy side of Nortel," Caldwell said. "That's not to say it has hit bottom -- technically it could go to $65. But really this is practically a 50-per-cent-off sale." Katherine Beattie, a technical analyst at Standard and Poor's MMS, also saw a chance to buy. "Nortel's holding above $69.20, the May low, which is encouraging," Beattie said. "It's a pretty extreme reaction to Nortel. Nortel had good news but it wasn't great news." However, Ross Healy, CEO of Strategic Analysis Corp., a value- oriented capital markets consultancy, said Nortel -- and the overall market -- still has "quite a bit" lower to go. "It's made a fair start at returning to earth, and I wouldn't be surprised if we had a couple of trading rallies on the way down," Healy said. "But based on the earnings and projected earnings of the company, the stock still does not represent anything like cheap value."

Wednesday's action was "another indication of just how sour sentiment is on the whole technology and telecom area," said Patricia Croft of Sceptre Investment Counsel. "Nortel still is gaining market share, still is on the acquisition trail, and even though growth in its fibre-optics business is slowing, 90 per cent is nothing to sneeze at." However, she added: "It probably has further to go, unfortunately, on the down side." Nortel, which reports in U.S. dollars, said Tuesday that its operating profit in the three months ended Sept. 30 was $574 million or 18 cents a share on revenue of $7.3 billion. The third-quarter operating earnings beat analyst expectations by a penny a share, but revenue -- while up 42 per cent from a year earlier -- was $200 million short of the consensus prediction. Acquisition costs and stock-option compensation resulted in a net loss of $586 million for the quarter.

"Investors are beginning to pay increasing attention to what the real bottom line is," Healy said. "There's a real wake-up call here." He held out little in the way of comfort for anxious investors. "I was asked the other day for four buys that I might hold for the next year, and I really had to scratch to find something. Ultimately I just picked four dividend-paying stocks and pointed out that even if you lose money you get something coming through the door," Healy said. "Cash is no longer trash," he added. "Cash is becoming king, and conservative fund managers who eschewed some of these ridiculous valuations are going to look very, very smart." Sceptre's Croft agreed that other stock-market sectors are not presenting irresistibly attractive alternatives to tech stocks. "I see lots of people reducing their weight in the energy sector, and the financials are not looking that robust either, so I guess at this point people may just be sitting on some cash."

http://www.canoe.ca/BizTicker/CANOE-wire.Dollar-Markets.html

-- Martin Thompson (mthom1927@aol.com), October 25, 2000.