Northwest Quarterly Stock Report / Third-Quarter Results -- Stocks Retreated As Rates Jumped

ALTHOUGH LARGER STOCKS barged to new highs in the past three months, the market as a whole slumped. Still, Internet and wireless telecom companies sizzled.

Stock-market investors know the axiom: Rising interest rates equal lower stock prices.

For 1999's third quarter, ended yesterday, the evidence was unmistakable. On the final day of the previous quarter, the Federal Reserve, which controls U.S. rates, hoisted benchmark rates for the first time in more than two years with a quarter-point increase.

In August came rate increase No. 2 and fear that next Tuesday, when key Fed personnel meet, increase No. 3 might occur. Economists'

best guess is the Fed won't boost rates at this time, what with Year 2000 and Taiwan earthquake worries, but it's worth paying attention.

Although larger stocks barged to a handful of record highs in the past three months, the handwriting became more clear. Higher interest rates threatened corporate profits, which cut stock prices.

So the Dow Jones industrial average, a 30-stock blue-chip winner in 13 of the 14 previous quarters, retreated 5.8 percent, dropping 633.85 points to 10,336.95. That included yesterday's gain of 123.47 points.

Northwest stocks were pummeled, too. The WM Group Northwest 50, an index weighted by regional economic impact and reflecting mainly the bigger stocks, retraced 781.22 points, or 9.8 percent, to 7,168.32.

The sum of all 220 Northwest stocks showed only 73 climbing, 143 declining and four unchanged. The average stock fell 2.1 percent, suggesting that sizzling newcomers and such hot industries as Internet and wireless telecom are not reflected in either the Dow or the WM Group indexes.

Other index results for the quarter: Standard & Poor's 500, down 89.99 points, or 6.6 percent, to 1,282.72; Nasdaq composite, up 60.04 points, or 2.2 percent, to 2,746.16; New York Stock Exchange, down 55.34 points, or 8.5 percent, to 648.13; and American Stock Exchange, down 9.70 points, or 1.2 percent, to 788.23.

For the year, Nasdaq is in the lead, up 25 percent. The Dow remains 13 percent ahead, and the WM Group is up 8.7 percent. Over five years, the Dow is up 191 percent, the WM Group 212 percent and the Nasdaq 260 percent.

It was a great quarter to be a fledgling stock. Four of the region's five top stocks did not exist as publicly held vehicles five months ago.

The runaway winner was Primus Knowledge Solutions. The Seattle provider of software for customer service shot up $3.938 yesterday to end the quarter at $27.563, a whopping 151 percent gain. The stock was priced on the first day of the quarter at $11.

InterNap Network Services, a Seattle company that provides companies with fast access to the Internet, didn't begin trading until Wednesday. Priced at $20, it roared ahead, finally adding $24.625, or 123 percent, to $44.625. Its opening-day high was $73.

Asymetrix Learning Systems, a Bellevue company started by Microsoft co-founder Paul Allen, surged nearly $1.75 yesterday to finish the quarter at $8.969, up $4.844, or 117 percent. The provider of online learning systems made a flurry of announcements about alliances and other new business late in the quarter.

VoiceStream Wireless was a part of Western Wireless until May 3. Western spun off VoiceStream to take advantage of VoiceStream's business in personal communications service through the Global System for Mobile Telecommunications, commonly known as GSM technology. Western provides cellular service through the Cellular One brand. VoiceStream has barely paused in four months, rocketing this quarter by $33.282, or 117 percent, to $61.719.

Western, only three notches below, added $17.844, or 66 percent, to $44.844. Year-to-date, Western, adding in VoiceStream's contribution, is up $92.968, or 384 percent.

Drugstore.com, the Bellevue purveyor of pharmaceuticals and other goods over the Internet, fell $17 in the past two weeks and still gained 101 percent from the time it was priced on July 28. It rose $18.25 to $36.25.

A company that didn't exist 18 months ago, drugstore.com had a few things going for it: the leadership of former Microsoft exec Peter Neupert, a major investment by Jeff Bezos and his Amazon.com, backing from an influential California venture capitalist and board duty from Melinda French Gates, Bill's wife.

Two more summertime initial public offerings did well. F5 Networks is a Seattle company that generates software to manage Internet traffic. The shares cost $10 in early June. But in the latest three months, they galloped $27, or 66 percent, higher to $68.

Another fresh face that did well was ImageX.com. The Bellevue company, which helps clients print materials off the Internet, emerged Aug. 26 at $7. The price had been pushed down by fears that Internet issues were losing steam. The stock quickly recovered, soaring $4.188, or 60 percent, to $11.188.

The upper echelon was dominated by high-tech entries. In the top 15, only one company, broker Ragen MacKenzie, would fall outside the definition of strictly high-tech.

Micron Technology, the Boise company that is the continent's biggest producer of memory chips, also features one of the world's more volatile stocks. With chip prices up, this quarter was well up, an increase of $26, or 64 percent, to $66.50.

SonoSite late in the quarter began delivering its first product, a handheld ultrasound unit. The Bothell company's shares expanded 54 percent, up $9.125 to $26.125.

RealNetworks, the Seattle company setting the pace in providing audio and video to the Internet, had another fruitful quarter, climbing $35.688, or 52 percent, to $104.563. It has been a winner in six of its seven quarters as a public company.

Ragen MacKenzie, a Seattle brokerage, was rumored in talks to be acquired by another regional brokerage, Dain Rauscher Wessels. The takeover part of the rumor came true Tuesday when banker Wells Fargo offered $18.75 in its stock for each Ragen share. The stock rose $5.688, or 48 percent, to $17.563.

Telecom was a hot segment across the country. Craig McCaw's Nextlink Communications, a Bellevue company, participated. The stock grew $14.657, or 39 percent, to $51.844.

For the third time in four quarters, Redmond's Advanced Digital Information Corp. posted big gains. A $4 stock a year ago, the shares vaulted $7.563, or 37 percent, in the latest period to end at $27.813. For 12 months, ADIC at plus 595 percent trailed only Go2Net's 1,627 percent.

The region's biggest companies were not among the bigger movers. Microsoft, the world's highest-valued stock, ended at $90.563, up a mere 37.5 cents. President Steve Ballmer last week questioned the high value of his and other high-technology stocks.

Boeing, a member of the Dow industrials and second in Northwest value to Microsoft, was stuck in a trading range all quarter. It closed at $42.625, down $1.375.

Companies that warned of trouble ahead were smacked by investors. Coinstar said a lack of pennies during the summer attracted fewer patrons to its coin-counting machines. The Bellevue stock buckled, down $18.75, or 65 percent, to $9.938.

Labor Ready, a Tacoma provider of manual labor, fired its sales force last winter, then realized its mistake and has been trying to hire capable personnel. The stock plunged 54 percent, off $11.60 to $10.063.

Proving that not all dot-com stocks scream higher, Netivation skidded $4.375, or 48 percent, to $4.75. The Idaho company, an operator of Internet communities, came public at $10 in June.

Losses persisted at Wall Data and the founder/chief executive resigned. The software company, trying to position itself as an Internet network-services provider, saw its stock nearly halved, off $4.188, or 44 percent, to $5.375.

Plenty of big companies lost a lot of ground. Safeco, the Seattle insurer, dipped $16.125, or 37 percent, to $28, on concerns about its ability to integrate its American States acquisition plus hurricane-related damages. Two days ago, Safeco said it wouldn't meet analysts' estimates for its quarterly profit. One observer said that was Safeco's ninth straight miss.

Starbucks, the Seattle coffee company, told investors its results were narrower because of expenses to build its Internet business. Investors shrieked, the stock dived, Starbucks pared back its Internet strategy and the stock still ended way down, off $12.782, or 34 percent, to $24.781.

Immunex fell $20.344, or 32 percent, to $43.375. The Seattle biotech was the twin victim of concern about sales of its prime Enbrel drug and by frets that another company's drug will take business away.

Airborne Freight dived $6.625, or 24 percent, to $21.063, largely because of higher fuel prices.

Nordstrom slumped $6.50, or 19 percent, to $27. The Seattle-based specialty retailer is battling concerns about how well it manages growth and how successful it can be selling goods over the Internet.

Integration of acquisitions and higher interest rates slowed Washington Mutual, off $6.313, or 18 percent, to $29.25.

The quarter's biggest regional deal was Microsoft's decision to exchange shares of its stock for Visio, a prominent Seattle software company whose products allow for diagramming. The deal was valued at $1.3 billion.

Information from Bloomberg News is included in this report.

Greg Heberlein's phone: 206-464-2267. His e-mail: gheberlein@seattletimes.com