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Stocks Slide on Lower Earnings Expectations

By now, investors should have a better idea of the extent of the stock market correction brought on by the latest episode in the lingering financial crisis in Asia and lower earnings expectations.

The major U.S. markets kicked off what promises to be a summer of uncertainty last week by recording the largest losses since January, with the Dow Jones Industrial Average down 150.71 and the Nasdaq off 26.91. Before last week’s retrenchment, the Dow, Nasdaq and S&P 500 all were up about 13 percent for the year.

One sector hit hard by the market’s recent downturn has been PC makers, who are being forced to cut prices to compete with cheap Asian imports. PC direct marketers Dell Computer Corp. and Gateway have been more immune to price cuts than their indirect rivals but face their own problems.

Dell seems to be suffering from its own success. Despite reporting revenue growth of 52 percent and net income growth of 54 percent, the world’s second-largest PC maker failed to meet the most optimistic earnings expectations on Wall Street, dubbed the “whisper number,” and saw its stock tumble from a 52-week high of $98 1/2 to settle at $83 15/16. That’s still an increase of $9 5/8 in the last month.

Gateway hit a high of $59 1/2 in early May but has fallen precipitously since then to $44 1/2. That’s obviously bad for sellers but presents a good opportunity for buyers to invest in the hi-tech sector.

The buzz in the Internet community about creating Web portals has helped leading portal America Online gain $9 1/8 in the last month but has had little effect on the stock of Netscape Communications, which lost 87 cents. Netscape is showing signs of life, however, with better-than-expected revenues and net income in a quarterly report released last week.

Think New Ideas has been on a roller coaster ride of late, zigzagging between a yearly high of $39 1/4 and two-month low of $18. The stock bottomed out at $18 after chairman and CEO Scott Mednick announced his departure May 22 but was beginning to rebound last week after company co-founder Ron Bloom was named to replace Mednick.

The DM News portfolio has two new entries this month: online book seller Amazon.com and envelope and printing consolidator Mail-Well Inc. Shares of Amazon have zoomed as high as $100 from a low of $16 in the last year and were in a good dip for buyers last week at $81 7/8. Mail-Well, which continues to expand through acquisition, has traded between $20 3/8 and $49 7/8 in the last year.

Dropping out were Metromail, which is no longer traded, and New England Business.

Portfolio Value: If $1,000 had been invested in each of these companies at the beginning of the year, the value would be $106,959, an increase of 9 percent.

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