Convertibles gain on tech, telecom buying rush but volume still thin

By Ronda Fears

Nashville, Tenn., Jan. 3 - Convertible traders said there was a buying rush in the tech and telecom sectors but there were only early birds stirring, as trading volume remained thin with many players sitting out the holiday-shortened week. Still, several tech and telecom issues spiked sharply higher while drug and healthcare issues took a dive. With no movement in the primary market yet, traders said buyers were mostly snapping up the spattering of new tech and telecom issues that have been put into circulation in recent weeks.

"Volume is still nowhere near normal levels but there was a bit more activity in converts today," said a convertible trader at a major investment bank in New York. "There was some buying but it was almost exclusively limited to the new issues that we've seen recently. Well, Nortel saw some takers but Level 3 was getting slammed again."

Market players were hoping to beat the rush anticipated next week when the market gets back to a more normal flow, and are betting that the tech and telecom buying spree will not be short-lived. On the tech rush, stocks gained nicely with the Nasdaq up 65.02, or 3.29%, to 2044.27 and the Dow Jones Industrial Average gained 98.74, or 0.98%, to 10172.14.

"There were a lot of bets placed today, and only time will tell if they pay off," said a convertible trader at a hedge fund in New York. "We aren't betting that there will be any significant gains held onto in the telecom area, although there are some nice opportunities in tech areas like storage and network security."

Indeed, not all the news was rosy on Thursday.

Peregrine Systems plunged after the provider of e-business infrastructure management products warned late Wednesday that it expects to report a fiscal third-quarter loss of 7c to 8c a share while analysts were forecasting a profit of 10 cents a share on average. The company said "challenging global economic conditions," particularly in Europe, was to blame for the anticipated shortfall. The Peregrine 5.5% converts due 2007 fell 16.5 points to 74.25 bid, to 74.75 offered with the stock down $5.24 to $9.27.

Affiliated Computer Services, which provides systems integration and business process outsourcing services, was also lower with the 3.5% converts due 2006 (Baa3/BBB-) down 2.25 points to 136.5 bid, 137 offered and the stock down $2.25 to $108.98.

But chips and semiconductor equipment makers were soaring north, particularly the new paper in those areas.

Electro Scientific Industries Inc.'s 4.25s due 2006 rose 4.375 to 106 bid, 107 offered with the stock up $2.13 to $32.63. ATMI's 5.25s due 2006 climbed 7.75 to 138.75 bid, 139.75 offered as the stock gained $2.02 to $26.39.

Globespan's 5.25s due 2006 added 5.75 to 95.5 bid, 96.5 offered with the stock up $1.92 to $17.53. Teradyne's 3.75s due 2006 advanced by 9 to 147.375 bid, 147.875 offered as the stock gained $2.73 to $33.48.

Agilent Technologies' 3s due 2021 (Baa2/BBB-) were up 4.5 to 118 bid, 118.5 offered and the stock rose $1.85 to $31.10. LTX Corp.'s 4.25s due 2006 were up 4.875 to 107.625 bid, 108.625 offered and the stock rose $2.01 to $23.75. Brocade's 2s due 2007 climbed 7.125 to 110.875 bid, 111.375 offered as the stock gained $3.54 to $39.01.

Networking names were doing well, too, but again traders said the tendency was to newer issues. Extreme Networks' 3.5s due 2005 rose 5 to 99.75 bid, 100.25 offered with the stock up $1.26 to $15.39.

Outside the tech area, it was a mixed bag.

Providian Financial stock lost more than 4% after the company said it plans to eliminate about 800 jobs by mid-January, leading to a first-quarter charge of $10 million to $15 million, on the heels of axing 550 employees six weeks ago. But the credit card issuer's stock closed higher and the convertibles were higher, which traders attributed to some optimism that the company will turn itself around and the flagging converts will make a comeback. The Providian 3.25s due 2005 (B2/B) rose by 3 to 42.5 bid, 44.5 offered as the stock edged up 11c to $3.44.

WellPoint Health Networks Inc. said on Thursday it expects to post a profit of $1.89 a share in the first quarter of 2002, but the name sank along with the bulk of the health, drug and biotech sectors. The WellPoint zeros due 2019 dropped 0.5 to 84 bid, 85 offered as the stock lost $1.15 to $115.70.

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