INDEX:

I. Market News: Choppy Market Brings Quarter to a Close
II. Heroes: Community Psychiatric, First Citizens, Medic Computer
III. Goats: Retirement Care, Hollywood Ent., Starbucks, Interneuron
IV. Investment News: NexGen Gets Splashed By Intel
V. Calendar: Monday's Economic Events

MARKET CLOSE

DJIA: 4789.08, up 1.44
S&P 500: 584.41, up 1.46
NASDAQ: 1043.56, down 3.49

MARKET NEWS

In a schizophrenic session, the market tried to make sense of the endless stream of confusing economic data and ended up. . . well. . . nowhere. Early this morning, the final revision to the 2nd-Quarter Gross Domestic Product was released, slightly higher than the previous estimate, causing a bit of a sell-off in the bond market. Then Housing Sales, the Chicago Purchasing Managers Report, and the University of Michigan Consumer Sentiment numbers all suggested a weakening economy, sending bonds (and their shadow---stocks) back up. The rest of the day was spent see-sawing on fears of weakening corporate profits and end-of-the-quarter portfolio adjustments.

HEROES

Community Psychiatric Centers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CMY)") else Response.Write("(NYSE:CMY)") end if %> jumped $1 1/4 to $11 3/4 after announcing a net loss for the third quarter of $0.56 per share. The company was expected to post a gain of $0.13 per share for the quarter, but the announced results include a charge of $45 million relating to an agreement to settle 1991 charges filed against CMY for securities violations. Excluding the charge, earnings still look to be below expectations at a gain of $0.09 a share, but investors are obviously relieved to have the legal monkey off of their backs.

Another bank merger was announced today. Word that Whitney Holding Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:WYNY)") else Response.Write("(NASDAQ:WYNY)") end if %> has signed a definitive agreement to purchase First Citizens Bancstock Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:FIR)") else Response.Write("(AMEX:FIR)") end if %>, sent shares of FIR soaring $15 3/4 to $47. The proposed merger would be a tax-free pooling of interests and the deal, which is for $49.95 a share in Whitney common stock, is scheduled to close early in 1996.

Medic Computer Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MCSY)") else Response.Write("(NASDAQ:MCSY)") end if %> vaulted ahead $5 to $50 3/4 today, on what appears to be no news. On Tuesday, Medic announced that it is acquiring Compudata Professional Systems, a privately-held Georgia company. Medic is a North Carolina-based provider of physician practice management systems, covering more than 40 practice specialties. We'll be on the lookout for more on this jump. Not too many stocks lurch forward 11% without a reason.

GOATS

Retirement Care Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RCRE)") else Response.Write("(NASDAQ:RCRE)") end if %> shed $3 3/4 to $10 5/8 after announcing that its fourth-quarter earnings will be substantially lower than analyst expectations of $0.18 or $0.19 a share. President Chris Brogdon said the company will nevertheless be reporting record net income and earnings for the year. The market's response was "well, yeah, but what have you done for me lately."

Hollywood Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HLYW)") else Response.Write("(NASDAQ:HLYW)") end if %> also got hammered after an earnings warning last night, down $6 1/16 to $21 7/16 today. The company is expecting third-quarter revenues to fall 6-7% below expectations and that comparable store sales will be off 3-4%. Not to be confused with an actual Hollywood business, Hollywood Entertainment is a Portland, Oregon-based video superstore chain, with 242 stores in 18 states.

Starbucks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SBUX)") else Response.Write("(NASDAQ:SBUX)") end if %> lost $4 3/8 to $37 7/8 after an analyst conference call today. The company announced a 2-for-1 stock split payable December 1, but the real news came in a discussion of prices and earnings for 1996. The company, while maintaining its annual earnings target of $0.95-$1.00 a share for fiscal 1996, mentioned that it believes higher coffee prices will slow earnings for the first half of the year, but sees earnings recovering in the second half. The company also plans to pursue a new debt or equity offering to finance its continued expansion, with a target of an additional 275 stores in 1996.

Interneuron Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IPIC)") else Response.Write("(NASDAQ:IPIC)") end if %> lost $1 5/8 to $11 1/2 as the company awaits the results of an FDA advisory panel decision whether to recommend approval of dexfenfluramine. Also known as Redux, the drug is reported to fool the user into feeling full, and thus helping with obesity. The panel voted three-to-two in favor of approval yesterday on the condition that further studies are done, but three panel members went home before the vote and must be accounted for before a final decision is made. You think the three who left just got hungry?

INVESTING NEWS: Intel Drowns Another Competitor

For the third time in a week, a smaller rival of Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INTC)") else Response.Write("(NASDAQ:INTC)") end if %> has announced an earnings warning as a result of Intel's aggressive price-cutting strategies. First, Advanced Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AMD)") else Response.Write("(NYSE:AMD)") end if %> reported that its earnings would disappoint the market because of weaker sales for its 486 processor. Then OPTi announced similar problems. And after the bell yesterday, Intel scored a hat trick with NexGen's announcement that its fiscal first-quarter earnings will fall below consensus estimates. NexGen shares dropped $1 7/8 to $18 3/4 on the news.

NexGen's Nx586 is the only fifth-generation processor on the market as an alternative to the Intel Pentium. NexGen's P90 product currently makes up the bulk of its sales, and this is where the painful price cutting had to take place in order to try to match Intel's practices. NexGen wasn't able to make up the difference in cost savings, however, and the loss for the quarter will be significantly worse than the expected loss of $0.27 per share.

NexGen also explained that it is having problems making the transition from VL-based motherboards to PCI-motherboards which incorporate NexGen's PCI system logic chipsets. For a company which only came public in May, and in a quarter when it's already facing a burly competitor who can afford to slash prices better than it can, a product transition is the last thing NexGen needed.

Chairman, CEO, and President, Atiq Raza, remains confident, however. With cost-cutting measures in place, Raza believes NexGen will be able to continue improving its 586 product family. "In addition," Raza said, "we continue to make good progress on our sixth generation Nx686 processor."

With the semiconductor industry seemingly in turmoil (unlike recent months when the entire industry exploded), it seems more crucial than ever for investors to be careful about which companies to support with their investment dollars. As is often the case, the companies who are strong enough to weather the rough seas of product transitions, price wars, and increasing competition are rewarded by the market. The also-rans can ski behind the big boats for a while, but when that surf gets choppy, it is the companies who can navigate on their own who will ultimately survive and flourish. For the chip makers, those wedded to the older generations of processors will be drowned in the wake. (How's that for cramming as many nautical metaphors as possible into a single paragraph?) Sail on!

CALENDAR: Monday's Economic Events

---13- & 26-Week Treasury Bill Auction

Byline: Befumo/Sheard (MF Templar/MF DowMan)