INDEX:

I. Market News: October Begins On a Gloomy Note
II. Heroes: USAir, British Airways, First Federal, Duracell
III. Goats: TGV Software, Network Per., Systems/Computer Tech., Arden, Helix
IV. Investment News: United and American May Bid for USAir
V. Calendar: Wednesday's Economic Events

MARKET CLOSE

DJIA: 4749.70, down 11.56
S&P 500: 582.34, up 0.62
NASDAQ: 1020.45, down 7.12

MARKET NEWS

As we begin the fourth quarter of what has been an extremely strong year for stocks, the major averages continued their recent weakness. Fears about weakening corporate earnings are driving the correction. The "Street" is suggesting that the markets are overdue for a correction, and now that several companies have warned of future weakness, this is as good a time as any. As always, though, the market tends to react in the short-term---both positively and negatively---on emotion rather than reason. October's history as a particularly eventful one for stocks seems a good time to remind Fools everywhere to do their own research, not into "the market," but into the fundamental story behind each individual stock.

HEROES

A light day for Heroes today.

USAir <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:U)") else Response.Write("(NYSE:U)") end if %> rose $1 to $12 5/8 on news that it is in talks with both United and American Airlines to see if a merger is possible (see Investing News). The two potential rivals slipped as investors wonder if taking on a perennially troubled airline will be financially draining. UAL Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:UAL)") else Response.Write("(NYSE:UAL)") end if %>, the parent company of United, slid $6 1/8 to $166 5/8 and AMR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AMR)") else Response.Write("(NYSE:AMR)") end if %>, the parent company of American, fell $2 1/8 to $68 1/2.

British Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BAB)") else Response.Write("(NYSE:BAB)") end if %>, proud owner of a 24.9% stake in USAir <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:U)") else Response.Write("(NYSE:U)") end if %> got the nod from Morgan Stanley today, rising $3 1/4 to $74 1/2. Upgrading the shares to "strong buy," analyst Matthew Steiner thinks that British Air's $400 million investment in USAir might *finally* pay off. Steiner sees British Air flying high at around $87 per share sometime next year.

First Federal Savings Bank of Fort Dodge <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:FFFD)") else Response.Write("(NASDAQ:FFFD)") end if %> rose $1 1/4 to $12 1/4 on news that it has adopted a proposed plan of conversion to convert its mutual holding company, North Central Bancshares, to stock form. The companies will reorganize to form a new stock Delaware corporation, with the additional shares being offered to eligible account holders. First Financial Corp of Western Maryland <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:FFWM)") else Response.Write("(NASDAQ:FFWM)") end if %>, which owns the First Federal Savings Bank of Western Maryland, rose $1 13/16 to $22 1/4 on hopes that it will convert also as shareholders pressure the company to maximize value.

Duracell <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DUR)") else Response.Write("(NYSE:DUR)") end if %> shares appear gold-topped today, rising $2 3/4 to $48 after Goldman Sachs added it to their priority list. The analyst, Amy Low, previously rated the stock a "market performer." She now sees FY '97 coming in at $2.55 a share, up from $1.93 in 1995. Yielding only 2.1% and trading at 19 times FY '97 earnings doesn't paint necessarily the most attractive picture to us, but today the market evidently disagrees.

GOATS

TGV Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TGVI)") else Response.Write("(NASDAQ:TGVI)") end if %> was hammered $5 to close at $10 3/4 after announcing preliminary first-quarter results. Because of end-of-quarter delays in closing a number of large sales contracts, TGV says its first-quarter revenue will be approximately $5 million, flat from the year-ago period and significantly below Street expectations.

Network Peripherals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NPIX)") else Response.Write("(NASDAQ:NPIX)") end if %> joined the dismal parade of earnings warnings today, dropping $5 7/8 to $10 1/8. Third-quarter sales will be between $9.0 and $9.5 million and earnings will be roughly $0.09 per share for the quarter, compared to an already reduced estimate of $0.15-$0.18 per share. A fall in shipments to distributors and lower original equipment manufacturer orders did the quarter in. PaineWebber lowered its rating on NPIX from "attractive" to "neutral."

Systems & Computer Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SCTC)") else Response.Write("(NASDAQ:SCTC)") end if %> also warned that upcoming earnings would disappoint the Street, and was pounded, dropping $6 1/2 to $19 5/8. The company said fiscal fourth-quarter earnings would fall between $0.08 and $0.12 per share. SCTC provides computing management services and administrative applications software to higher education, government, utilities, cable/telecommunications, and manufacturing/distribution markets. The shortfall is because of a slippage in software licensing fees and rising costs in the company's newer markets.

Arden Industrial Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AFAS)") else Response.Write("(NASDAQ:AFAS)") end if %> makes it four-for-four in our Goats thus far. Arden lost $2 1/2 to $5 3/4 after announcing its fiscal first-quarter earnings will either break-even or be even slightly worse. Analysts had been looking for earnings of $0.14 per share. Arden distributes specialty and standard fasteners to the industrial market and blames the earnings shortfall on poor demand for their fasteners.

Helix Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HELX)") else Response.Write("(NASDAQ:HELX)") end if %> plunged $4 3/4 to $39 today on news that one of its largest shareholders is mulling over bailing out of the stock. According to the second-quarter Federal Filings, Pilgrim Baxter, home of the PBHG mutual funds, owns roughly 800,000 shares of Helix---about 33% of the outstanding shares. Helix Technology, which makes cryogenic equipment used in the manufacture of semiconductor chips, among other things, has been a strong performer this year, up from about $14 in January. Incredibly, the stock yields about 1.1%---odd for a tech stock. Regardless of any large holder's short-term influence on the stock, the long-term estimates of $2.60 per share for '96 give us a PEG of 0.59. Sit that next to a decent yield and the picture for Helix sure looks attractive. If Pilgrim Baxter drives the price down short-term, so much the better if the company can meet those estimates.

INVESTING NEWS: Airline Merger in the Works?

In terms of merger activity, 1995 has been a very busy year so far. Time Warner and Turner Broadcasting, Disney and Cap Cities/ABC, Westinghouse and CBS, and just about every bank in the country have been involved in block-buster deals this year. Is it time to extend the merger trend into the air carriers as well?

Yesterday, USAir---the country's sixth-largest airline---surprised Wall Street by announcing that it is considering options for mergers with either of the nation's two largest airlines, United Airlines and American Airlines. United has announced that it is involved in a month-long study of USAir's financial records to see if such a merger is viable economically. USAir, which has been struggling to turn around an ugly financial situation, is still the most expensive domestic airline to operate---a fact that may make a merger difficult for any acquiring company. Over the last six years, USAir has racked up over $3 billion in losses and the company has fought against rumors that it would seek bankruptcy protection. For American Airline's part, the company declined to comment on the potential of a deal with USAir.

The advantages of a merger with either airline, however, may prompt the acquiring company to overlook USAir's checkered financial history. USAir commands a wealth of choice Eastern routes which would serve as a wonderful complement for the two potential bidders. For United, these routes would flesh out its dominance in the midwest and western markets, as well as giving United a link to their European flights from Boston or Washington, D.C. United pulled back on its attempt to increase its presence at Dulles Airport in Washington a few years ago when it couldn't achieve a satisfactory market share. Acquiring USAir would get United back into the D.C. area with established routes.

A merger with American would also be a complementary union of markets. American failed to build market share in the East by opening hubs in Raleigh-Durham and Nashville, and closed both after it couldn't attract the number of passengers it had hoped for. Picking up USAir's routes could help American re-establish itself in the East and tie nicely into its Latin American and Caribbean markets.

The major stumbling blocks of such a deal are the financial difficulties for USAir and the complicated ownership structures of two of the potential partners. United Airlines is owned by its employees and British Airways owns nearly 25% of USAir. It's too early to speculate how these factors will influence the chances of an eventual deal, but it's reasonable to assume they will. Valuing USAir is another difficult task. In the absence of any comparable deal to gauge this merger by, some analysts speculate that USAir is worth the equivalent of its annual revenue, $7 billion, but if sold whole, many analysts believe the price tag will be considerably higher.

CALENDAR: Wednesday's Economic Events

---August Factory Orders (10:00)
---September Auto Sales (Noon)
---August Composite Indices of Economic Indicators

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