INDEX:

I. Market News: Technology Stocks Send Overall Market Soaring
II. Heroes: Sun Micro, Semi Equip., MF Nasdaq, Cognex, Foundation Health
III. Goats: US Del., R. Timberland, Office Depot, Caere, Orthofix, Compumed
IV. Investment News: Earnings Surprises for the S&P 500 Roster
V. Calendar: Wednesday's Economic Events

MARKET CLOSE

DJIA: 4795.94, up 11.56
S&P 500: 586.78, up 3.75 (RECORD)
NASDAQ: 1035.44, up 17.31

MARKET NEWS

Strong earnings reports propelled the market higher this afternoon. As more and more companies meet or exceed analysts' expectations for the third quarter, investors are feeling a little less jittery about technology stocks particularly. All of the major market indices posted solid gains today, but the Nasdaq Composite recorded a double-digit jump and the S&P 500 Index set a new closing high, breaking the old record by 0.01.

HEROES

Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SUNW)") else Response.Write("(NASDAQ:SUNW)") end if %> climbed $9 1/4 to $67 7/8 as its quarterly earnings surged ahead with the market for network computing. Sun, which makes workstations for local area networks (LANs) and wide area network (WANs), overshot estimates by 31% as analysts underestimated demand for its products across the board. "We were banging on all cylinders," said Scott McNealy, Sun's chairman and CEO. Sun's earnings grew by 113% on only a 17% increase in revenues, all *increased* research and development costs for its 64 bit UltraSPARC microprocessor, suggesting margin expansion was absolutely tremendous. Check out the Networking folder in the Industry Research area and the Cash-King Investing folder in the Let's Talk Investment Approaches area for MF Bogey's and TomGardner's takes on the results.

Semiconductor equipment, we reder to these companies often in the Daily News. So often, in fact, that one must wonder if the Daily News has some sort of agenda, if one of its writers is pushing the stocks. Well, MF Templar must admit he loves the stocks and takes any excuse to talk about them, but they finally spoke for themselves today. Teradyne <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TER)") else Response.Write("(NYSE:TER)") end if %> up $3 5/8 to $31 1/2, Aseco <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ASEC)") else Response.Write("(NASDAQ:ASEC)") end if %> down $1/2 to $17 1/4, Novellus Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NVLS)") else Response.Write("(NASDAQ:NVLS)") end if %> up $7 to $62, and Watkins Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WJ)") else Response.Write("(NYSE:WJ)") end if %> up $1 3/4 to $51 3/8, all reported earnings that were better than expected. They join the ranks of KLA Instruments, Atrium, and Helix Technology, who have all reported earnings better than expected. In fact, every semiconductor equipment stock that has reported thus far has beaten earnings estimates. Add to this a raft of upgrades on Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMAT)") else Response.Write("(NASDAQ:AMAT)") end if %>, up $3 1/8 to $50 3/4 and Kulicke & Soffa <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:KLIC)") else Response.Write("(NASDAQ:KLIC)") end if %> up $1 1/4 to $28 1/2, and announcements from Applied Materials and Lam Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:LRCX)") else Response.Write("(NASDAQ:LRCX)") end if %> about huge orders from overseas customers, and you have the foundation for a semiconductor equipment stock rally.

Let's face it. MF Nasdaq (AKA Dan Running) has caught a lot of flak in recent weeks for his performance in the past five weeks. Yes, you read correctly: Dan's been running his portfolio for all of five weeks. This fact has not stopped his critics, though, who appear to love to kick him while he is down (check out the Running with the Market folder for details.) However, Dan is coming back! Integrated Silicon Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ISSI)") else Response.Write("(NASDAQ:ISSI)") end if %> leapt $3 15/16 to $30, a 12.5% one-day gain, stemming from Cypress Semiconductor's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CY)") else Response.Write("(NYSE:CY)") end if %> bang up earnings (CY was up $3 3/4 to $36 today) as well as comments by its mercurial CEO, T.J. Rodgers. Add to that the sell-off yesterday in the graphics accelerator chip stocks caused by revelations that Cirrus Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CRUS)") else Response.Write("(NASDAQ:CRUS)") end if %> is seeing its prices drop and things turned around today, with S3 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SIII)") else Response.Write("(NASDAQ:SIII)") end if %> up $1 to $15, Trident Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TRID)") else Response.Write("(NASDAQ:TRID)") end if %> up $1 1/2 to $20 1/2, and Chips & Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CHPS)") else Response.Write("(NASDAQ:CHPS)") end if %> up $3/8 to $11 3/4. Way to go, Dan. Keep it up.

Cognex Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CGNX)") else Response.Write("(NASDAQ:CGNX)") end if %> shot up $9 1/2 to $54 1/2 after reporting earnings 12.5% ahead of consensus expectations. The maker of computer-aided optical equipment for industrial use had revenues explode 80% while earnings before a one-time charge expanded a whopping 96%, suggesting that Cognex's margins across the board are mushrooming. The Daily News loves to write about companies that are increasing their gross margins (the percentage profit left after manufacturing the product) because these companies grow their earnings at geometric rates. Increases in gross margins magnify the effect of increases in revenue, pushing EPS up at a rapid clip. Nothing like it.

Chip stocks and semiconductor equipment stocks were not the only old leaders to emerge from a funk today. Led by Foundation Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:FH)") else Response.Write("(NYSE:FH)") end if %>, up $3 to $39 3/4, the entire HMO industry bellied up to the bar and had their stock prices rise. Foundation Health benefited the most from a $600 million California pact which should add $1.7 billion in revenues by fiscal year 1997. Salomon Brothers also initiated coverage of eight HMOs, starting Foundation Health and MF Uptrend's favorite, Mid-Atlantic Medical, at "buys." Check out the Healthcare folder in the Industry Research area for details on what MF Uptrend, our Foolish Healthcare analyst, thought of the news.

GOATS

U.S. Delivery <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DLV)") else Response.Write("(NYSE:DLV)") end if %> shares fell $2 5/8 to $19 today after being halted for a substantial order imbalance. Analysts at Robertson Stephens and William Blair have been trimming the company's third-quarter estimates because of perceived softness in the Southern California and New Jersey economies. Sam Humpreys, vice-chairman of U.S. Delivery, stated that the consensus estimates for the quarter are around $0.21 to $0.22 per share and that he is "not uncomfortable with those levels." Bear Stearns chimed in today with lower estimates, sparking the order imbalance. U.S. Delivery is a recent initial public offering and focuses on regional package delivery, a business currently characterized by many small players.

Rayonier Timberland <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:LOG)") else Response.Write("(NYSE:LOG)") end if %> shares had $4 5/8 sawed off them today, closing at $30 3/4. The company is a master limited partnership and distributes 95% of its income in the form of dividends, which accounts for the extraordinary 20.3% yield that the shares currently boast. However, earnings announced today showed $0.88 per share versus $1.48 in the same quarter a year ago, suggesting that the company might be forced to trim its $1.58-per-quarter dividend payment. The limited partnership is scheduled to expire sometime in late 1997 as well, which might be exacerbating the downward pressure.

Many times a stock will report good news, such as earnings growth in line with expectations, and still retreat. Office Depot <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:ODP)") else Response.Write("(NYSE:ODP)") end if %> was a great example of this today. Reporting a 33% increase in earnings per share, in line with expectations, on a 29% rise in revenues, Office Depot still sold off today, falling $2 to $29 5/8. Why do stocks do this? Many professional investors wait for good news before they sell large blocks of stock so that the high volume of shares liquidated does not cause the stock price to tank. Also, many times, even 33% growth is not good enough for investors who allocate their capital into companies that consistently beat expectations or that show high growth versus previous periods. Although it might seem confusing to many individual investors, drops after good news are common and not necessarily a bad sign.

Yet another quarter of terrible earnings pushed shares of Caere Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CAER)") else Response.Write("(NASDAQ:CAER)") end if %> down $1 7/64 to $8 3/4. This stock has been nothing but pain for many technology bottom fishers who believed its problems were a result of the Calera merger and thus would be short-lived. Caere's acquisition of Calera sent its earnings growth into a tailspin from which it still has not recovered and highlights the danger of a small firm acquiring another company roughly the same size. Caere has also recently announced it is acquiring ViewStar Corporation, which could signal more bad quarters ahead given management's track record at integrating acquisitions while maintaining earnings growth. Caere makes optical character recognition software products.

Orthofix <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:OFIXF)") else Response.Write("(NASDAQ:OFIXF)") end if %> was shattered today, down $5 1/2 to $10 3/4, as a result of the company preannouncing a bad quarter. A decline in revenues for the Canadian company is the cause, stemming from a transfer of its distribution operations. The 15% increase in outstanding shares from the acquisition of American Medical Electronics does not help EPS numbers, either, as it further dilutes already paltry earnings. Orthofix expects to report somewhere between $0.07 to $0.10 a share compared with $0.20 in the year-ago period. Orthofix manufactures and distributes "external fixators," whatever those are, used by orthopedic physicians. Software Spectrum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SSPE)") else Response.Write("(NASDAQ:SSPE)") end if %> dropped $3 1/4 to $19 1/4 today as a result of pre-announcing a bad quarter as well.

Compumed <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CMPD)") else Response.Write("(NASDAQ:CMPD)") end if %> was cut in half today, falling $7 3/4 to $8 1/4, as investors dumped the shares after reading the fine print of a recent deal between Compumed and Merck <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MRK)") else Response.Write("(NASDAQ:MRK)") end if %>. Apparently, it wasn't all that sweet for Compumed.

INVESTING NEWS: Earnings Come Rolling In

Yesterday we reported that 52.8% of the 72 companies in the S&P 500 that have reported earnings so far have reported above analysts' consensus estimates. Given the fact that last week's sell-off (yes, it was only last week) was driven primarily by earnings concerns, we thought it might be interesting to extend those numbers.

As of this afternoon, the furiously working Daily News bureau had tabulated the results of 144 S&P 500 companies, from IBM to Alco Standard, and determined how they have fared versus estimates from First Call. The results of this survey showed that the number of companies beating consensus expectations had expanding over the last two days to 56.3% versus 52.8% as of Friday night, with companies missing consensus expectations dropping back to 31.9% versus 36.4%.

Darn near three out of five S&P 500 companies reporting have beaten consensus estimates. Often, it's only by a few percent or because of expectations of too steep a decline, such as General Motors <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GM)") else Response.Write("(NYSE:GM)") end if %>. However, considering that recent sell-offs have been caused by market mavens and gooroos declaring that the slowing economy would run all boats aground, it is fantastic to see earnings strengthening as we get further into the reporting season.

The Daily News plans to keep you abreast of how companies in the S&P 500 are doing with their reported earnings, reporting it every day from now on in the Market News section.

CALENDAR: Wednesday's Economic Events

---August Merchandise Trade Balance (8:30)

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