INDEX:

I. Market News: Another New Record For the DJIA
II. Heroes: EMC, Rexel, Broker Upgrades, Myriad Genetics, Advo
III. Goats: VideoServer, British Steel, Cree, Insite Vision, Interface
IV. Investment News: Internet Stocks Soar on Newcomer Earnings
V. Calendar: Monday's Economic Events

MARKET CLOSE

DJIA: 4825.57, up 16.98 (RECORD)
S&P 500: 590.57, up 0.85
NASDAQ: 1065.66, up 8.34

MARKET NEWS

Stocks scored another respectable gain today, with the DJIA setting a new high while the S&P 500 moved within a tenth of a point and the Nasdaq Comp moved within 2 points of their records. The major indices have recovered from their October blues and all three are in positive territory again for the fourth quarter.

HEROES

EMC Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:EMC)") else Response.Write("(NYSE:EMC)") end if %> rose $1 7/8 to $18 3/8 today on news that AT&T's Global Information Systems unit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:T)") else Response.Write("(NYSE:T)") end if %> and Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HWP)") else Response.Write("(NYSE:HWP)") end if %> will market versions of EMC's Symmetrix 3000 open-storage systems. The deal will bring an extra $250 million in revenues to EMC's doors in 1996---about 10-12% more than analysts were expecting the company to generate. EMC Corp. has been under pressure recently after reporting a bad third quarter, the result of increased competition in the storage industry. With IBM backing off its RAMAC open-storage system, the field is being left open for EMC Corp. and Storage Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:STK)") else Response.Write("(NYSE:STK)") end if %>.

Rexel Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:RXL)") else Response.Write("(NYSE:RXL)") end if %> rose $1 1/2 to $12 3/4 today as investors positioned themselves to profit if the company's French parent corporation decides to buy back the outstanding shares of its subsidiary. Rexel S.A., a French-based conglomerate, is believed by some to be ready to follow the lead of Scor S.A. and a number of other European companies who have been buying up their American subsidiaries because of their low valuations. Trading at 12 times 1996 earnings estimates, but growing at an estimated 20% per year for the next five years, it appears that Rexel S.A. would definitely get to buy up some of its own assets below their value. Investors should be warned, however, that in the past five years, earnings growth has been fairly lackluster, averaging an 11.2% decrease in EPS.

Brokerages were out with a series of recommendations today, prompting some individual issues to move higher. Merrill Lynch raised its intermediate-term rating on Brinker International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:EAT)") else Response.Write("(NYSE:EAT)") end if %> from "hold" to "above average," pushing the stock up $1 1/4 to $14 1/8. Chicago Corp. stated that software giant Silicon Graphics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SGI)") else Response.Write("(NYSE:SGI)") end if %> is a "buy," pushing the shares up a sparkling $4 to $36 1/4. Prudential was out rating the semiconductor equipment stocks, raising a bunch of them to "buy," including Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMAT)") else Response.Write("(NASDAQ:AMAT)") end if %>, which popped $2 3/4 to $55 3/8, and Kulicke & Soffa <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:KLIC)") else Response.Write("(NASDAQ:KLIC)") end if %>, which recovered $1 9/32 to $29 1/2. Applied is also continuing to benefit from news of a deal announced with SGS-Thomson to co-develop "back-end" assembly equipment.

Investors snapped up shares of Myriad Genetics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MYGN)") else Response.Write("(NASDAQ:MYGN)") end if %> today after a study published in Science magazine delineated a gene believed to be responsible for breast cancer. The maker of genetic diagnostic screening technology, up $5 5/8 to $33 today, is poised to benefit from this finding as it has a test that screens for the BRCA1 gene featured in the article. About 5% to 10% of the 182,000 women who get breast cancer every year have the hereditary form, but the potential market is even greater given that anyone with a history of breast cancer could conceivably be treated. Analysts are not raising their numbers on the company yet, given the uncertainty as to whether this will become a standard screening procedure, or only a benefit to a limited population of women with family histories of breast cancer.

A Dorfman recommendation just doesn't seem to carry the weight it once did. Advo Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AD)") else Response.Write("(NYSE:AD)") end if %> was the subject of a table-pounding session where the raspy-voiced commentator tried to pass the direct-mail marketing company off as a buy, citing a number of big name potential suitors. Advo was only up $5/8 to $26 1/4. Given that the company currently trades at 20 times trailing earnings and 18.4 times next years earnings with an estimated 18% compound annual growth rate for the next five years, the word "cheap" doesn't come to mind. Dorfman has not completely lost his touch, though; just a mention that big Western Publishing Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:WPGI)") else Response.Write("(NASDAQ:WPGI)") end if %> shareholders are unhappy with the current situation and are about to turn proactive was enough to push that issue up $1 1/8 to $9 3/4.

GOATS

News that two million shares of VideoServer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:VSVR)") else Response.Write("(NASDAQ:VSVR)") end if %> were about to be released from lock-up sent the stock down $2 3/4 to $39 today. Goldman Sachs & Co. and Robertson Stephens & Co., managing underwriters of its initial public offering, will release the lock-up restrictions on about 2 million of VideoServer's common shares effective Nov. 7, meaning whoever owns 'em can sell 'em. The market is anticipating that insiders will quickly take their substantial profits in the issue, creating a lot of downside volume. Apparently a lot of investors want to avoid the rush and took profits today. VideoServer supplies networking equipment and associated software for teleconferencing.

Prudential Securities might want to consider starting their own Not Very Good Ideas list to showcase stocks they remove from their Single Best Idea list. British Steel PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BST)") else Response.Write("(NYSE:BST)") end if %> would be a charter member, plunging $1 1/4 to $24 today when Prudential slapped a "hold" rating on the stock and yanked it from the Single Best Idea mantle. How something could be a Single Best Idea one night and a hold the next night is beyond the Evening News staff.

One of the more speculative issues in the semiconductor run-up over the past year has been Cree Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CREE)") else Response.Write("(NASDAQ:CREE)") end if %>, which develops silicon carbide-based semiconductors and blue LED displays, areas which aren't very profitable yet but promise large potential markets. The stock was down $2 to $18 1/2 today, however, when Cree reported earnings 50% below expectations, teaching many speculators the pain inherent in development-stage companies. Why someone would buy a Cree and not expect to wait three to five years to see real profits is absolutely mind-boggling, but patience remains the most rare virtue on Wall Street. Although the Evening News is unclear of the potential of either of Cree's products, it is very easy to point out that with only $3.5 million in revenues for the quarter, the potential seems a ways from realization.

Insite Vision <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INSV)") else Response.Write("(NASDAQ:INSV)") end if %> plunged $1 3/8 to $2 1/8 when the company announced a slew of bad news, including terrible earnings, a fourth-quarter charge for reorganization, a 50% cut in the work, and a CEO who is mulling a merger or other business combinations to make the company profitable. The company stated that it had to fire its CFO and vice president of operations because of "limited financial resources." Justifiably, investors decided to give the stock the boot was well.

Two fourth-quarter profit warnings shook the respective companies today, suggesting that investors might start to become worried about fourth-quarter earnings now that the third quarter is over. Interface Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INTF)") else Response.Write("(NASDAQ:INTF)") end if %> lost $1 to $4 3/4 today when it stated it will earn "substantially" less than the $0.04 per share it made a year ago. Decreases in revenues, inventory write-downs, and accounting errors were blamed. Atchinson Casting Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ACCX)") else Response.Write("(NASDAQ:ACCX)") end if %> fell $2 3/8 to $13 7/8 after two analysts lowered earnings estimates for next quarter and next year. The analysts disagreed completely on the stock, however, with one cutting his rating to a "hold" and the other keeping his a "strong buy." The analyst who remains positive believes the slowdown in earnings is coming faster than expected but that it's not more than expected. It is always fascinating to see two analysts go head-to-head on a stock and watch the market lean first toward the negative one every time.

INVESTING NEWS: Casting a Too-Wide "Net"?

What is up with the Internet? It seems in the last week that any stock having to do with the darn thing has exploded, setting 52-week highs dramatically above previous ones.

The confluence of three isolated events set a back-drop where investors looking toward the future have become very excited about the Internet. The first factor was the Internet trade show in Boston, the online equivalent of Comdex, where many providers, including America Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMER)") else Response.Write("(NASDAQ:AMER)") end if %> and the Microsoft Network, debuted additions to their systems. American Online, for instance, rose from $75 1/2 at the beginning of the week to $87 today on news of its launch of the GNN Internet access product as well as news that the company would split its shares two-for-one for the third time this year. The overflow crowds of consumers alone were mind-boggling; America Online employees at the event told us that they were besieged by up to 30,000 consumers a day asking questions about new offerings.

The second event, repeated time and time again this week, was Internet-related companies reporting profits surprisingly above analyst estimates. UUNet Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:UUNT)") else Response.Write("(NASDAQ:UUNT)") end if %> began this run last week, reporting a profit for the quarter about a year before analysts expected it to break into black ink. The stock started the week at $48 1/2 and simply shot up from there when Netscape <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NSCP)") else Response.Write("(NASDAQ:NSCP)") end if %> and Spyglass <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SPYG)") else Response.Write("(NASDAQ:SPYG)") end if %> both reported profits far above everyone's wildest expectations as well. Netscape moved from $81 1/4 at the beginning of the week to $95 1/4 today, while Spyglass FREAKED OUT, exploding from $41 1/2 at the week's open to $72, a 73.4% one-week gain. Spyglass reported earnings of $0.20 per share versus Wall Street estimates of $0.03 to $0.05, partly because the company is so focused on the lucrative, but less flashy, business market.

The last piece of this week's puzzle was the study published on Monday by Dun & Bradstreet's Nielson Media Research division, which showed that 24 million people in the U.S. and Canada are using the Internet---far more than had previously been estimated by Wall Street gurus. This news rightly benefited the browser companies the most---Netscape, Spyglass, and even Intuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INTU)") else Response.Write("(NASDAQ:INTU)") end if %>, up from $68 1/2 at the week's beginning to $80 1/4 today. Intuit will add a Netscape browser to its next version of Quicken, hastening the move toward online banking and financial transactions. Quarterdeck Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:QDEK)") else Response.Write("(NASDAQ:QDEK)") end if %>, another company pushing a browser and software to build web pages, rose from $22 1/4 at the beginning of the week to $27 3/4 today.

Investors late to the game scurried around to find secondary "plays" on the Internet, much like people late to the semiconductor surge last year fastened their hopes on "forgotten" semiconductor companies that they hoped would move to prominence. While some of these finds produced fantastic returns for investors, however, it is important to emphasize that often when a company is "forgotten," it is with good reason. CMG Information Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CMGI)") else Response.Write("(NASDAQ:CMGI)") end if %>, which has converted itself into the Safeguard Scientifics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SFE)") else Response.Write("(NYSE:SFE)") end if %> of the Internet, moved from $34 at the week's beginning to $44 in spite of the weak catalog of products the company currently holds.

Global Village Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GVIL)") else Response.Write("(NASDAQ:GVIL)") end if %>, a company specializing in Macintosh network equipment, modems for IBMs and PCs, with an Internet access subsidiary, shot ahead from $16 1/4 at the week's beginning to $18 3/4 today. (It is interesting for regular Evening News readers to note that back on October 4th, when Global Village was trading at $10 1/4 per share, we noted that it appeared really cheap barring something unforeseen that might put it out of business.)

Mecklermedia <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MECK)") else Response.Write("(NASDAQ:MECK)") end if %> is perhaps the oddest story, up from $12 at the beginning of the week. The company publishes magazines about the Internet (talk about just waiting to become obsolete), with a few unprofitable online ventures. Apparently, investors believe that Mecklermedia can become the publishing house of the future---an aggressive assumption to say the least. In fact, the company still publishes magazines that are not Internet related.

These companies and others like them surged during the week as if their success were guaranteed because they're tied to the Internet---which is just not true. Performance Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PSIX)") else Response.Write("(NASDAQ:PSIX)") end if %>, up from $16 3/8 at the open of the week to $22 5/8, and Netcom Online <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NETC)") else Response.Write("(NASDAQ:NETC)") end if %> moving from $52 3/4 to $69 today, acted as if investors believed they were about to unseat the Baby Bells.

With cash strong giants like Microsoft and Oracle Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ORCL)") else Response.Write("(NASDAQ:ORCL)") end if %>, both aggressively pushing Internet browsers for corporate use, the Internet market for Netscape, Spyglass, and the like may be quite a bit more dicey than investors are currently discounting. The Internet access providers in particular (UUNet Technologies, Performance Systems International, and Netcom On-Line) are particularly vulnerable from America Online's GNN offering and upcoming Internet access services from AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:T)") else Response.Write("(NYSE:T)") end if %> and MCI Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MCIC)") else Response.Write("(NASDAQ:MCIC)") end if %>, especially considering that AT&T and MCI own the darn phone lines.

Froth, basically. Lots of froth, and maybe even some foam, as investors who do not understand the medium begin to try to "play" it, probably with all the dangers and mixed success of investors who have attempted to play the technology arena as a whole without understanding it. Although we are just as excited as anyone about the power of the medium, to discount so substantially the real risk involved from here on out, especially in some of these secondary stocks, is simply absurd.

CALENDAR: Monday's Economic Events

---13- and 26-Week Treasury Bill Auction

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