I. Market News: Politicians Stifle Markets
II. Heroes: Conner, US Robotics, The Net, First Miss., Harbinger
III. Goats: Marvel, Ogden, Goodmark, DSP Group, Mego Financial
IV. Investment News: Focus on the Wine Industry
V. Calendar: Monday's Economic Events

MARKET CLOSE

DJIA: 4870.37, up 6.14 (RECORD)
S&P 500: 592.72, down 0.54
NASDAQ: 1063.84, down 1.75

MARKET NEWS

All eyes remain fixed on Washington in the great testosterone tennis match over the debt ceiling and the budget. The bond market was under pressure all day as investors started considering the very real possibility that the United States may fall into technical default on its debt obligations for the first time in history (disregarding the switch away from the gold standard). The DJIA managed to post a modest gain, setting another record high, but the Nasdaq faced a more difficult time breaking through its old record high and adding to yesterday's strong move upward.

HEROES

Conner Peripherals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CNR)") else Response.Write("(NYSE:CNR)") end if %> moved ahead $2 1/8 to $21 3/4 and Seagate Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SEG)") else Response.Write("(NYSE:SEG)") end if %> climbed $3 1/8 to $51 5/8 today as investors began to believe that the planned merger is going to take place. The government has not made any requests for additional information and the merger deadline is Sunday. Many involved in the storage industry mistakenly believed that the government would announce something yesterday. Investors are now piling into the shares of both companies in order to profit from the merger, which is worth $20 per share of Conner stock. The combined company will be the largest disk drive manufacturer in the world and that fact strikes fear into the hearts of many investors who believe that component suppliers like Read-Rite <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RDRT)") else Response.Write("(NASDAQ:RDRT)") end if %> and Innovex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INVX)") else Response.Write("(NASDAQ:INVX)") end if %> will be crushed as a result.

US Robotics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:USRX)") else Response.Write("(NASDAQ:USRX)") end if %> smashed through estimates and was the biggest gainer in the modem industry for the day, right? Wrong! Microcom <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MNPI)") else Response.Write("(NASDAQ:MNPI)") end if %>, which competes with US Robotics in the markets for online services, the Internet, and remote-access, exploded today, up $4 to $23 5/8. US Robotics was only up $4 to $103 1/4 by comparison. With US Robotics carrying a hefty multiple of 55 times earnings, traders apparently believe that Microcom's relatively tame multiple of 35 represents a bargain. The consensus opinion, regardless of which company you pick, is that modem sales, particularly the profitable high-end 28.8 baud and ISDN modems, is where the money will be made. Zoom Telephonics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ZOOM)") else Response.Write("(NASDAQ:ZOOM)") end if %> was unchanged at $17 3/8 by comparison. Zoom focuses on the low-end, high-volume spectrum of the modem industry. Boca Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BOCI)") else Response.Write("(NASDAQ:BOCI)") end if %>, a slightly more diversified manufacturer of computer peripherals, benefited $1 to $24 from the frenzy in modem stocks. Boca is down from an August high of $36 1/2 when it was set to buy bankrupt Hayes Microcomputer---a deal that has since fallen through.

The Internet was hot again today, with many "players" in the industry making impressive moves. H&R Block <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HRB)") else Response.Write("(NYSE:HRB)") end if %>, home of the CompuServe online service, rose $2 3/4 to $46 5/8 as investors looking for bargain prices for an online service are frightened of America Online's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMER)") else Response.Write("(NASDAQ:AMER)") end if %> multiple. Evidently they have not heard the old saying, "Buy cheap, get cheap." Netscape <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NSCP)") else Response.Write("(NASDAQ:NSCP)") end if %> actually lost $2 3/4 to close at $97 1/2, but Spyglass <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SPYG)") else Response.Write("(NASDAQ:SPYG)") end if %> continued to earn its Wunderstock status, rising $8 1/2 to $92 today. Investors also picked up shares of Internet peripherals maker Quarterdeck Office <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:QDEK)") else Response.Write("(NASDAQ:QDEK)") end if %>, up $1 3/4 to $34 1/8, maker of a Webphone, among other gimmicks. Quarterdeck is attempting to be the SoftKey Int'l <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SKEY)") else Response.Write("(NASDAQ:SKEY)") end if %> of the Internet peripheral business, providing low-cost, unsophisticated Internet-related applications to the broad consumer market. Bolt, Beranek & Newman <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BBN)") else Response.Write("(NYSE:BBN)") end if %>, the company which essentially built the Internet for the Defense Department, rose $3 3/4 to $38 1/2 today in the general frenzy.

CS First Boston analyst David Silver initiated coverage on First Mississippi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:FRM)") else Response.Write("(NYSE:FRM)") end if %> today, pushing the shares up $1 3/4 to $23 3/4. He predicted earnings of $3.40 a share in 1996 and $3.70 in 1997, setting a price target of $30 per share. First Mississippi is what is often called a "deep cyclical," a commodity chemical and fertilizer manufacturer that really depends on a good economic climate in order to make money. Silver's call on First Mississippi is in effect a call on the economy, predicting low interest rates and moderate growth through 1997. With rates on the 30-year Treasury heading toward 6.0% and some rate cuts supposedly left in the pipeline, it appears that Silver is getting behind cyclical issues before they come into vogue again on the Street.

Harbinger Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HRBC)") else Response.Write("(NASDAQ:HRBC)") end if %> rose $5 1/2 to $19 today as investors piled into this seemingly "forgotten" Internet play. Harbinger makes electronic commerce software and has recently developed InTouch Banker, which it plans to license to banks who will then offer it to their business customers. The product is Windows compatible and would use online access to compete transactions. Alex. Brown analyst Cato Carpenter raised his rating on the stock to "strong buy" today, sparking the frenzy.

GOATS

Marvel Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MRV)") else Response.Write("(NYSE:MRV)") end if %> continued its recent fall, down $2 to $11 7/8, driven low by a weak rebound in its trading card business and soft demand for its comic books. The company, which is 80%-owned by Ronald Perelman, has been actively acquiring competitors in an effort to diversify its product offerings, buying up Panini Group of Italy (stickers) and Skybox (entertainment, basketball and hockey cards) in the past few months. The comics, baseball and basketball cards still generate around 40% of the company's revenues, so despite these moves to diversify, the company continues to suffer from last year's baseball strike. Marvel plans to deal with sagging comic sales by decreasing the titles it offers and selling 99-cent comics. Marvel owns such popular comics as Spiderman, the X-Men and the Incredible Hulk (a pretty good book, incidentally, written by veteran writer Peter David).

Ogden Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:OG)") else Response.Write("(NYSE:OG)") end if %> fell $1 3/4 to $20 7/8 today after Goldman, Sachs downgraded the stock to "market performer." The company announced yesterday that it is dumping its non-core businesses, including its environmental-services operation, to get into the entertainment business. Ogden wants to increase margins and focus on "higher value-added opportunities." It will take a huge fourth-quarter charge to achieve this. The company wants to open "theme-based attractions," the first one opening at the World Trade Center. The company stands to benefit from focusing on "anything" at this point, given their current eclectic line-up of businesses.

Continued bad news from the maker of Slim Jims pushed shares of Goodmark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GDMK)") else Response.Write("(NASDAQ:GDMK)") end if %> down $2 to $17 on heavy volume. Yesterday, the company told investors that it expects second-quarter net profit to come in around $0.15 to $0.20 per share, positively anemic compared to last year's $0.38. October sales are only 9% better than last year's and the company sees similar results in November. Product shortages and promotions made September pretty weak as well. The company is positive about the second half and believes that high volume and increased capacity will drive earnings. Apparently, investors aren't willing to wait.

DSP Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:DSPG)") else Response.Write("(NASDAQ:DSPG)") end if %> was the victim of a slash attack today, losing $5 1/2 to $9 3/4. Cowen & Co. and Oppenheimer both cut their ratings on the shares, sending them way below their 52-week low. DSP Group reported yesterday that its licensing revenue for the fiscal fourth quarter will be "substantially less" than in the third quarter, which wasn't much to brag about. DSP Group develops high-performance, cost-effective digital-signal-processing software and has been under intense pressure since it reported disappointing third-quarter earnings and saw the Street trim its estimates.

Investors live in fear of these words: "We must adjust previous financial statements." Mego Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MEGO)") else Response.Write("(NASDAQ:MEGO)") end if %>, a real estate developer, plunged $3 1/8 to $6 1/8 today after just such an announcement. The adjustment will total about $1 million for 1994, cutting its $2.8 million in earnings by a third. Mego provides consumer financing to purchasers of timeshare interests and land parcels; the company got into trouble over how it recognizes income from loans it originates and purchases for home improvements.

INVESTING NEWS: Valuing the Vino

Wine might not be the first thing that comes to mind when you think of stocks having incredible years, but a few companies involved in the wine industry have seen their share prices appreciate tremendously. Robert Mondavi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MOND)") else Response.Write("(NASDAQ:MOND)") end if %>, Canandaigua Wine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:WINEA/B)") else Response.Write("(NASDAQ:WINEA/B)") end if %> and Geerlings & Wade <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GEER)") else Response.Write("(NASDAQ:GEER)") end if %> all soared earlier in the year as they launched consolidated operations in what was once an incredibly fragmented industry. The alcoholic beverage industry, particularly regarding wine, has been characterized by strict governmental controls and razor-thin profit margins. These companies all appeared to have turned that around, growing through acquisitions and entry into new markets with newly designed products.

This winning streak, however, appears to be over for now, at least for two of the three companies listed above. The fun for Geerlings & Wade ended a few months ago when the mail-order wine company announced it would not be able to maintain its rapid growth, in part because it could not continue to add states to its service area because of legal constraints regarding the mailing of alcohol. One bad quarter was enough to cut its share price in half almost overnight.

Canandaigua Wine sought to repeat Geerlings's performance today when it reported awful earnings and dropped $18 13/16 to $31 1/16. The company reported only $0.50 per share versus $0.53 in the year-ago period. Estimates were for $0.66. The reason? Disappointing sales at one of its newly acquired subsidiaries. Higher-than-expected promotional costs and softness in the market for California table wines killed their gross margins.

Canandaigua Wine was on a roll until today, buying properties in the fragmented wine industry, an approach which fueled record growth in 1994 as the August purchases of Almaden and Inglenook wines boosted earnings comparisons going forward. One of the dangers of going from peewee to giant, though, is that you become more susceptible to market downturns and require more capital to maintain promotions and growth. Canandaigua believes that it has gained market share with these moves, however, knocking aside many of the smaller players in the industry. Canandaigua's move to consolidate its wine-making operations in one place also required capital investment which contributed to the decreasing gross margins.

Canandaigua launched into an acquisition program to diversify from its core wine business, and has now become the fifth-largest importer of beer and the eighth-largest distilled spirits seller in the United States. This program to become a one-stop center for alcohol distributors has been costly since these purchases do not kick into the bottom line immediately. CEO Richard Sands stated today that the company is positioning itself, however, for long-term growth with its acquisitions.

Despite missing fourth-quarter estimates, the company booked earnings of $2.13 per share in fiscal 1995 compared to $1.69 in 1994, a 26% increase. After today's precipitous decline, Canandaigua trades at 14 times trailing earnings. Multiple one-time charges associated with acquisitions make this P/E somewhat questionable, though, depending on how you view the costs associated with the acquisitions.

Analysts had anticipated Canandaigua would earn around $2.98 per share and have a 20-30% long-term growth rate in the future. Depending on how you view this quarter's troubles, this is either the time to take profits or an opportunity to jump in. Even if you slash forward estimates to $2.50 in order to reflect the disappointment, a 17% decrease, the company still trades at 12.4 times future earnings, seemingly cheap for a giant in its industry who is gaining market share and moving into the strong position of selling wine, spirits and beer. Anyone who has been following the company and who is comfortable with its long-term prospects might take today's sell-off as a buying opportunity. And pick up a bottle of wine while you're at it.

CALENDAR: Monday's Economic Events

---13- and 26-Week Treasury Bill Auction (regularly scheduled. . . who knows what's really going to happen in Washington over the next few days?)

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