I. Market News: A Tale of Two Markets
II. Heroes: 3M, Gandalf Tech, Brothers Gourmet Coffee
III. Goats: USAir, Recoton, Big B
IV. Investment News: Semiconductors Hit Hard Again
V. Calendar: Wednesday's Economic Events

MARKET CLOSE

DJIA: 4871.81, down 1.09
S&P 500: 589.29, down 3.01
NASDAQ: 1040.62, down 17.84

MARKET NEWS

Blue Chips and Speculative stocks went in opposite directions today. On another pair of semiconductor downgrades (see Investment News), the Nasdaq Composite continued its recent slide, but the Dow held up reasonably well for most of the day. Wall Street gooroos claim this is defensive posturing as nervous traders ditch technology stocks in favor of the safer Dow havens. Are they right? Let's answer it with MotleyFool's primary rule: Ignore the direction of the "stock market." In other words, it doesn't matter; Fools should be watching their individual holdings and evaluating them on their own merits.

HEROES

It's not too often a Dow company makes the heroes list, but Minnesota Mining & Manufacturing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MMM)") else Response.Write("(NYSE:MMM)") end if %> cracks the line-up today, tacking on $2 5/8 to close at $61 5/8. 3M announced today that it is taking pre-tax charges in the fourth quarter in excess of $600 million to account for its plans to spinoff its data storage and imaging systems as separate, publicly traded companies. In addition, 3M plans to discontinue manufacturing its audio and video tape lines over the next year and eliminate about 5,000 positions, mostly through attrition and early retirements. Part of the 1995 Beating the Dow portfolio, 3M has trailed the field with less than a 15% gain. The announced restructuring is 3M's latest effort to jumpstart a lackluster recent performance.

Gandalf Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GANDF)") else Response.Write("(NASDAQ:GANDF)") end if %> announced another in a series of impressive alliances yesterday. As a result, the stock climbed $1 3/8 to close at $10 3/8 today. Corel Corporation, Canada's largest software developer, chose Gandalf's Express for its telecommuting needs, citing Gandalf's technology as the best in the business. Corel sees Gandalf's remote access technology as increasing productivity for Corel's staff as it allows for increased flexibility and more work-at-home possibilities.

Brothers Gourmet Coffee <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BEAN)") else Response.Write("(NASDAQ:BEAN)") end if %>, up $1 to $5 1/4, shaved off its retail outlet today by completing the sale of its Gloria Jeans retail outlet to Second Cup, Ltd. of Canada. The sale was valued at $30 million and will allow Brothers to focus more directly on its wholesale business.

GOATS

USAir <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:U)") else Response.Write("(NYSE:U)") end if %> came back to earth today, losing $3 3/4 to close at $11 5/8 after UAL (the parent company of United Airlines) decided a buyout of USAir wasn't feasible. American Airlines had also expressed an interest in USAir but was only prepared to make a play for the beleaguered east-coast carrier if United did; American suggested it would not initiate its own takeover bid. S.G. Warburg cut its rating on the stock to "hold" on the news and returned its price target to $14 a share. While the Warburg analyst doesn't see another bid coming in the short-term for USAir, the current restructuring should help the airline's 1996 earnings and Warburg would be "aggressive buyers" at $12.

Recoton Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RCOT)") else Response.Write("(NASDAQ:RCOT)") end if %> shed $4 1/2 to $16 1/4 after posting third-quarter earnings which failed to live up to Street expectations. Even though this represents the 21st consecutive positive quarter for Recoton, the earnings of $0.36 per share fell four cents shy of Wall Street expectations. Recoton manufactures consumer-electronics accessory products such as antennas, stereo headphones, wireless products, remote controls, audio and video tapes, and music carrying cases. It also makes accessories for audio and video products, video games, camcorders, computers, home-office products, telephones, cellular phones, televisions and VCRs.

Big B Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BIGB)") else Response.Write("(NASDAQ:BIGB)") end if %> was hammered today on a major earnings surprise, down $6 3/8 to $8 3/8. Consensus earnings estimates for the Alabama drug store chain were for $0.12 per share versus $0.10 per share in the year-ago period. Big B only posted earnings of $0.02 per share, however, missing estimates by 83%. Revenues evaporated to $263,000 from last year's third-quarter tally of $1.6 million largely because of declining gross margins, the result of rising third-party pharmacy sales which carry much lower gross margins. Chairman and CEO Anthony Bruno expects the lower margins to hurt fourth-quarter earnings as well. The company declared a $0.05 quarterly dividend to be paid December 8 to shareholders of record on November 24.

INVESTING NEWS: We Remember

The semiconductor industry ship saw another shot fired across its bow today by the analyst community. SoundView Financial analyst Rick Whittington has made headlines again and again this year with his stock ratings and comments in the financial press about the future prospects for the microchip industry, each time moving the market with his press releases.

Recently, Whittington and Merrill Lynch's Thomas Kurlak have been busier than normal, praising the semiconductor stocks one day and panning them the next. The most recent "announcement" came this morning when Whittington downgraded his short-term ratings on both Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MU)") else Response.Write("(NYSE:MU)") end if %> and Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TXN)") else Response.Write("(NYSE:TXN)") end if %> from "buy" to "hold." His long-term rating on both stocks remains a "buy." Less than three weeks ago, however, Whittington was praising these very companies in Barron's, claiming that Micron especially was a misunderstood company which should command a higher P/E multiple.

SoundView Financial said the downgrades "reflected a belief that the supply of DRAM or memory chips has caught up with demand. . . . Supply of DRAMs was very tight earlier this year, causing prices for the chips to rise. Whittington believes supply is now at or very close to demand amid added plant capacity."

The word from the semiconductor industry itself, though, is very different. In addition to the recent upward revision of the September book-to-bill ratio from 1.11 to 1.15 and the impressive October ratio of 1.18, the consensus of semiconductor executives is that the industry will continue to grow at something like a 26% rate over the next year, with the memory market being the most attractive of the lot, growing at something like 40% annually. Micron Technology and Texas Instruments play a huge role, of course, in the DRAM (dynamic random access memory) market.

Whittington's downgrades pull his estimates more into line with the market consensus on the chip makers. And if earnings estimates are anywhere close to accurate, both of these stocks look woefully undervalued. FirstCall estimates as of November 13 for Micron are $9.85 for fiscal 1997, with an estimated 5-year growth rate of 18%. That gives us a YPEG price target of $177 for Micron Technology. For Texas Instruments, consensus expectations for calendar 1996 are $6.64 and the long-term estimated growth rate is 15%. That represents a YPEG price target of $100. Today, MU closed down $4 3/4 to $56 7/8 and TXN closed down $1 3/4 to $60 1/2.

For Fools, the only tangible numbers we have to work with are the recent book-to-bill numbers and the imperfect expectations of both the semiconductor industry and the analyst community. Given the recent inconsistency of the analysts' "short-term" rankings, however, it seems more Foolish to look at the numbers for each company on a case-by-case basis and refer again to MotleyFool's rule #1 we posted in the Market News recap above: IGNORE THE DIRECTION OF THE MARKET.

[Disclaimer: Robert Sheard, who wrote today's story, has held a long position in Micron Technology for quite some time and will continue to hold it as long as MU remains an Investing for Growth stock. Analyst games drive him crazy, but he doesn't buy and sell because of their downgrades and upgrades.]

CALENDAR: Wednesday's Economic Events

---Consumer Price Index (8:30)
---October Industrial Production (9:15)
---October Capacity Utilization (9:15)
---September Manufacturing & Trade: Inventories and Sales (10:00)
---October Real Earnings
---FOMC Meeting

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