I. Market News: Blue Chip Affair Only
II. Heroes: Gandalf, Access Healthnet, Supercuts, Brock, Engelhard
III. Goats: Boston Tech, Paper Cos., Medtronic, Quantum Health, Lund
IV. Investment News: Hey, Have We Got a Bargain For You!
V. Calendar: Thursday's Economic Events

MARKET CLOSE

DJIA: 4922.75, up 50.94 (RECORD)
S&P 500: 593.96, up 4.67 (RECORD)
NASDAQ: 1041.84, up 1.22

MARKET NEWS

The Dow Jones Industrials set yet another record high today, exploding through the 4900 barrier on a 50-point gain. The broader markets didn't get invited to the party, however. The Nasdaq remained flat for the day.

The Fed surprised no one today by leaving interest rates unchanged at the FOMC meeting. With the budget battle seemingly going nowhere and the government now in the second day of a partial shutdown, the Fed was unlikely to add to the chaos by changing monetary policy.

HEROES

Gandalf Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GANDF)") else Response.Write("(NASDAQ:GANDF)") end if %> rose $2 1/4 to $12 5/8 today on rumors that Pacific Telesis <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:PAC)") else Response.Write("(NYSE:PAC)") end if %> would announce they had chosen Gandalf's technology for use in their network. Hambrecht & Quist started the manufacturer of ISDN switches at a "buy" rating yesterday after Corel Corporation selected Gandalf's Xpress remote access product, stating that this was the best telecommuting solution in the industry. Gandalf has been the subject of much speculation in Fooldom, with a fairly active message folder.

After peaking around $12 per share in early August, it has been nothing but downhill for Access Healthnet <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AHNT)") else Response.Write("(NASDAQ:AHNT)") end if %> until today, when it rose $7/8 to $3 7/8 after reporting a sizable second-quarter loss. The company has reported a slew of bad news, announcing that it would lose $5 million in the second and third quarters after assuming certain vendor obligations. Reporting a $2.1 million loss this quarter, they only have $2.9 million left to report next quarter. Why the news of the earnings moved the stock up today is anyone's guess. File it under "H" for highly speculative. Access Healthnet provides healthcare information services.

Supercuts Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CUTS)") else Response.Write("(NASDAQ:CUTS)") end if %> rose $7/8 to $7 3/4 today in spite of missing consensus expectations by 20%. The haircut chain whose most famous advocate is Peter Lynch has been falling fast for the last few months on news of problems with its affiliates and a string of disappointing earnings performances. Apparently, somebody found something in today's report that looked positive. The company reported that "difficult" New York operations which took $0.17 a share out of earnings this quarter will continue to affect the company throughout the rest of 1995. The company stresses that everywhere else besides New York was doing well. Perhaps they should just get the heck out of New York? Maybe? You think they're responsible for Letterman's last haircut?

Brock Control Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BROC)") else Response.Write("(NASDAQ:BROC)") end if %> rose $1 5/8 to $9 3/4 today after UBS Securities analyst Joseph Farley initiated coverage of the company with a "buy" rating. The Street is starting to buy into the company's turnaround story and analysts are beginning to fall into line. Brock has new versions in place for its Windows products which automate sales and actually hopes to make money in the fiscal fourth quarter. Apparently, investors thought that this was such an exciting prospect that they bid up the stock.

Engelhard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:EC)") else Response.Write("(NYSE:EC)") end if %> shares rebounded $1 1/4 to $22 3/8 today after being smashed on Tuesday on disappointing test results. Engelhard had been receiving quite a bit of speculative interest because of its PremAir system, which converts ozone to oxygen in automobiles. A press release stated that although the system is performing as expected and is less expensive than previously thought, the environmental benefits are not as great. Crushing a diversified company because of a hang-up with one product represents a substantial overreaction. The product still has an environmental effect, although it is not the home run many quick-money types were expecting. Today many investors saw this as an opportunity.

GOATS

Boston Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BSTN)") else Response.Write("(NASDAQ:BSTN)") end if %>, an old Fool Portfolio stock, slumped $2 13/16 to $11 1/16 today after putting out its fourth quarterly disappointment in a row. The stunning loss took the Street by surprise; the company had guided analysts toward estimates of $0.15 a share for the quarter. Boston Technology, which makes network-based voice-processing systems for telecom companies, blamed its weak second quarter on an inability to close key orders and continued weakness with one of its largest customers---thought by most analysts to be Bell Atlantic, which accounted for 44% of revenues last fiscal year. The company maintains that it lost no accounts and no market share in the quarter. The earnings shortfall was the result of lower sales volumes in North America and not canceled or deferred orders. The bell-capped Fool got out of Boston Tech at around $19 a share, much to the dismay of several vocal participants in the message board. David Gardner's sell report, which stressed two quarters of earnings disappoints, appears prophetic in retrospect.

PaineWebber analyst Richard Schneider took out the shears today and cut his ratings on paper stocks, ripping apart the entire sector. Stone Container <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:STO)") else Response.Write("(NYSE:STO)") end if %> fell $5/8 to $15 1/4 after it was cut to "neutral" from "attractive." Crown Vantage <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CVAN)") else Response.Write("(NASDAQ:CVAN)") end if %>, not even on Schneider's list, fell $2 1/4 to $15 as a result of the downgrades. Bowater <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BOW)") else Response.Write("(NASDAQ:BOW)") end if %> was shorn of $2 7/8 to end at $40 1/2, Mercer International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MERCS)") else Response.Write("(NASDAQ:MERCS)") end if %> had $1 13/16 torn away to finish at $21 1/4 and International Paper <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:IP)") else Response.Write("(NYSE:IP)") end if %>, downgraded to "attractive," folded $1/4 to $34 7/8. Interestingly for Fools, International Paper is currently the Ultimate Profit Potential (UPP) according to Beating the Dow. Check out the Dow Area in the Fool's School for more details on what Beating the Dow is all about.

Medtronic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MDT)") else Response.Write("(NYSE:MDT)") end if %> fell $3 5/8 to $53 3/8 today after Raymond James and Merrill Lynch analysts both downgraded the stock. Although they beat consensus estimates by a penny, the company came in below the revenue estimates that both analysts had been looking for, which caused concern about slowing sales growth. Our own Healthcare analyst MF Uptrend took the opposite tack today, adding shares of Medtronic to his Healthcare portfolio over in the Healthcare Industry Folder. MF Uptrend called Medtronic the best-run company in the industry a few weeks ago and boldly declared he would buy shares on any pullback. A Fool analyst has gone head to head with the Wise---our money is on the Fool.

Quantum Health Resources <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:QHRI)") else Response.Write("(NASDAQ:QHRI)") end if %> slumped $1 7/8 to $9 1/2 today when Volppe Welty cut the health care concern from "buy" to "neutral." Disappointing third-quarter earnings were the principle reason for the analyst's move, citing a difficult transition from Quantum's core business, supplying chronic-care oriented products, to a model that would have them moving higher-volume, lower-margin acute-care oriented products. The analyst noted that if Quantum can reduce its cost structure, cut administrative expenses, divest money-losing businesses and return the allowance for bad-debt to historic levels, they can actually make money next quarter. Reading between the lines, the Street checked out of this one.

Lund International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:LUND)") else Response.Write("(NASDAQ:LUND)") end if %> plunged to a new 52-week low, down $1 3/4 to $14 1/4, after seeing earnings decrease 45% annually in the quarter reported today. Lund has been under pressure since the company announced on September 11th that analysts should expect lower revenue and earnings and a margin squeeze in the quarter just reported. Distributors had postponed about $1 million in first-quarter sales until an important trade show. Lund also noted that it would not pass along increases in raw materials until a new catalog is issued on January 1st. Lund makes accessories for cars and vans.

INVESTING NEWS: Are Pennies Even Legal Tender Anymore?

Investors sometimes forget that penny stocks are not just penny stocks because they have low share prices. Positron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:POSI)") else Response.Write("(NASDAQ:POSI)") end if %> gave them a reminder today, though, wiping out a lot of individual investors when it plummeted $1 7/8 to $2.

Individual investors? How does the Evening News know that it was only individual investors that got a bath today?

With only 3.7 million shares trading around $4 before today's action, Positron, which purports to be a maker of "advanced medical imaging devices" called PET scanners, had a market capitalization of around $14 million bucks. Given that most institutions would be at their 5% of outstanding shares limit at around $700,000, they simply do not have any reason to bother with such a stock. The low share price, small-float companies simply float around, waiting for individual investors to pounce, thinking that they have found themselves a bargain.

What went wrong with Positron? Heck, it was making "advanced medical imaging devices" and it looked "cheap" at only $4 a share. After reporting earnings that were 133% below the lone analyst's expectations, the company told the world that it was experiencing "liquidity" problems, the result of no revenues to speak of. Working capital was not sufficient to pay some of their debt obligations and they only had enough cash to last them until the end of the year. Positron *has* to sell more shares or it will go belly up January 1st---always enough to scare the pants off of investors.

But $4 was so cheap, we know some of you are saying. Pshaw! $4 a share actually seems kind of expensive for a company that has apparently never made a profit and has actually had revenues *decrease* since 1990 from $7.5 million to $6.1 million in 1994. Unprofitable, selling at more than two times sales, Positron was not a bargain; it merely had a low share price. Many investors get the two confused, which is why they so easily fall prey to penny stock operators who hype illiquid companies in order to profit off of the rapid price swings.

Positron's evil twin brother, Imatron <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IMAT)") else Response.Write("(NASDAQ:IMAT)") end if %> has been much more hyped in Fooldom's chat rooms lately by unsophisticated investors looking for an easy big score. The story, though, has some alarming similarities to Positron's fate, even beyond the name similarities. Imatron designs diagnostic-imaging devices also, focusing on computerized tomography (CT) scanners instead of PET scanners. In fact, Imatron might be a sister company to Positron.

Imatron reported disappointing earnings yesterday, losing $0.06 a share versus a whole penny's profit the year before. S. Lewis Meyer, company President, explained that some difficulties getting "letters of credit" from foreign buyers were the root cause, delaying some orders. The fact that so much of their revenue is tied to foreign buyers with suspicious credit should raise alarm bells for Foolish investors.

Revenue growth at Imatron has not been quite as spotty as at Positron, with the company actually increasing revenues to around $25 million currently in trailing revenues versus only $9 million in 1990. Imatron also has been reporting profits until the last quarter, something it has not done since 1992. Of course, the loss of $0.06 per share completely wiped out the $0.06 the company managed to make in the prior three quarters, meaning that the fourth quarter had better be a doozie.

Is this stock cheap? Flopping around at a buck and a half, it might seem cheap to some. A glance at any long-term chart would show investors that the stock has periodic spikes into the $3 range which seem to occur at roughly the same time a spate of online hyping occurs---hyping which appears to be tacitly supported by the company; they released more press stuff with a $0.06 loss than one of the Dow stocks would have. A Fool would find this stock way too expensive, though, considering that you'd be buying zero earnings and only about $1 of sales per share. Imatron, Youratron. . . Positron? Definatron.

CALENDAR: Thursday's Economic Events

---Initial Unemployment Claims (8:30)
---Weekly Fed Data (4:30)

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