I. Market News: Big Afternoon Rally
II. Heroes: Gaylord, Traveler's, Comm. Cable, Chips & Tech, Ortel
III. Goats: AGCO, Motorola, Rykoff-Sexton, Nutrition for Life
IV. Investment Perspective: Focus on Applied Materials
V. Calendar: Thursday's Economic Events

MARKET CLOSE

DJIA: 5105.56, up 27.46 (RECORD)
S&P 500: 607.66, up 1.21 (RECORD)
NASDAQ: 1057.57, up 7.52

MARKET NEWS

High tech stocks continued the strength exhibited yesterday and pushed the Nasdaq closer to its September highs. Blue Chips rode the market movement to yet another record close, breaking the 5100 mark for the DJIA.

HEROES

The popularity of country music continues to grow, much to the dismay of the Evening News. Gaylord Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GET)") else Response.Write("(NYSE:GET)") end if %>, a de facto proxy for country music, continued its upward move, rising $2 to $26 today on news that aging industrial-giant-turned-broadcaster Westinghouse <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WX)") else Response.Write("(NYSE:WX)") end if %> is looking to snap up its available shares. In today's Wall Street Journal, Westinghouse CEO Michael Jordan stated that it would be "several years" before the company would consider becoming a 100% broadcasting company, suggesting that someday it might. Gaylord is a natural for Westinghouse as WX already does the advertising sales and cable system negotiations for Gaylord's networks and Group W owns 33% of Country Music Television. Gaylord also owns television stations in Seattle and Dallas which are CBS affiliates.

Aetna <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AET)") else Response.Write("(NYSE:AET)") end if %> decided to bag its property and casualty insurance operations today, selling them to Traveler's Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TRV)") else Response.Write("(NYSE:TRV)") end if %> for a cool $4 billion. The market reacted by pushing shares of Traveler's Group up $3 3/4 to $58 7/8. Traveler's Group, which owns Smith Barney among other properties, will make the acquisition in cash. The sale gives Aetna an opportunity to streamline its "bloated" insurance operations. Traveler's has recently sold its stake in MetraHealth Cos., getting out of the managed care industry altogether. Ironically, now that Aetna has left property and casualty insurance, it is probably going to buy a free-standing HMO or other managed care provider to boost its managed care profile. Essentially, two industry giants are shifting from trying to serve everyone to focusing on specific lines of insurance. Aetna <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AET)") else Response.Write("(NYSE:AET)") end if %> was down $3 7/8 to $72 on this news.

Kuhlman Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KUH)") else Response.Write("(NYSE:KUH)") end if %> hopes to expand its cable operations today by acquiring the outstanding shares of Communication Cable <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CABL)") else Response.Write("(NASDAQ:CABL)") end if %>, up $2 1/2 to $11 1/2 on today's announcement of a tender offer of $12 per share in cash. Communication Cable engineers, designs and manufactures coaxial, multi-conductor and ribbon cable for use in data, voice and video communications. Kuhlman's Coleman Cable Systems subsidiary would be the main beneficiary of the proposed merger. If completed, the merger would expand Kuhlman's annual revenues by about 15-20%. Kuhlman has essentially sealed the deal by purchasing the 12% of Communications Cable held by its CEO, James R. Fore and promising Mr. Fore employment for three years after the acquisition.

An old favorite of MF Nasdaq, Chips & Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CHPS)") else Response.Write("(NASDAQ:CHPS)") end if %>, moved $2 3/4 to $11 based on a "strong buy" recommendation from Salomon Brothers analyst Erica Klauer. Chips has been absolutely crushed since it proposed a secondary offering because of "uncertainties concerning the early part of calendar 1996 arising from a potential supply issue with respect to one of the company's products." (How's that for business-speak?) Although Fools on the message boards hammered out the basic proposition that a supply problem for a single product should not sink a company which holds the portable laptop video chip industry in a hammerlock, it was sunk nonetheless. Selling off as part of the tax-loss flood, the stock has been looking for an excuse to trade up. Trident Micro <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TRID)") else Response.Write("(NASDAQ:TRID)") end if %> moved $4 3/4 to $35 3/4 as well, possibly in sympathy.

Ortel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ORTL)") else Response.Write("(NASDAQ:ORTL)") end if %> rose $1 5/8 to $11 1/4 two days after reporting flat quarterly earnings, in line with consensus estimates. The one-million-share buyback the company announced at the same time, which would retire about 8% of the outstanding stock, might have begun today, which could explain the fairly heavy volume. Share buybacks are always helpful for a stock because they decrease the number of shares outstanding used in the computation of earnings per share and provide positive pressure in the market. Ortel manufactures linear fiber-optic products that enable the transmission of digital, digitally compressed or analog information by radio frequency signals on fiber-optic cables.

GOATS

AGCO Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AG)") else Response.Write("(NYSE:AG)") end if %> plunged $3 1/2 to $41 3/8 today after Smith Barney analyst Tobias Levkovich downgraded shares of the tractor company to "outperform" from "buy," shaking up nervous investors in the agricultural capital equipment sector. AGCO, which manufactures tractors, combines, hay tools and forage equipment tends to be dramatically affected by crop prospects and the availability of capital for farmers to buy more equipment. Further details on the downgrade were unavailable. The funny thing about this downgrade is that the analyst still expects the company to outperform the market. With a $6.63 consensus earnings estimate and long-term growth in the 12% to 13% range, this issue definitely seems fundamentally undervalued, whether the "sector" is hot or not. Perhaps one for MF Boring to check out? Would be nicer, though, if the company had a dividend to pay investors while they waited.

Motorola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MOT)") else Response.Write("(NYSE:MOT)") end if %> has been a really strange stock this year. Down $3 1/2 to $61 1/8 on a downgrade from Cowen & Co., the shares are now only up about 20% for the entire year, a year which saw them hit a high of roughly $81 smackers. Cowen & Co. only downgraded the cellular phone and semiconductor giant to a "buy" from a "strong buy," citing unclear growth prospects in its cellular phone operations, which account for a little more than a third of revenues. Currently trading at 20 times earnings, however, we can see the argument that the stock does not have significant room to grow; long-term growth estimates are 25-28% and coming down because of slowing growth in Motorola's cellular phone division.

Rykoff-Sexton <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:RYK)") else Response.Write("(NYSE:RYK)") end if %> fell $2 to $18 5/8 today after the company absolutely failed to meet it earnings estimates for the quarter, coming in 46% below expectations. The food distributor suggested a number of reasons: the move to Los Angeles has been far costlier than expected, with the new distribution center eating up approximately 25% of their revenues. Also crunching margins was the growth of lower margin products while overall sales growth ebbed.

Nutrition For Life <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NFLI)") else Response.Write("(NASDAQ:NFLI)") end if %> sprung to life in a reverse-split which brought the share price from the laughable to the sensible. Down $3 3/4 to $35 3/4, the Street is at a loss to explain why the darn stock has been so volatile. The stock has become a favorite for day-traders as well as being the subject of some questionable hype from company officials. Essentially, this company is Amway done with nutritional supplements, distributing its market via network marketing.

INVESTMENT PERSPECTIVE: Conference Call Confidence

In recent weeks, rough sledding in the semiconductor and semiconductor equipment shares has had the Evening News close to fits. Bad fundamental news combined with analyst sentiment turning more negative have served to create a major reality check for the shares of many technology issues. A temporary watershed was reached yesterday, apparently, when semiconductor equipment bellwether Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMAT)") else Response.Write("(NASDAQ:AMAT)") end if %> reported its fiscal fourth-quarter results, and opining on the future of the industry in its analyst conference call.

Immediately after earnings were released, Applied Materials shares were down in Instinet trading. (The Instinet is a 24-hour global trading system to which the big institutions have access, one of those nettlesome advantages they enjoy over individual investors.) Apparently market "players" were hoping that Applied Materials would beat estimates handily, as they had for the last two quarters in a row. As you can tell from today's advance (up $1 7/8 to $48 1/8), however, the upbeat tone of Applied Materials' management in the conference call turned the initial disappoint that they did not crush estimates into excitement about a company looking at posting a 45% revenue gain and roughly a 50% gain in earnings per share.

Until yesterday, consensus estimates for the manufacturer of multiple equipment systems stood at roughly $3.70 per share for the 1996 fiscal year. During the conference call, however (which you can hear if you want by dialing 1-800-633-8284), the company guided analysts to expect $3.80 to $3.90 a share, which should initiate some brokerage upgrades. (Perhaps even Rick Whittington of SoundView Financial might reconsider his near-term "hold" rating on the shares.)

What happened with Applied Materials was not based on the results they posted as much as what they said they were going to do next year. Comments about gross margins were especially interesting, as the company expects to reach 49% gross margins by the fourth quarter of 1996 and maintain 48% gross margins for all of 1996, compared to 46% gross margins for 1995. Gross margins, which are the percentage of revenues not spent on materials to manufacture their products, create exaggerated jumps in earnings when they increase because they magnify revenue increases. This is why, for instance, Applied Materials thinks it can increase earnings by 50% while it only increases revenues by 45%; an overall increase in the gross margin boosts profits across the board.

A lot of people, Wise and Foolish alike, have been decrying analysts of late because of much-publicized downgrades which caused many of the chip issues to tank. While these people were complaining, however, some more stalwart souls crept in to take advantage of some of the bargains that were coming available. Anyone who snapped up shares of Applied Materials, for instance, on Monday, at $42 per share, a mere 11.4 times the previous estimates of next year's profits, have been well served by the 15% jump over the last two days.

Whether or not the positive momentum generated by Applied Materials' ambitious forecast can be maintained is anyone's guess. Across the industry, however, semiconductor and semiconductor equipment companies alike, calls from analysts, companies and trade organizations for 15-20% growth from here until the year 2000 are the rule. The real Foolish eye is on the long term when all eyes on the Street begin to worry about next quarter. The beauty here is that Applied Materials *still* trades at only 12.3 times next year's estimates; the fun is probably just beginning.

CALENDAR: Thursday's Economic Events

---Initial Unemployment Claims (8:30)
---October Durable Goods Orders (8:30)
---November Chicago Purchasing Managers Survey (10:00)
---October Conference Board's Help-Wanted Index (10:00)
---Weekly Fed Data (4:30)
---November Department Store Retail Sales

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