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INDEX:

I. Market News: Another Touchdown for the Dow
II. Heroes: Open En, Value Hlth, Morrison, Innovex, Arbor, Ramtron
III. Goats: Acclaim, Hammons, Mattson, Pixar, Trimble, Bausch
IV. Investment Perspective: Bumps in the Road for SRAM Makers
V. Calendar: Wednesday's Economic Events

MARKET CLOSE

DJIA: 5177.45, up 37.93 (RECORD)
S&P 500: 617.68, up 4.00 (RECORD)
NASDAQ: 1065.93, down 3.86

MARKET NEWS

The Blue Chips keep thundering ahead like a 260-pound fullback looking at a platter of hamburgers in the end zone with his name on it. Program trading curbs kicked in again this afternoon, before the Dow "settled" for the 67th record close of 1995. The S&P 500 joined the Dow in record territory, but technology stocks fumbled today, losing nearly 4 points. Tweeeet! Five-yard penalty for delay of the game!

HEROES

Open Environment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:OPEN)") else Response.Write("(NASDAQ:OPEN)") end if %> found some legs today, rising $6 3/4 to $16 1/2 after announcing a comprehensive marketing and development relationship with Gupta Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GPTA)") else Response.Write("(NASDAQ:GPTA)") end if %>. The companies announced the immediate availability of QuickRPC, a product that allows developers to use Gupta's SQLWindows development environment with Open Environment's Entera intelligent middleware. Open Environment is a recent IPO still flush with cash; the market apparently believes it might be acquired by Gupta at some point. This seems like an unlikely scenario, however.

Value Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:VH)") else Response.Write("(NYSE:VH)") end if %> showed some life today, with vital signs improving $2 1/8 to close at $28 3/8. The company reported today that it will acquire Medintell Systems, which provides pharmacy management systems for hospitals. Value Health is acquiring the privately held company for one million shares, or about $28.5 million. In an interesting codicil to this announcement, Value Health told shareholders that it will repurchase one million shares as well, effectively negating any dilution from the Medintell acquisition. The rationale behind this fiscal sleight of hand is to account for the Medintell acquisition as a purchase. Value Health views Medintell as a way into the institutional pharmacy market, estimated to be about $15 billion; only 10% is currently held by contract management firms like Value Health's ValueRx division, which will be amalgamated with Medintell.

Morrison Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:RI)") else Response.Write("(NYSE:RI)") end if %> rebounded significantly today after yesterday's precipitous drop, regaining $3/4 to close at $13 7/8. The multi-market food service company represents quite a conundrum to investors; it is demonstrating weakening earnings power right before the company breaks into three separately traded companies, which would normally be viewed as a positive sign. MF Templar has been following Morrison Inc. in his Neocontrarian folder in the Let's Talk Investment Approaches message boards. Today he lowered his estimate of an attractive purchase price for Morrison Inc. based on information he got from the company today. Check the folder out for the details.

Believe it or not, another company has been converted into an Internet play. Innovex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:INVX)") else Response.Write("(NASDAQ:INVX)") end if %> rose $2 1/4 to $20 1/8 today after the market learned that its Iconovex software division will adopt JavaScript and provide it in future products. JavaScript, co-developed by Netscape Communications and Sun Microsystems, is a hot commodity in the Internet world; it is an open, cross-platform object scription language for the creation of Internet applications. Innovex's main line of business, however, is lead wire assemblies made for disk drives and specialty wires for pacemakers.

Arbor Health Care <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AHCC)") else Response.Write("(NASDAQ:AHCC)") end if %> led a rally in long-term healthcare stocks, rising $2 1/8 to $19 5/8 today. The stocks have been quietly creeping up over the past two weeks with some rising as much as 20-30% in the past two to three weeks alone---e.g., Living Centers of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:LCA)") else Response.Write("(NYSE:LCA)") end if %>, Integrated Health Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:IHS)") else Response.Write("(NYSE:IHS)") end if %> or Mariner Health Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MRNR)") else Response.Write("(NASDAQ:MRNR)") end if %>. The stocks were beaten up because of the Republican Medicare reform proposals. However, the conservative Democratic budget advanced today involved smaller Medicare reforms and sentiment might be changing for this troubled group.

Ramtron International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RMTR)") else Response.Write("(NASDAQ:RMTR)") end if %>, a development stage company that is trying to market FRAM chips---ferroelectric random access memory---began to recover a bit after being dropped on its head over the past month. The company rose $1 1/16 to $7 1/8 on moderate volume made up almost entirely of retail buying. This buying pattern suggests that many folks are still pushing the company as the next big technology break-through, enticing unwitting investors with talk of big deals with Japanese consumer electronics giants and the potential to get in on the ground floor of a new technology. Investors, however, should view this company with the same amount of caution that they would extend to an early stage biotechnology company; the technology has yet to be proven applicable to common consumer products and the product it would replace, DRAM, is not hard to find or expensive to produce.

GOATS

Acclaim Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AKLM)") else Response.Write("(NASDAQ:AKLM)") end if %> suffered a much-overdue tumble today, losing $6 7/8 to close at $12 5/8 in extremely heavy volume. The company reported that it would defer $18 million in fiscal 1995 revenues, waiting for the products to be sold before it recognizes the revenues. The real problem here is the 16-bit cartridge game market, which Acclaim holds a big part of, is fading faster than anticipated and is being driven more and more by price, meaning the fat margins of yesteryear are under pressure. The company gave analysts a pretty grim outlook for the critical holiday season. Analysts cut the company's fiscal first and second quarter to about break-even, dramatically cutting FY 1996 estimates to $0.35, way down from the recent $1.20-per-share level. Acclaim basically has no hits for the important Christmas season.

John Q Hammons <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:JQH)") else Response.Write("(NYSE:JQH)") end if %> fell $1 3/4 today to close at $8 1/4 when the company reported that it will have "nominal" earnings in its fiscal fourth quarter. Hammons is opening three new hotels and has run into unexpected costs associated with the openings. In addition to higher pre-opening costs, the company is experiencing pressures on operating margins and expects the first quarter of 1996 to be weak as well. Hammons owns the a number of hotel properties across the United States.

Mattson Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MTSN)") else Response.Write("(NASDAQ:MTSN)") end if %> took it on the chin today, losing $3 1/4 to $18 1/2 even as the company announced it has expanded manufacturing and application lab process facilities by over 50% to meet growing demand for its semiconductor equipment products. Could the low-volume technology stock have been taken out by a newsletter downgrade or an analyst's negative comments the Evening News does not have access to? Yep---it's possible. The company makes equipment for plasma strip, plasma deposition and rapid thermal processing. OnTrak Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ONTK)") else Response.Write("(NASDAQ:ONTK)") end if %>, a semiconductor equipment company which also announced last week it was moving to a bigger facility, lost $2 to $18 as well today.

Pixar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PIXR)") else Response.Write("(NASDAQ:PIXR)") end if %> had a run-in with reality today, losing $5 3/4 to $28 1/2 and continuing to fall from its opening day high of $49 1/2. The question investors are asking themselves here is, "Do we have a Netscape here or a General Magic." The Evening News casts its vote for the General Magic side of the equation. Pixar is a Steve Jobs-led enterprise focusing on revolutionary computer animation products; unfortunately, though, the company has no real earnings yet and a market cap that rivals Jobs' old outfit, Apple Computer. The company had its initial public offering the day after its high-profile movie Toy Story debuted. Investors apparently did not read the fine print in the prospectus claiming that Disney and not Pixar would earn the lion's share of the profits from Toy Story.

When it rains, it pours. Trimble Navigation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TRMB)") else Response.Write("(NASDAQ:TRMB)") end if %>, already battered recently, reported today that a temporary halt of product shipments would lower the fourth-quarter earnings total by about $0.12 to $0.15 per share. The stock was pounded $2 7/8 to close at $17 7/8 as a result. Trimble already has one high-profile disappointment under its belt this year. Trimble also reported that the delay would put a lid on the first quarter of 1996 as well. American Mobile Satellite <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SKYC)") else Response.Write("(NASDAQ:SKYC)") end if %> asked Trimble not to ship the product because it is having delays with the application it is developing for Trimble's GPS location technology. The lower first quarter will probably make earnings for 1996 flat when compared with 1995. The long-term growth rate of Trimble's exciting technology, however, remains about 30-40%, according to analysts, suggesting that if the stock goes much lower in tax-loss selling, it might be prudent to take a position. Thirty times 1996 earnings of about $0.60 would seem a fair price next year, which would be about $18 per share.

Bausch & Lomb <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BOL)") else Response.Write("(NYSE:BOL)") end if %> tumbled $2 5/8 to $35 3/8 today after the company announced that earnings in its fiscal fourth quarter would not meet expectations. Slower growth in Japan and reduced sales in Latin America are resulting from the increased popularity of single-use lenses, which cuts into Bausch & Lomb's cleaning solution sales. The company will only book about $0.40 to $0.50 per share of earnings in the quarter, opposed to analyst projections of $0.77. Things could be worse, however. The company lost $1.05 a share in the same period last year. The picture going forward is getting a little blurry for Bausch & Lomb.

INVESTMENT PERSPECTIVE: SRAMs Tripped Up By Foreign Suppliers

The market for semiconductors is slowly reaching equilibrium, removing many of the pockets of supply-demand imbalance that made these shares such favorites of institutions and retail investors alike over the last year. SRAM (Static Random Access Memory) manufacturers bore the brunt of the market's disfavor today when some analyst downgraded the lot based on product pricing concerns. Integrated Silicon Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ISSI)") else Response.Write("(NASDAQ:ISSI)") end if %> led the pack on the downside, losing $3 to $17 1/4, while Integrated Device Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IDTI)") else Response.Write("(NASDAQ:IDTI)") end if %> followed closely behind, falling $1 1/2 to $14 1/8. Not even the Internet hype could help LSI Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:LSI)") else Response.Write("(NYSE:LSI)") end if %>, which tumbled $3 3/4 to $41 as well on the bad news coming from the Far East.

Readers of this column will remember when last August, we covered in detail the implosion of the X486 chip market, as represented by Advanced Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AMD)") else Response.Write("(NYSE:AMD)") end if %>, OPTi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:OPTI)") else Response.Write("(NASDAQ:OPTI)") end if %> and Cyrix <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CYRX)") else Response.Write("(NASDAQ:CYRX)") end if %>. Consumer demand for lower-end chips didn't materialize the way that the makers of X486 chips needed it to in order to justify the amount of product they were pumping out. The blow-out in the 486 market actually might have led some to anticipate correctly the problems that would occur for lower-level Pentiums as well, given consumer fixation with the biggest, baddest CPU they can get.

What happens to all of this capacity, particularly the Taiwanese capacity, as factory output is quickly shifted to suit current demand? When 486s are no longer required, these companies start to pump out SRAM in large volumes, disturbing the imbalance in the market that allowed many of these companies to make big money over the last four quarters.

In ten words or less, why are these stocks off so much today? SRAM pricing is soft. Why is it soft? Because the Taiwanese are using excess 486 capacity to make more SRAM. Who should be worried? Any SRAM company which manufactures non-proprietary chips that do not require sophisticated manufacturing capabilities.

So, what if you own an SRAM stock that you believe the Taiwanese capacity cannot duplicate? Buckle your seat-belt. The market is not going to accord these stocks growth multiples until two things happen---SRAM pricing solidifies, and the resulting advisory sentiment turns positive again. Despite the more questionable speculations of many investors, the majority of analysts following the chip stocks are seasoned veterans, more familiar with the stark ups and downs which these issues provide than investors who first started buying the companies this year. Although one can call a lot of these analysts on the table because they were flat out wrong about calling this particular bump in the cycle, the plain fact is the bump is here and growth stock multiples will not return until the spot market gets a lot less volatile.

CALENDAR: Wednesday's Economic Events

---October Leading Economic Indicators (8:30)
---October Construction Spending (10:00)
---Federal Reserve "Beige Book" on US Economic Activity (12:00)
---ABC/Money Magazine Consumer Confidence Poll (6:30)

Byline: Randy Befumo (MF Templar)