INDEX:

I. Market News: Market Slips Into Weekend
II. Heroes: Helix, Unitech, Centocor, Bell Bancorp, Morrow
III. Goats: Apple, KMart, Jabil Circuit, Drypers, Hologix, Iomega
IV. Investment Perspective: The Commodity Story for DRAM
V. Calendar: Monday's Economic Events

MARKET CLOSE

DJIA: 5176.73, down 5.42
S&P 500: 616.34, down 0.58
NASDAQ: 1030.54, down 7.65

MARKET NEWS

After a rocky week for the stock markets, today's slight slide is actually a calm patch. Of the three major indices, only the DJIA managed to post a gain for the week, up less than half a percent. The S&P 500 and the Nasdaq both were losers for the week; the S&P dropped just a fraction but the Nasdaq shed 3%.

HEROES

MF Templar's Neocontrarian portfolio actually managed to post a respectable day in the midst of a technology sell-off. Closely held yield hog Helix Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HELX)") else Response.Write("(NASDAQ:HELX)") end if %> popped up $1 to $32 3/4 after it got a tout in the most recent issue of Business Week from Theodore O'Neill of H.C. Wainwright. O'Neill says that the stock is worth $50---the same target price MF Templar quoted in his folder (in the Let's Talk Investment Approaches area.) Wainwright sees earnings of $2.10 this year, $2.66 next year and $3.00 in 1997---20% annual growth. Helix tumbled last week when Louis Naviller's MPT Review told subscribers to sell. Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ORCL)") else Response.Write("(NASDAQ:ORCL)") end if %> also helped to buoy MF Templar's tech-laden portfolio, rising $1 1/2 to $43 3/8 today after it beat consensus estimates last night by 7%. Still, he is down about 10% since he started his small real-money portfolio last August, while the Nasdaq has risen 4% and the Dow and S&P 500 have both gone up 10%. Is a turnaround in the making?

The "New CEO Effect" was at work on two stocks today. Unitech Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:UTII)") else Response.Write("(NASDAQ:UTII)") end if %> gained $1 3/8 to $11 1/4 after CEO John Londelius announced his retirement and Gerald Bellis was named his successor. Bellis will also be Chief Operating Officer. A new CEO at New England Business Service <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:NEB)") else Response.Write("(NYSE:NEB)") end if %> had the opposite effect, however, with shares falling $1 7/8 to $20 7/8 after Robert J. Murray was named chairman, president and CEO following William C. Lowe's resignation.

Good news at Centocor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CNTO)") else Response.Write("(NASDAQ:CNTO)") end if %> was bad news for COR Therapeutics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CORR)") else Response.Write("(NASDAQ:CORR)") end if %>. Centocor was up $9 3/4 to $24 today after its 4,800 patient EPILOG trial for its ReoPro drug showed "positive interim results." ReoPro is an anti-platelet drug for patients with a high risk of abrupt artery closure. The trial was halted after only 1,500 patients were examined because the results were so favorable. Montgomery Securities, which started coverage on the company with a "buy" on Monday and suggested a 12-month target of $23-25, must have been gratified today. Smith Barney, four days late, upgraded the shares to outperform and cut COR Therapeutics to neutral in the same breath. COR, which makes a competing product, was off $2 5/8 to $9 on the news. In other biotech news, MedImmune <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MEDI)") else Response.Write("(NASDAQ:MEDI)") end if %> gained $2 1/4 to $18 1/2 today after an FDA panel recommendation of its Respiratory Syncutial Virus Immune Globulin Intravenous (RSV-IGIV) product. RSV-IGIV is an immune globulin that has been enriched with antibodies against the respiratory syncutial virus. The drug will potentially prevent RSV in children under 24 months who have bronchopulmonary dysplasia or who have been born prematurely.

Cannot have a day without a bank buy-out. A mercy-merger is probably the right term, given that there are simply too many banks out there. Standard Fed <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SFB)") else Response.Write("(NYSE:SFB)") end if %> bought Bell Bancorp <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BELL)") else Response.Write("(NASDAQ:BELL)") end if %> for $37.50 per share in cash today, or about $354.1 million. Bell also might get to issue more shares at $33 each if certain conditions are meant. Illinois-based Bell was up $3 15/32 to $35 23/32 today---only 1.15 times book value. So much for the 2.0 and greater prices we have seen in recent months.

Recently offered to the public at $11 a share, Morrow <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MRRW)") else Response.Write("(NASDAQ:MRRW)") end if %>, a competitor of old Fool favorite Ride Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RIDE)") else Response.Write("(NASDAQ:RIDE)") end if %>, rose $1 to $14 today on no news. The Morrow message board on the Fool is pretty active, though, and many of the participants, who also were right on Ride Inc. all the way up, have voiced their opinions on the stock. Check out the board and see what they think of Morrow---a cheaper play than Ride Inc. on snowboards? or overvalued already?

GOATS

Apple Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AAPL)") else Response.Write("(NASDAQ:AAPL)") end if %> announced revised expectations on profits and sales for the first quarter today, sending the stock down $3 to $35 1/4. The fact that revenues are below the company's internal projections, and that this will result in a loss for the first quarter, should come as no surprise to regular Evening News readers. Our last story on Apple Computer on October 19th suggested that price cuts gouging the company's once fat gross margins would cause the stock to underperform. We got some angry attention in the folder out on the stock boards from die-hard Mac-heads. Apple reported today, however, that its gross margins would dip below the 20.7% it had previously forecast, partially a result of the 25% price cuts the company just announced. Our take remains that unless the company breaks itself into three parts (computer manufacture, software and peripherals), or an even more unlikely scenario---is bought out---it will continue to underperform.

While we are revisiting our past poorly received bearish forecasts, who could miss KMart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KM)") else Response.Write("(NYSE:KM)") end if %> tumbling another $1 1/4 to $6 1/4 today---down 17% in one day. Although we did pass up the opportunity at the beginning of the month to badmouth KMart when the company discovered that it could not unload its Canadian properties---no one wanted them---we could not let today's release of the 10-Q slip by. At issue is KMart's attempt to try to get two former subsidiaries to reimburse the retailing giant for its "putable" debt, or having to do with real estimate. KMart wants Borders Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BGP)") else Response.Write("(NYSE:BGP)") end if %> and OfficeMax <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:OMX)") else Response.Write("(NYSE:OMX)") end if %> to give it $26 million if its debt goes below investment grade. The ex-subsidiaries have refused. KMart is having difficulties with short-term cash flow, and has drawn $2.4 billion on its lines of credit, including $140 million for the lame Canadian subsidiary, in direct contradiction of previous statements that its short-term borrowing would "peak at $2.1 billion." The stock hit another multi-year low amid growing concerns about liquidity problems which might lead to bankruptcy as lowered debt ratings and tightening credit requirements could do the company in. Although the company called these rumors unfounded, the fact that OfficeMax and Borders had been dragged into the fray was enough to drag them down as well; OfficeMax was off $1 to $18 1/2 and Borders fell $3/4 to $15 3/4. Another stock we raised valuation concerns about in our Internet columns, Global Village <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:GVIL)") else Response.Write("(NASDAQ:GVIL)") end if %>, joined the crowd and fell $2 1/4 to $18 1/2 today.

Company and analyst comments pulled down shares of a mixed bag of stocks today. Jabil Circuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:JBIL)") else Response.Write("(NASDAQ:JBIL)") end if %>, a manufacturer of circuit board capital equipment, lost $9 1/4 to $12 3/4 today in spite of reporting quarterly earnings 158% above the same quarter a year ago. The company was down after an analyst at Gerard Klauer cut the stock's rating on the company's comments that its second and third quarter would come in below current expectations because of a product transition. Key Tronic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:KTCC)") else Response.Write("(NASDAQ:KTCC)") end if %> also suffered from the harsh hands of an analyst today, down $1 1/8 to $8 3/4 when Piper Jaffray cut earnings estimates, even as it reiterated its "strong buy" rating. Key Tronic makes computer keyboards and digital input devices. Telecommunications equipment manufacturer Acme-Cleveland <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AMT)") else Response.Write("(NYSE:AMT)") end if %> fell $3 3/4 to $16 3/4 today after the company guided the Street down regarding next quarter's earnings. The company will make about one-half of what analysts expected. Readers of MF Boring's folder should not be surprised, as he has been negative on the shares for a few weeks now. See if he agrees with Schroder Wertheim analyst David Pizzimenti on the stock. Pizzimenti did not lower his 1996 estimates or his outperform rating on the stock today. Will the lower valuation make MF Boring turn positive on the shares?

Yesterday's profits disappeared today for shareholders of two companies, one a has-been and one a hot new item. Investors were getting out of Dryper's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:DYPR)") else Response.Write("(NASDAQ:DYPR)") end if %> today after the hoopla over the last two days about an improving cost structure and industry consolidation died down. The stock dropped $1 5/8 to $3 1/2. Investors in Wayne Huizenga's latest offering, Extended Stay America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:STAY)") else Response.Write("(NASDAQ:STAY)") end if %>, took profits from yesterday's IPO today, as the stock fell $4 1/4 to $23 1/4. Extended Stay is building long-term hotels for executives who have been moved by a company but have not found a home yet. Huizenga, who founded WMX Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WMX)") else Response.Write("(NYSE:WMX)") end if %>, brought Blockbuster to fame, fortune, and then a big buy-out by Viacom <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:VIA\A)") else Response.Write("(AMEX:VIA\A)") end if %>, has caused stocks to move before. When people learned of his involvement in Republic Waste <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:RWIN)") else Response.Write("(NASDAQ:RWIN)") end if %>, the shares zoomed. Can he work the same magic for Extended Stay, with only two locations operating right now? Your guess is as good as ours.

Companies that recently announced splits and secondary offerings gave up some gains today. Hologix <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:HOLX)") else Response.Write("(NASDAQ:HOLX)") end if %>, which filed yesterday to split the stock two-for-one and issue 1.2 million more shares, fell $2 to $37 1/2. Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IOMG)") else Response.Write("(NASDAQ:IOMG)") end if %>, a name virtually synonymous with the Fool, lost $5 3/8 to $45 5/8 the day after the company said it would split the stock three-for-one and offer 5.25 million more shares. Another Fool message board discovery, Structural Dynamics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SDRC)") else Response.Write("(NASDAQ:SDRC)") end if %>, went against the grain today by rising $1 1/4 to $26 1/8 on continued good feelings about George Soros's massive stake in the company and hope that an impending $200 million contract will come through. Tune into the respective folders for more details on all of these stocks.

INVESTING PERSPECTIVE: Micron's Meltdown

Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:MU)") else Response.Write("(NYSE:MU)") end if %> reported $1.51 in earnings per share last night after the market closed, but it was not the income line of the Statement of Operations that grabbed investor attention; rather, it was the statement that some customers were negotiating lower *contract* prices for Dynamic Random Access Memory (DRAM) chips. Although it is general knowledge that the spot market for DRAM has been off for weeks, sparking a high-profile downgrade by Rick Whittington of SoundView Financial and a controversial liquidation of Micron from Fidelity's Magellan fund, managed by Jeff Vinik, there have been no public comments from any of the DRAM companies about contract prices until today.

In a word, this news was awful.

Micron Technology fell $5 to $45 today, as Rick Whittington of SoundView dumbed down his earnings estimates yet again. Whittington, who has been the target of hostility from most of the Micron Technology stock board participants, has been calling the stock correctly all year---although one wonders why he let his estimates get so high in the first place, given the commodity pricing environment for DRAM. Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TXN)") else Response.Write("(NYSE:TXN)") end if %>, also big into DRAM, lost $3 3/4 to $49 as well. In fact, just about any chip-related stock lost money today, regardless of whether it was tied directly into the contract DRAM price.

Micron's exact words were that pricing for memory chips in the first quarter would be "moderately lower" than prices were this quarter. The prices for DRAM have historically declined about 20-30% per year until 1995, where they remained frozen as incredible demand exceeded the potential supply. With Micron's much ballyhooed estimates coming down and pricing coming back under control of customers, the company's ability to generate triple-digit earnings-per-share gains seems ancient history. Micron remains the lowest-cost producer of DRAM in the world and has been able to reduce costs by getting more from smaller die sizes. However, the spectre of returned cyclicality to the chip market, which has been solidifying over the past two months, is now quite a terrifying one for investors. Rather than looking to solid growth companies like Intel Corp. or Compaq for an idea of what multiple Micron will trade at next year, investors are better served taking a peak at International Paper, Stone Container, Alcoa and General Motors. Why? Because that is how cyclicals get priced when there is concern about a downturn in growth until the next up leg in the cycle.

Many investors have been deluded into believing that semiconductor companies would garner above-market multiples to reward their spectacular growth from here on out; that belief, however, will probably be shattered over the coming months. Certainly, I remain bullish long-term on a host of technology companies, focusing on markets were secular demand remains tight for the next three to five years, where their is a semi-proprietary nature in the technology, where there are only a few competitors that can be tracked rigorously, and where the costs of customers are reduced as a result of the products being sold. None of these criteria really fits the DRAM market, though, which has massive capacity coming online over the next three to five years in the face of flagging prices.

Many technology stocks are priced now as cyclicals, and they will stay so unless they demonstrate a transition into secular growth companies, with the ability to produce solid, above-market returns year in after year out. Capital equipment stocks, also traditionally cyclical, are another area which has been hammered in the broad-based technology sell-off. The semiconductor equipment stocks, although they will probably never trade at multiples equal to their current rate of growth, can easily trade at between 12-18 times next year's earnings, with some, in fact, getting higher multiples because of their dominance in a particular business niche and takeover potential.

Technology stocks face the challenge of being forced to prove that they can generate solid growth in order to warrant high multiples. Software and networking stocks have pretty much met this test, but computer manufacturers, telecommunications equipment makers, capital equipment makers and chip companies have not passed this test yet in the Street's eyes. The PC makers had a rough go of it today in part because of Micron's news, in part because of Apple Computer's news, and in part because of bad news from the retail side.

There is concrete evidence that the outrageous ardor for personal computers which has been burning in the consumer breast has cooled in recent weeks. Best Buy's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:BBY)") else Response.Write("(NYSE:BBY)") end if %> anemic earnings were enough to pull it down $1 to $17 1/8---a new 52-week low. The company stated that it missed earnings in part due to flagging PC demand. This is on top of Office Depot's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:ODP)") else Response.Write("(NYSE:ODP)") end if %> implosion for the same reason a few days ago, losing $3/4 more today to close at $20 1/4. OfficeMax <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:OMX)") else Response.Write("(NYSE:OMX)") end if %>, which had the additional burden of being tapped by KMart for dough, fell back $1 to $18 1/2. Tandy <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TAN)") else Response.Write("(NYSE:TAN)") end if %> losing $3 to $37 1/4, CompUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CPU)") else Response.Write("(NYSE:CPU)") end if %> off $3 to $30 3/4 and Circuit City <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CC)") else Response.Write("(NYSE:CC)") end if %> down $1 1/4 to $28 do not even come close to completing the list of retail stocks hit by perceived softness in PC demand. If it *sells* computers, it was down today, rest assured.

All this news simply reaffirms my conclusion that the easy money in technology stocks has been made. Investors should be looking for companies that will generate solid profit growth three to five years out rather than banking everything on whether or not some definite cyclicals will transform themselves into growth stocks in the years ahead.

CALENDAR: Monday's Economic Events

---13- & 26-Week Treasury Bill Auctions

Don't forget to play the FoolBowl Blowout before the college bowl season kicks off tomorrow evening.

Byline: Randy Befumo (MF Templar)