INDEX:

I. Market News: Up Day
II. Heroes: KMart, Infinity Broadcasting, ReoPro
III. Goats: Unitech, United Airlines, Three-Five Systems
IV. Investment News: A Pat on the Back for the Dorf

MARKET CLOSE

DJIA: 5096.53, up 37.21 (+ 0.74%)
S&P 500: 610.49, up 4.55 (+ 0.75 %)
NASDAQ: 1040.65. up 15.38 (+ 1.50%)

MARKET NEWS

Hey! The rally continued, at least as can be measured by those darn indices we spent so much time talking down yesterday. Dorfman was in the spotlight when a company he skewered, Avid Technology, led a pack of companies into the tank. Broadcasting stocks in general did well on news that the impending telecommunications reform would be less restrictive than previously thought.

HEROES

KMart <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:KM)") else Response.Write("(NYSE:KM)") end if %> rallied $1 5/8 to $7 5/8 in what we are sure is a lot of short covering. The Board of Directors voted yesterday to cut the ailing retailers dividend entirely and look for strategic assets to sell off. KMart also got a credit extension, easing fears of a chapter 11 filing. As a term of this extension, KMart borrowings cannot exceed $2.7 billion -- a number they are actually pretty close to -- without the banks' consent. Finally starting to do the right thing (although the sale of more assets should be troubling to shareholders), the picture for KMart has improved slightly, although investors should not mistake today's short covering rally for any stamp of approval from the Street.

Infinity Broadcasting <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:INF)") else Response.Write("(NYSE:INF)") end if %> rallied $3 3/4 to $36 1/2 today on high hopes for the entire industry. Congress expected to approve a reform bill that would abolish the 12-station ownership limit enforced in radio -- provided the company in question doesn't have 35% of the audience. The speculation is that many television giants experiencing slow growth might start to add radio stations to their arsenal. There are a number of benefits from owning local television and radio stations, including cross-promotion and only requiring a single news organization for both operations. Infinity is perceived as a likely target because of the quality of its 27 stations, almost all in the top-10 largest U.S. radio markets. Also buoyed by the news:Clear Channel Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CCU)") else Response.Write("(NYSE:CCU)") end if %>, up $3 1/2 to $43 3/8, American Radio Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AMRD)") else Response.Write("(NASDAQ:AMRD)") end if %>, zipping up $4 1/4 to $25 1/2 and Evergreen Media <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:EVGM)") else Response.Write("(NASDAQ:EVGM)") end if %> surging $3 5/8 to $27 1/2.

ReoPro is a real pro at boasting the share price of Centocor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CNTO)") else Response.Write("(NASDAQ:CNTO)") end if %>, which rose $7 1/16 to $32 1/8 on news that yet *another* trial of the drug has been halted because of positive findings. Why would a study of the anti-clot drug be stopped because the news was positive? Because physicians saw that it was *so* effective that it would be unethical not to give it to the placebo group, including in any scientific test as a control. ReoPro was approved last year for patients undergoing angioplasty with a high risk of abrupt closure, a relatively small market. Now that it is being tested on unstable angina patients in general, the drug has a much larger potential. Some analysts were quoted as saying the potential for annual revenues for the $1350 a pop pharmaceutical would be $1 to $2 billion a year. Eli Lilly <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:LLY)") else Response.Write("(NYSE:LLY)") end if %> rose $4 to $55 1/4 as well on this news, as it is Centocor's marketing partner for ReoPro.

GOATS

Owners of Unitech Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:UTII)") else Response.Write("(NASDAQ:UTII)") end if %> must be reminded at this juncture that there's so much to live for in this world: sunny days, the smile of a child, the tender touch of a loved one. Thinking of all the beauty on this planet, it hardly matters at all that UTII slipped $8 1/2 to $2 1/4 today, right? It's only money. Penny stocks can be fun! What caused this 79% one-day drop, you ask? Well, first off, several of the company's top executives resigned after allegations of book-cooking. In addition, the company is having severe cash-flow problems that may cause it to default on some debts unless it finds some financing. Deep breath. Glass of wine. Time to put this one in the past.

UAL Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:UAL)") else Response.Write("(NYSE:UAL)") end if %>, the holding company for United Airlines, broke the back of the airline stocks today when it told the Street that its fourth quarter earnings will come in below expectations. The stock slipped $17 7/8 today, flying much lower now at $180 1/8. CS First Boston immediately downgraded the stock to hold as the company blamed the weather, low fare competition, a weak yen, lower yields and tough Denver comparisons for the deficit. First Boston cut its estimate for the quarter to $2.60. The consensus had been at $3.17. Just about anything having to do with planes slumped on this news, with AMR Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:AMR)") else Response.Write("(NYSE:AMR)") end if %> down $2 3/8 to $73 3/4, Delta <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DAL)") else Response.Write("(NYSE:DAL)") end if %> flying lower by $2 3/8 at $74 5/8 and Federal Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:FDX)") else Response.Write("(NYSE:FDX)") end if %> getting nicked $3 1/8 to $69 1/8. Putting this in perspective: 1995 will still be hands down the most profitable year for the airlines since deregulation. Check out MF Wings' take on this in the Airlines folder on the Industry boards, as she posts about this industry on almost a daily basis.

Continued product delays for Three-Five Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:TFS)") else Response.Write("(NYSE:TFS)") end if %> pressured the Arizona-based electronic component manufacturer down $1 5/8 to $18 1/4. Three-Five Systems went as high as $40 in 1994 as the maker of digital displays for Motorola cellular phones enjoyed exploding profits. What a difference a year makes. The company's net could be as low as $0.10 EPS as manufacturing inefficiencies, delayed product expenses, lower margin products, new products with high start up costs and higher research and development costs all compounded to crush the stock. "This has been one of the most painful and frustrating years that the company has experienced," Chairman David Buchanan said today. We are sure shareholders agree. MF Yon, who follows Zonie companies closely in the Folly in Arizona folder, might have some interesting thoughts on today's action.

INVESTING PERSPECTIVE:

Quite honestly, it gets real scary when Dan Dorfman makes one accurate call.

When the CNBC "financial correspondent" said on December 14th that Avid Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:AVID)") else Response.Write("(NASDAQ:AVID)") end if %> could lose as much as 50% in coming weeks on due to slowing revenue growth, I filed it away like most Dorfman recommendations in my mental wastebasket.

That husky, wheezing voice came back to my mind today when I glanced at Avid's price at the close today, which fell $10 5/8 to $19 -- this after striking its all time high of $49 1/4 just a few short weeks ago. More than 50% of the outstanding shares traded -- virtually all of the shares that could trade, taking out positions held by insiders.

Why was almost ever shareholder of Avid selling their shares at the open this morning? The company warned that the fourth quarter revenues would be at or below the third quarter's $114 million, while earnings are forecasted to be below the third quarter's $0.43 EPS. Analysts had been expecting $0.50 EPS, compared to the $0.40 EPS the company earned in that quarter a year ago.

''While we believe our business remains fundamentally sound, our revenues this quarter have been affected primarily by lower-than-anticipated sales of high-end broadcast products, some deferral by customers of decisions to purchase certain post production and audio products and lower-than-expected sales of recently introduced desktop products,'' Avid said today.

Well, it looks like whoever talked to Dorfman was right. Pretty scary, hunh?

Avid Technology competes with Sonic Solutions <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SNIC)") else Response.Write("(NASDAQ:SNIC)") end if %>, a big loser for the Fool Portfolio that was dumped last month. They do digital media, basically, making software and hardware for "capturing, creating, editing and distributing" the stuff. The company's products are used in post-production facilities; production companies; network, independent and cable television stations; advertising agencies; educational institutions and corporate film and video departments "worldwide."

Digital video is actually covered on the Motley Fool by our own MF Ben, who follows Avid as well as Silicon Graphics, C-Cube Microsystems and a host of other hot stocks. Although as I write this he has not checked into the Fool to post his comments on Avid's drop, I am sure he will be along later to add his input to today's debacle.

Before everyone runs for the exits on this stock, I think some attention needs to be paid to the fundamentals here. Avid maintains that its fundamentals remain sound. If the company reports $0.35 EPS, which would be a disappointment with gross margins remaining at 50%, they would still beat last year's cumulative numbers by roughly 20%. Although the ambitious estimates of a 44% increase in earnings going into next year might be toned down to a more reasonable 30%, at about 20 times our guess at 1995 earnings today the stock looks pretty cheap.

The real question here is how did Dorfman call it? I think it is key to remember that Dorfman basically runs around talking to money managers and other members of the Wise looking for hot little stories to spice up his two-minute CNBC spot. The people who talk to Dorfman are not doing it out of the kindness in their hearts -- they either want to move a stock or make a name for themselves with a great call.

Glendale Federal Savings <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:GLN)") else Response.Write("(NYSE:GLN)") end if %>, Dorfman's tout today, was up $1 to $17 7/8 -- probably because the Avid call was so recent it clicked off in many people's minds today. "Hey, Dorfman was right last week ... could he be right again?" Although I would never say Dorfman is always wrong, anyone who bought Glendale today must keep in mind that the man is not an analyst, he is a mouthpiece for people with agendas.

That said, maybe doing some homework on his recommendations might not be a *complete* waste of time. Give the little guy some credit today.

Byline: Randy Befumo (MF Templar)

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