INDEX:

I. Market News:
II. Nice: Unitech, Corvas, Wabash, Advant
III. Naughty: PST Vans
IV. Investment News: Internet Infrastructure

MARKET CLOSE

DJIA: 5097.97, up 1.44
S&P 500: 611.96, up 1.47
NASDAQ: 1046.88, up 6.24

MARKET NEWS

A nice little day to send us off toward Christmas with a spring in our steps. All three indices hopped up slightly, hoping Santa might notice and deliver a big fat bull under the tree on Monday.

NICE

Bottom fishers were out in force this morning, leaping on shares of Unitech Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:UTII)") else Response.Write("(NASDAQ:UTII)") end if %>, pushing it up $1 1/8 to $3 3/8. The shares had been savaged in heavy trading yesterday after the company announced that previous quarterly reports were barely worth the paper they were printed on. Yesterday, you woulda lost 79% on this stock. But if you bought at yesterday's closing bell, you're up 50%. Still, caution is warranted given that the shares have a tangible book value of about 24 cents *before* prior financial statements are corrected to reflect the actual losses this company has been racking up over the past year. We are pulling the yellow card out on this one: AVOID.

Corvas <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CVAS)") else Response.Write("(NASDAQ:CVAS)") end if %> leapt $1 5/8 to $5 apparently due to its business ties with fellow bio-tech Centocor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CNTO)") else Response.Write("(NASDAQ:CNTO)") end if %>. CNTO zoomed up yesterday on news that its angina drug ReoPro has been incredibly effective in testing. In fact, the entirte biotech group was strong today, with Anergen <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ANRG)") else Response.Write("(NASDAQ:ANRG)") end if %> up $1 1/16 to $3 15/16 and Magainin Pharmaceutical <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:MAGN)") else Response.Write("(NASDAQ:MAGN)") end if %> up $1 7/8 to $12. Sector rotation, also known as "follow-the-leader, loser-wins-nothing" is one of those hot market approaches the Wise love and Fools shake their collective heads at, bemused.

Bargain hunters aimed their arrows at Wabash National Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:WNC)") else Response.Write("(NYSE:WNC)") end if %> today, pushing shares up $1 7/8 to $23 1/4 today. The maker of equipment for railroad companies was wounded a week and a half ago when it reported its next quarter would not come in as expected. Ladenburg Thalmann upgraded the stock to a strong buy a few days later based on the valuation and the long term prospects for their "RoadRailer" product, a car that can be hooked up to a truck or easily put on a train. Readers of MF Rails folder did not need to be told by Ladenburg about the prospects of this product -- MF Rails has been waxing poetic about it for months. Check out his folder for the details of where he sees Wabash National going over the coming months.

Advant Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ADVS)") else Response.Write("(NASDAQ:ADVS)") end if %> got a helping hand from Morgan Stanley's Robert Austrian today when he upgraded the shares from "outperform" to "strong buy." The shares were up $1 1/2 to $16 3/4. Morgan, which helped to underwrite the company's IPO last month, might not be the most objective source for investment information regarding this company, as the investment firm recently got paid a couple million for doing the deal. MF IPO out in the IPO investing folder might have some more balanced comments to make about Advant if you are interested in confirming whether or not this is truly a "strong buy."

NAUGHTY

Trucking stocks have not been the place to be this year. PST Vans <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PSTV)") else Response.Write("(NASDAQ:PSTV)") end if %> was only the latest of the group to crumble below the $5 mark, losing $7/8 to $4 3/4 today after it reported that the fourth quarter outlook was grim. Soft freight demand, depressed rates and an insurance claims reserve will add up to a loss of $0.25 to $0.35 EPS. Alex Brown cut the stock to "neutral" from "buy" on the news. In the near term, one might want to comb the list of trucking firms to find another with the same basic market as PST Vans and Arkansas Best <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ABFS)") else Response.Write("(NASDAQ:ABFS)") end if %>, which has also suffered in recent days, for a nice short. Longer term, you might consider looking for some assets to purchase at $0.50 on the dollar and tucking the shares away for a few years until the overall economy is booming again.

INVESTING PERSPECTIVE: Internet Infrastructure

When gold was discovered at Sutter's Mill on January 24th, 1848, the rush of speculative excess that followed it was sufficient to transform San Francisco from a sleepy frontier settlement to one of the dominant cities in California virtually overnight. As thousands of prospectors from the East Coast flooded West, struck by "gold fever," the store owners and innkeepers of San Francisco raked in the bucks for frenzied men and women hellbent on scouring the hills around the city for their quick and easy gold mine.

The dream of easy profits did not translate into reality for the vast majority of these out-of-towners, given the fixed supply of gold was limited but the apparent supply of people digging for it was infinite. Although many of the East Coast crew gradually straggled out of the city with empty stomachs and lint in their pockets, the Gold Rush made rich men and women of those canny enough to realize that there was more money to be made in supplying and feeding gold miners rather than looking for the gold.

Today we turn on CNBC every day and hear news of another Gold Rush -- the "Internet." The exuberance of the table-pounders for Internet companies is only surpassed by their fuzziness as to how many of these companies will make their money and what exactly the "Internet" really constitutes. A motley collection of commercial online services, World Wide Web access providers, developers of graphic-user interface (GUI) browsers and so-called "content" providers have been lumped together with various camps championing one over the other as the quintessential "Internet" play. "There are millions to be made in commercializing the Internet," almost all of these pundits will agree -- just who will dig up all that gold is the only thing that is up in the air. "An industry in its infancy," they whisper, holding forth the Golden Fleece of proprietary software products and retail businesses with fat gross margins due to low overhead costs attendant with small inventories and staff requirements.

When these mavens say "Internet," they are conflating a diverse mix of industries and slapping a convenient rubric on them that means nothing. The prospects for those that develop browsers, those that develop content, those that develop networks and those that provide access to those networks are by no means uniform -- in fact, for any one of these to be a winner, it in some way, shape, or form must succeed at the expense of another. The analogies to the early days of the telephone and attempts to suggest that one of the software companies could provide the "dial tone" or that the Internet access companies that will own the "telephone lines" are as invigorating as the are head-scratchingly perplexing, given that both of those products already exist and would require well-established mega-corporations be displaced by tiny little Davids.

A student of history, as all true Fools are, is moved in the midst of frenzy and speculation to ask the question, "How do I become an innkeeper in modern day San Francisco?" The flood of people for the Gold Rush, as we mentioned, brought wealth and prosperity to San Francisco. With the "Internet" not requiring a collection of people in one specific geographical location, I think it is safe to say we can avoid the breakdown in the social order that attended the inability of San Francisco to meet the basic needs of the thousands who flooded in, complete with roving gangs of thugs and equally savage "Vigilance Committees" that sought to enforce the law.

Who will be running the steamships and overland stages that will bring customers to the Internet? One of the modern day San Franciscos actually shares some syllables -- Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CSCO)") else Response.Write("(NASDAQ:CSCO)") end if %>, one of the 800-pound gorillas in the networking equipment market. With 3Com <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:COMS)") else Response.Write("(NASDAQ:COMS)") end if %>, Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:BNET)") else Response.Write("(NASDAQ:BNET)") end if %> and Cabletron Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:CS)") else Response.Write("(NYSE:CS)") end if %>, Cisco shares the vast majority of the market for routers, hubs and switches that make network connections possible. No content provider, for instance, is going even be able to get out to the larger network called the "Internet" without a hub (or patch panel) and a router to send stuff outside their office. The competition for "bandwidth" that MF MOM is always harping on in the Networking folder out in the Industry message boards is relevant to the market for switches, which many of these giants are either thinking about or already in to some degree. Switches are intelligent CPU-like devices that "switch" packets of data back and forth between multiple connections in order to ensure no one connection becomes backed up. Ascend Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ASND)") else Response.Write("(NASDAQ:ASND)") end if %> is one of the few pure plays in switches available, which is one of the reasons why it trades at 100 times or more earnings.

A glance at the valuations of the big guys, without looking at some of the more questionable niche players like Netstar <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:NSTR)") else Response.Write("(NASDAQ:NSTR)") end if %>, etc., is heady. These are not companies that you buy because they have low PEGs. (For more information on what a PEG is, check out the Fool's School article called, "The Fool Ratio, AKA PEG."). Cisco has a PEG of 0.94, Bay Networks 1.16, Cabletron 1.31 and 3Com 0.98 (a score of 1.0 suggests fair valuation, below is attractive and above is overvalued). However, these infrastructure companies are not being valued off of their trailing earnings, but estimated earnings going forward. For instance, if Cisco can make the $3.54 that analysts are expecting for 1996 and trade at 30 times earnings, it would be a $106 stock. With profits increasing at about 33% a year, the stock price would expand at about that clip in order just to keep up.

Individual investors tend to ignore these companies that are building the infrastructure all Internet companies will operate in because they are not quite as sexy anymore. Whereas one can suggest you might make 30-40% in Cisco over the next 12 months, it ain't gonna double like one of the more speculative Internet companies "might." The desire to hit home runs as opposed to winning games with singles and doubles ain't so Foolish. Hubs, routers and switches are going to be the equipment required for any or all of these companies to thrive. Considering them for "Internet" exposure in your portfolio rather than a more seductive stock might be worthwhile.

Happiest of holidays, Fools!

Byline: Randy Befumo (MF Templar)

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