INDEX:

I. Market News: Light Trading---Market Sits Still
II. Heroes: Epitope, Corvas Int'l, Zoran, Analytical Surveys
III. Goats: Personnel Management, Pier One Imports
IV. Investment Perspective: Data Storage Day
V. Calendar: Wednesday's Economic Events

MARKET CLOSE

DJIA: 5110.26, up 12.29
S&P 500: 614.30, up 2.34
NASDAQ: 1049.37, up 2.48

MARKET NEWS

Traders were still digesting holiday dinners today and no one felt much like getting involved in the market. Light volume and virtually flat results for the three major indices as a result. Go ahead, eat that last piece of pie; you know you want it!

HEROES

Epitope <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX:EPT)") else Response.Write("(AMEX:EPT)") end if %> celebrated today, up $4 1/2 to $17 7/8 after announcing that it received notification from the Food and Drug Administration that a premarket approval application (PMA) to market its HIV-1 oral testing device is approvable. Adolph J. Ferro, president and CEO sees the FDA determination as "a significant milestone in [their] efforts to offer reliable HIV testing without blood or needles. The ability to offer an HIV testing system based solely on an oral specimen will result in broader access to HIV testing." As well as good news for the stock, Fools have to cheer any advance which makes HIV testing more accessible.

Corvas International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CVAS)") else Response.Write("(NASDAQ:CVAS)") end if %> added to last week's gains today, up $1 1/2 to $6 1/2. Corvas is among many biotechnology companies whose stocks surged in the wake of Centocor's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CNTO)") else Response.Write("(NASDAQ:CNTO)") end if %> announcement of positive trial results for ReoPro. Angela Hartley, Corvas' manager of investor relations also believes Corvas is getting an additional benefit from Centocor's announcement because of a product licensing agreement with Centocor for Corvas' Corsevin M anti-clotting drug, which has shown results "similar to ReoPro" in Phase I trials.

Zoran Corporation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ZRAN)") else Response.Write("(NASDAQ:ZRAN)") end if %> continues to pile on gains after its recent successful initial public offering, which was managed by Oppenheimer, Furman Selz and Unterberg Harris. ZRAN came public in mid-December at $13.50 a share and isn't looking back, piling on another $4 1/4 to $20 today. Zoran develops and markets integrated circuits for digital video and audio compression applications.

Analytical Surveys <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ANLT)") else Response.Write("(NASDAQ:ANLT)") end if %> climbed $1 5/8 to $9 3/4 on Friday's news that it is acquiring privately-held Intelligraphics for $3.49 million in cash and 230,000 shares of restricted stock. ANLT is a leading provider of digital mapping and Geographical Information Systems (GIS) database services. Intelligraphics designs, creates and maintains the data systems required to operate process automation systems for GIS, automated mapping and facilities management programs. The acquisition will expand Analytical Surveys' data conversion capabilities to a new base of municipal and utility customers.

GOATS

Personnel Management <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TPMI)") else Response.Write("(NASDAQ:TPMI)") end if %> announced Friday that it will have to restate financial statements for fiscal 1995 to correct accounting errors. They can't blame the Port Folly monks for this one, and their numbers won't be pretty after the restatement. The market crushed them today as a result, down $3 to $5 3/4. Vice President and CFO James Burnette resigned his positions and seats on the company's board of directors.

Pier One <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:PIR)") else Response.Write("(NYSE:PIR)") end if %> was hammered today, down $1 1/2 to $10 1/2 after announcing a trading scandal. "Did you say trading scandal? Pier One Imports?" That's right. The college student's favorite furniture and home furnishings outlet reported that it will have a $20 million pretax loss related to what the company called "inappropriate trading activities." Analysts said that Pier One discovered on Friday speculative trading in an account managed by an outside consultant. The company has hired legal counsel to take whatever actions seem appropriate. The loss is expected to lower fourth-quarter earnings by roughly 30 cents per share.

INVESTING PERSPECTIVE: Focus on the Internet, Part 2

It seems like every newspaper and magazine story about the "Internet" comes from the same source, with the writers simply taking alternating views on the subject. Hype. . . skepticism. . . hype. . . skepticism. . . hype. . . skepticism. Just dig up Michael Murphy and Steve Case and you have something to run on your front page. After every one these ill-conceived hyped and skeptical stories, any concrete sense of what is going on with an entirely new medium seems to evaporate. It becomes increasingly difficult for the individual investor (and the professional, for that matter) to get any useful informational about what is really going on with the medium. Many investors are being driven toward flashy "Internet" plays rather than sensible alternatives. Suddenly, "investments" in Netscape become "sensible" in a universe where any useful information has been concealed by sensationalism and the ignorance of the majority of writers.

On Friday, I dwelled for a while on how the Internet, so named because it is the "internetwork" of a myriad of local-area networks (LANs) and wide-area networks (WANs), would cause sales of the hubs, routers and switches that create its backbone to increase at a solid pace for some time to come. This, however, is only a small part of the picture. My mantra has been "The Internet will drive sales of networking and data storage products in its early growth stage." If you repeat this to yourself a couple dozen times, you either come to cosmic consciousness or get some inspiration on which investments to make in order to participate in the online revolution, depending on what you're after.

We dealt with the networking end of the equation on Friday, so today is data storage day. As traditional databases have given way to data warehouses, the increasing sophistication of storage products has afforded content providers an expanded range of possibilities that can be accomplished online. The commercialization of the World Wide Web requires databases to hold information for access, take orders and spit them out to order centers and take demographic information for advertisers to pore over. Whereas networking products are the backbone of the connections to the Internet, the backbone to content providers will be databases and data warehouses.

Smaller content providers will be able to customize off-the-shelf products like Microsoft's FoxPro to perform these functions. Larger companies with money to invest and a burning desire to go online will turn to the foremost database providers, companies like Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:ORCL)") else Response.Write("(NASDAQ:ORCL)") end if %> and the industry's number two, Informix <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:IFMX)") else Response.Write("(NASDAQ:IFMX)") end if %>. With both of these behemoths pushing one billion in sales each quarter, they are turning toward new markets like the "Internet" to accelerate their growth and maintain their 30-40% annual revenue growth.

Oracle has been waxing poetic about the Internet since last year and its front-man, Larry Ellison, is, along with Sun Microsystems, the biggest proponent of the "Internet dumb box." Ellison, who seems bent on passing Microsoft and becoming number one in software, sees the Internet as his opportunity to set new standards and remake the application market more in Oracle's image. Informix is equally excited about the Internet---so excited in fact that they acquired Illustra Information for 12.7 million Informix shares. Informix plans to integrate Illustra's content management products with their own core parallel database technologies to provide a single packet for the modern content provider.

The valuations on these companies are aggressive, just like the networking companies. These are not small-caps you snap up because they sport P/Es that are half their rate of growth. Rather, these are companies you look further forward, with the ol' 5PEG (or YPEG). The 5PEG takes the five-year rate of growth (which can be found online in FirstCall) and takes that as a fair multiple on next year's earnings. For instance, Oracle is expected to make $1.86 a share in 1997, with a 33% five-year growth rate. $1.86 multiplied by the 33 multiple would be suggests it should be a $56 stock. Oracle has traded between $36 to $45 for the last few months. Informix, whose numbers are $1.02 for FY 1997 and a 34% long-term growth rate, prices out at $35. The stock trades at $30 today, although the Illustra acquisition has probably not been built into the numbers yet. Sybase <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:SYBS)") else Response.Write("(NASDAQ:SYBS)") end if %> is another potential database investment, although there are enough questions about takeovers to make its valuation much more aggressive than its two larger competitors.

Those are the database stocks. As for the financial media, I am not sure what can be done to help their coverage. Outlawing the use of the word "Internet" might be a start since the term is always used loosely and generally without any degree of accuracy. Making the penalty for interviewing Michael Murphy on any Internet story a weekend shackled to Cookie might help too. Any interview with Murphy is virtually guaranteed to come with a dose of unmitigated, generalized skepticism about any company even remotely online. As long as we can offer sense and sensibility in The Motley Fool, discussing the very medium that we operate in, it should not matter much what the conventional press might have to say. So, turn off CNBC and start Fooling around in the chat rooms and on the message boards.

CALENDAR: Wednesday's Economic Events

---November Durable Goods Orders (8:30)
---November Existing Home Sales (8:45)
---December Conference Board's Consumer Confidence Index (10:00)
---ABC/Money Magazine Consumer Confidence Poll (6:30)

Byline: Randy Befumo (MF Templar)

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