Friday, March 1, 1996
MARKET CLOSE

INDEX:

I. Market News: Compaq drags tech sector
II. Heroes: Reebok, Colgate- Palmolive, Storage USA
III. Goats: AG Associates, TransPro, Scientific Games, Horizon Healthcare
IV. Investment Perspective: Tic-Tech-Toe
V. Another Foolish Thing: The Bore-Folio

I. MARKET CLOSE

DJIA: 5536.56 UP 50.94 or 0.93 percent
S&P 500: 644.37 UP 3.94 or 0.61 percent
NSADAQ: 1086.06 DOWN 13.99 or 1.27 percent

II. MARKET NEWS

Although the Fool Newsroom wanted to put in a short day today, the market did not comply. Early this morning Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> stuck it to the Street when it reported in a conference call that it would not meet February sales targets and was cutting prices. Computer, semiconductor and semiconductor equipment stocks all sold off as a result, as we detail into today's Investment Perspective. This all happened despite a rise in the bond market that boosted large cap stocks.

Our special features on-line today are a focus on the Compaq news, an expanded Intuit <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTU)") else Response.Write("(NASDAQ: INTU)") end if %> section with a Take by MF Templar and our weekly Weekend Research Center.

II. HEROES

Reebok <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBK)") else Response.Write("(NYSE: RBK)") end if %> rose $2 5/8 to $29 today on rumors that a yet unnamed German conglomerate was considering a takeover of the sneaker manufacturer. BusinessWeek cited a "very reliable" European source, putting the price tag at $40 or more per share. Reebok shares have slumped dramatically in recent weeks after the company took a huge charge in its fiscal fourth quarter. Revenue growth has been non-existent for the last four quarters and profits have been down in three of the last four quarters. However, the company still has a worldwide franchise as the number two manufacturer of athletic footwear and would be attractive to a conglomerate that believed it could cut costs in the shoe line and turn it around.

Colgate-Palmolive <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CL)") else Response.Write("(NYSE: CL)") end if %> surged $5 1/4 to $83 1/2 today after Bear Stearns analyst Constance Maneaty upgraded the stock from "neutral" to "attractive". Maneaty cited the pending FDA approval of Colgate's Total toothpaste. This new anti-bacterial toothpaste would be the only toothpaste in the country licensed to claim that it prevents gingivitis, cavities and plaque. Colgate-Palmolive, a Dow class company, has suffered an earnings slowdown in the past few quarters but has rebounded nicely. Estimates are for 16% growth into fiscal 1997 to an EPS of $4.95. If Total takes off, however, this estimate could be notched up, justifying the current price.

Storage USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:SUS)") else Response.Write("(NYSE:SUS)") end if %>, a Real Estate Investment Trust (REIT), rose $2 to $33 3/4 today in a move that must have made Real Estate Fool MF Yorick's heart pound. Security Capital announced that it would buy the 7.03 million outstanding shares of the storage REIT for $31.30 per share in two fundings. Proceeds from this business alliance would be used by Storage USA to finance future acquisition and development.

QUICK TAKES: MMI COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMI)") else Response.Write("(NYSE: MMI)") end if %> surged $2 to $25 7/8 after reporting earnings almost 5% ahead of consensus estimates ... TRUE NORTH COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TNO)") else Response.Write("(NYSE: TNO)") end if %> rose $1 1/2 to $22 after it announced that it was in talks with Publicis Communications to renew their business alliance ... SEARS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> led retailing stocks higher, up $2 7/8 to $48 1/4 today, as prospects for February's retail sales numbers continue to brighten ... Prudential securities initiated coverage of HYPERION SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:HYSW)") else Response.Write("(NYSE:HYSW)") end if %> with a buy, causing shares to rise $1 1/2 to $19 3/4 ... ZYTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZTEC)") else Response.Write("(NASDAQ: ZTEC)") end if %> was up $1 3/8 to $15 after announcing its new distributed power architecture.

III. GOATS

AG Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AGAI)") else Response.Write("(NASDAQ: AGAI)") end if %> became the first semiconductor equipment manufacturer to actually use the words "industry softening" in a press release, breaking ranks with larger concerns such as Applied Material <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %> and Kulicke & Soffa <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KLIC)") else Response.Write("(NASDAQ: KLIC)") end if %>. The stock was off $1 1/4 to $7 5/8 today, way down from its 1995 high of almost $40. "We're seeing some early warning signs, including order delays by chipmakers stretching out their delivery slots, as well as one or two cancellations by companies putting new fabs (chip-making plants) on hold," chief executive officer Arnon Gat. The company put 1996 earnings at somewhere between $1.25-1.30 EPS. Estimates had called for $1.61 EPS a share. When asked whether the real problem was Applied Materials taking market share in the Rapid Thermal Processing (RTP) market, AG Associates denied it.

TransPro Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:TPR)") else Response.Write("(NASDAQ:TPR)") end if %> reported yesterday that slowing demand for its "heavy duty class 8 truck segment" was lowering the boom on earnings, and that outlook was gloomy for a full year ahead. The stock was off $2 3/8 to $7 7/8 after the company added that earnings for the fourth quarter would slide to $0.20 EPS versus $0.28 EPS in the year-ago period. TransPro was a tax-free spin-off from the Allen Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALN)") else Response.Write("(NYSE: ALN)") end if %> many moons ago.

Scientific Games <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SGIH)") else Response.Write("(NASDAQ: SGIH)") end if %> slumped $4 1/2 to $25 1/2 today after reporting that it anticipates "significantly lower" first quarter revenues and earnings than it had last year. Many of its large lottery customers have delayed orders and made marketing adjustments. Scientific Games makes lottery tickets for counties, states and countries and tends to get really volatile during periods of negotiation. Like most gaming related stocks, it tends to attract a more gambling oriented crowd, making its swings pretty violent. Questions about whether or not growth prospects for the global lottery market are slowing as more and more countries adopt such programs also weigh on the shares. Salomon Brothers cut their 1996 estimate to $1.50 EPS from $1.85 EPS and 1997 estimates from $2.5 EPS to $2.00 EPS.

Horizon Health Care <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HHC)") else Response.Write("(NYSE: HHC)") end if %> was off $5 5/8 to $17 7/8 on a disappointing earnings forecast, forcing Pacific Rehab and Sports Medicine <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:PRHB)") else Response.Write("(NASDAQ:PRHB)") end if %> down in lock-step, losing $1 11/16 to $5 15/16. Horizon Health Care is going to purchase each share of Pacific Rehab for 0.3483 shares of its own stock. Alex Brown, Merrill Lynch and Robertson Stephens all downgraded Horizon following news that the company would miss its earnings for the next quarter. Third quarter estimates slid to $0.36 EPS from a $0.41 EPS consensus only yesterday. Downward Medicaid rate adjustments and general softness in long term care facilities in Texas and New Mexico were to blame.

QUICK CUTS: Rumors that COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> would announce a "Zip-like" product on Monday weighed on shares of Iomega <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> today, sending them down $1 5/8 to $17 1/8 ... BAY NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> slumped $4 1/4 to $36 3/8 in sympathy with the Compaq news, down dramatically for the second day since it moved to the New York Stock Exchange ... Tooth-whitening ION LASER TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: ILT)") else Response.Write("(AMEX: ILT)") end if %> slumped $1 3/4 to $13 5/8 after a massive surge yesterday ... GENZYME TISSUE REPAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GENZL)") else Response.Write("(NASDAQ: GENZL)") end if %> continued to slump, down $2 1/4 to $15 3/4 today, amid whispers that one of its premiere products had never been successful in clinical trials ... LSI LOGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LSI)") else Response.Write("(NYSE: LSI)") end if %> slipped $2 to $25 5/8 after Compaq's bad news compounded with its own down predictions earlier in the week ... BABY SUPERSTORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BSST)") else Response.Write("(NASDAQ: BSST)") end if %> lost $5 1/8 to $37 after it finally reported earnings, only shaving $0.09 EPS off of its results.

IV. INVESTMENT PERSPECTIVE

Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> lobbed a hand grenade into the stock market this morning, detonating amid a crowd of technology stock bystanders. The body count today was tremendous as again the word "slowdown" rippled through the Street.

The personal computer manufacturer reported today that it would not make its February sales targets, dragging the shares down $8 7/8 to $41 3/4 in heavy trading. The problem? Increased competition in the crucial North American region in the server and business computer segment, Compaq's most profitable operations. To shore up its 36% market share in the server segment, the company is announcing a round of price cuts on Monday, only days after Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %>, off $4 3/8 to $30, announced similar price cuts on its new line of servers.

Compaq's biggest problem with server competition is coming from IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>, down $2 5/8 to $120, and Hewlett Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>, off $5 5/8 to $95 1/8. IBM's 14% market share has been expanding in recent weeks as Big Blue has gotten aggressive with new product offerings. Hewlett Packard's reputation for quality has also given it a 12% market share, followed by Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SUNW)") else Response.Write("(NASDAQ: SUNW)") end if %>, slumping $3 1/2 to $49, Silicon Graphics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGI)") else Response.Write("(NYSE: SGI)") end if %> off $3/4 to $24 1/4, Digital Equipment <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DEC)") else Response.Write("(NYSE:DEC)") end if %>, finishing $8 1/8 lower to $64 1/2, and Dell.

Compaq is willing to fight so hard for server market share because this lucrative product grew at a 58% rate last year and is estimated to grow another 50% this year---compared to only 20% for the personal computer market. Server demand is being driven by the expansion of the digital world, requiring all sorts of companies and organizations to set up Web servers and Intranet servers to perform vital communications and information distribution functions in a cost-effective manner. The companies that cater more to business, like Compaq, Hewlett Packard and Digital Computer, are making client/server products with open architecture.

The market took this news as yet another sign that demand was slowing for personal computers. Although the estimates of growth in personal computers for the year have not changed, remaining stable at the 20% range, perception has moved all over the place, causing the stocks to become extremely volatile.

The trouble in the server market rippled up and down the supply chain, sending networking and semiconductor stocks all lower. Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:CSCO)") else Response.Write("(NASDAQ:CSCO)") end if %>, down $2 to $45 1/2, and Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> off $5 1/4 to $35 3/8, both got crunched because the lower perceived demand for servers was thought to imply lower demand for other networking products like hubs and routers. Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> closed down $2 3/4 to $56 1/16, on the perception that bad news for Compaq meant less sales for Intel. This news, in conjunction with the above mentioned press release from AG Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AGAI)") else Response.Write("(NASDAQ: AGAI)") end if %>, also sent semiconductor equipment stocks spiraling lower, with small caps like Asyst Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASYT)") else Response.Write("(NASDAQ: ASYT)") end if %> falling $3 3/8 to $21 7/8 on the perception that demand for semiconductor capital equipment was slowing.

Let's face it ... there hasn't been good news from the technology stocks for the last four months. DRAM spot pricing crumbled; Packard Bell made a poor product mix decision which fried Intel and Cirrus Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CRUS)") else Response.Write("(NASDAQ: CRUS)") end if %> among others. Chip makers like Xilinx <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ:XLNX)") else Response.Write("(NASDAQ:XLNX)") end if %>, down $7 3/8 to $31 1/4 today, and LSI Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LSI)") else Response.Write("(NYSE: LSI)") end if %>, off $1 5/8 to $26, weathered an inventory correction as end users allowed their supply of components to be depleted without replacing them. Multiple semiconductor equipment manufacturers have reported customer requests for push-outs, a normal part of the business that has become magnified of late. The reactionary market continues to pull back again and again after individual pieces of bad news trickle out, reacting to sentiment as much as fundamentals, punishing the same stocks again and again for the same sins.

The investor's task at this juncture is always to ask, "Is it as bad as everyone thinks and could it get worse?" The answers to those questions are no and yes, in that order. Certainly demand for technology will be assessed on a year-to-year basis ... this is almost a foregone conclusion. But solid 20% growth is still about two-to-three times what the average business manages. BUT WAIT, there's more! The worldwide expansion of markets due to the fall of totalitarian regimes and accelerated demand due to the adoption of the Internet as a means of communication and distribution are major trends that continue to augur well for technology. But no road is smooth, and many companies will falter or fail to execute even in the best of times. Compaq appears to have gotten fat and happy, and has paid for it as eager competitors have taken crucial server market share. A sign the end is nigh? Hardly. Definitely a sign that one must choose their equities carefully, though.

Randy Befumo (MF Templar), a Fool

VI. ANOTHER FOOLISH THING

For the Faint of Heart: The Bore-folio!

Do you get dizzy, following the Fool Portfolio? Do you have to steady yourself when reading of Iomega and America Online's death-defying moves skyward? Check out the Bore-folio, run by our very own MF Boring. Although the companies MF Boring favors are often in boring industries (cement, water heaters, chiropractor tables), their performances are far from Boring. The portfolio today includes Border's Group, Green Tree Financial, Kulicke and Soffa, Lam Research, Potash Corp. of Saskatch, and Texas Industries. You'll find it in the Hall of Portfolios, accessible from the Fool main screen.

YET ANOTHER FOOLISH THING: Fools on the Radio!

That's right! David and Tom Gardner are bringing their Foolish outlook to the airwaves this weekend. Tune in to the Monitor Radio's Weekend Edition---stations and times are listed in the Radio page.

Byline: Randy Befumo (MF Templar)