Friday, March 15, 1996
MARKET CLOSE

INDEX:

I. Market News: NASDAQ Marches Ahead on Heavy Volume
II. Heroes: Micron, LSI, Lam, Data Translation, Bay Networks
III. Goats: Gilead Sciences, BHC Financial, Lukens
IV. Investment Perspective: Alex Brown New Media, Day 5
V. Another Foolish Thing

MARKET CLOSE

DJIA: 5584.97 -1.09 (-0.02%)
S&P 500: 641.43 +0.56 (+0.09%)
NASDAQ: 1099.59 +8.52 (+0.78%)

MARKET NEWS

Despite a day of very heavy trading---with roughly half a billion shares trading hands---the markets in general had little to show for all this activity. The NASDAQ had the strongest showing, gaining over 30 points this week. For economic news, check out MF Merlin's Economic Indicators area at the Evening News screen for his perspective on real earnings and the Consumer Price Index (CPI), the Fed's February report on industrial production and capacity utilization, and the University of Michigan's preliminary March estimates of consumer sentiment and consumer expectations.

Fools near Atlanta---prepare! The brothers Gardner will be signing their "Motley Fool Investment Guide" (in person!) at the Waldenbooks on Briarcliff Road in Atlanta this coming Tuesday, the 19th. This festive event will take place from 7-9 pm. Denver is next, folks---March 27.

HEROES

Some bright news for Micron Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> shareholders, at last. The company reported its earnings yesterday, and while they were far below the lofty expectations of yester-months, they apparently weren't as bad as some investors had feared, as shares rose $3 5/8 to $32 3/4 today, partly due to short-covering. Second quarter earnings came in at $0.87 per share, a penny ahead of last year's second quarter, and slightly below analyst estimates. In response, most analysts lowered their ratings for Micron. Gruntal & Co. cut Micron to neutral overall from neutral short-term and outperform long-term. It also lowered its 1996 estimate from $4.50 per share to $3.50. PaineWebber lowered its earnings estimates, from $4.25 in fiscal 1997 to $3.80.

Some investors are sensing a stabilization in memory chip prices, which helped drive up the shares of other semiconductor concerns. LSI Logic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LSI)") else Response.Write("(NYSE: LSI)") end if %> rose $2 to $28 1/4, Texas Instruments <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %> was up $3 1/4 to $52 7/8, Lam Research <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LRCX)") else Response.Write("(NASDAQ: LRCX)") end if %> popped $3 1/2 to $37, and Applied Materials increased $2 5/8 to $34 5/8.

Data Translation <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DATX)") else Response.Write("(NASDAQ: DATX)") end if %>, the company whose digital Media 100 product is giving Avid Technology and its other competitors a run for their money, saw its shares rise $2 to $18 today. The company recently announced a plan to form a digital media subsidiary centered around the very successful Media 100 product, addressing shareholder concerns that the operations of other divisions were limiting the valuation of the company. Last month CEO Fred Molinari stated a goal of 55% gross margins for the company's two core businesses, data acquisition and digital media. He added that, "We anticipate going forward in 1996 that Media 100 will be over 50 percent of our business."

Bay Networks <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> announced today that its Xylogics Remote Annex 4000 Server was selected as a candidate for Network Computing magazine's Well-Connected Award in the category of Remote Access Enterprise Solutions. This vote of confidence for the server, which enables users to access e-mail, file servers and databases via dialing in to networks, was enough to send shares up $2 3/4 to $37. Three other company products were nominated for awards.

QUICK CUTS: OEC MEDICAL SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OXE)") else Response.Write("(NYSE: OXE)") end if %> rose $1 5/8 to $13 on speculation that it might be bought out. Business Week magazine cited an anonymous investment manager's estimate that the company would be worth $17-$19 per share. . . Recent Initial Public Offering (IPO) GENSYM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GNSM)") else Response.Write("(NASDAQ: GNSM)") end if %> continued to surge forward, up $2 1/4 to $18 3/4. Earlier this week, a Montgomery analyst set a one-year target of $23 for the software solution company, but investors appear anxious to get there. . .

GOATS

Gilead Sciences<% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GILD)") else Response.Write("(NASDAQ: GILD)") end if %> had a rough day, announcing today that it is awaiting a decision by an FDA advisory panel on whether it will be permitted to market its VISTIDE CMV retinitis drug in the United States. Some market rumors pointed to a negative decision, and investors greeted this uncertainty by driving shares down $8 1/4 to $26 1/2. VISTIDE treats CMV retinitis, a potentially blinding disease suffered by 95% of AIDS patients.

BHC Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BHCF)") else Response.Write("(NASDAQ: BHCF)") end if %> shares plunged $5 1/2 to $12 7/8 when the company announced that a second major client, this time Citicorp Investment Services, was internalizing its securities processing services and would soon no longer need BHC Financial. The company stated that clients intending to internalize these functions represent roughly 26% of revenues.

Steel manufacturer Lukens <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LUC)") else Response.Write("(NYSE: LUC)") end if %> plummeted $4 to $25 after warning of a first quarter loss between $0.20 and $0.35 per share due to labor agreements, higher raw material and utility costs, stainless steel industry weakness, and severe winter weather. R.W. Van Sant, Lukens chairman and chief executive officer said that he expected the company to be operating in the black by the second quarter. In response, First Boston cuts its rating of Lukens from buy to hold.

QUICK CUTS: STRATACOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STRM)") else Response.Write("(NASDAQ: STRM)") end if %> shares fell $3 1/8 to $34 as investors continue to worry about concerns raised by Hambrecht & Quist analyst Joe Noel over the company's upcoming earnings report. . . STANFORD TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STII)") else Response.Write("(NASDAQ: STII)") end if %> dropped $1 3/4 to $27 3/4 on a downgrade from outperform to market perform by Oppenheimer & Co. . . SPYGLASS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %> settled back down a bit, falling $1 1/2 to $25 5/8 after its recent run-up related to the America Online-Microsoft partnership. Yesterday, Smith Barney upgraded the stock to neutral from underperform.

INVESTMENT PERSPECTIVE:
The Alex Brown New Media Conf.--Part 5

Why do companies come to conferences like the Alex Brown one in order to tell their stories? Is it a question of assiduously informing shareholders wherever they may room, or is there something else at work here? As you can probably tell from the lack of company presentations in your own living room, there is a lot more to be gained when a company gets its story out to institutions and brokerages than when it gets its story out to individuals.

More than anything else these days, evaluation of an executive's performance is based on what happens with the stock. Those big pay packages you see the media lambasting all the time are often almost entirely made up of stock options, giving the CEO in question a definite incentive to get the stock price up. As nine times out of ten a higher stock price follows a better business outlook for the company in question, the logic here is not as flawed as many pounding the table for "reform" of compensation packages would make you believe.

Part of getting that stock price up is getting your story out to the right people---institutions and analysts. You want institutions to get the story because they are the ones that are buying the stock. If you are uncommunicative with them, many institutions will bail just for that reason alone. Institutions want to know everything about your business---including stuff that you would not necessarily release to the general public or the news media quite as openly or quite as soon. Always skirting the fine line around what constitutes insider information, companies normally save the announcement of significant news for these conferences, assuming the information will eventually trickle down to the little guy.

Institutions like to clue analysts in on what is going on---even if it means telling them more than anyone else---because they want the analysts' commentary on the company to be informed by all of the facts. Analysts hold two functions for a company: the first and foremost is the role as principle storyteller of the company's future; the second is as part of the team that helps with investment banking functions like primary and secondary offerings of stock. Analysts are occasionally chastised by the conventional press for "propping" up a stock by keeping their recommendation high even when the news is bad. The payback for this can be an improved relationship with companies and a greater likelihood that lucrative investment banking business will come back to their firm.

There is a certain efficiency to this approach, as these institutions represent the majority of shares held by the public and these analysts speak to both these institutions and their not-insubstantial retail base. There is definitely an incentive to get your story out in this kind of forum, even for those companies that do not normally come to mind when you think "Internet." Some of the companies telling their stories at this week's Alex Brown New Media conference were not exactly what you would immediately think of when you heard the phrase "New Media." Companies like Primark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PMK)") else Response.Write("(NYSE: PMK)") end if %>, the Gartner Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GART)") else Response.Write("(NASDAQ: GART)") end if %> and Scholastic <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCHL)") else Response.Write("(NASDAQ: SCHL)") end if %> were among those who wanted to get their "Internet strategy" across to the assembled masses of institutional investors and Alex Brown personnel.

Primark is probably the most striking story, given that not too long ago it was a diversified gas utility with real estate, trucking and airline leasing operations. Their wily CEO came in and sold all of that stuff, turning the company into a worldwide financial information giant over the next few years. Primark acquired information technology giant TASC when prospects were most dim for its defense operations in the mid '80s. Acquiring international investing giant Datastream and the Disclosure Group in subsequent buy-outs, Primark used TASC technology to create uniform information technology standards to put out its financial services information. Their "Internet" strategy emphasizes the need for information technology to allow for the information explosion that the Digital World augurs.

The Gartner Group, 53% owned by Dun and Bradstreet <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNB)") else Response.Write("(NYSE: DNB)") end if %>, is a technology consulting firm. With virtually every significant technology subscribing, they provide comprehensive data about whose product is the best in which category and which company has the financial stability and technical wherewithal to survive. Gartner analysts scurry all over the world much like brokerage analysts, writing reports about various issues relevant to technology companies. Although some accuse Gartner of manufacturing the stories it covers, no one can deny that it and its new Dataquest unit are the single most comprehensive source for companies to tap into to make decisions about what to buy and where to go when it comes to information technology. Any company thinking about going "digital" will probably use Gartner Group information to make and execute that move.

Scholastic Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SCHL)") else Response.Write("(NASDAQ: SCHL)") end if %> is a publishing phenomenon that sees the Internet as another channel of distribution. Building a significant market from its franchise of school book fairs and book clubs, the company has created strong brands like "The Babysitter's Club" and "Goosebumps", which have caused profits to roll in. With the company successfully penetrating the textbook market with packaged multimedia courseware, the Internet represents a potential future where students can go home and get online to do their homework. Although the emphasis of their presentation was on their success in the traditional retail book channel with their brands, it was clear that the spread of the Internet could only put their educational content more in demand by software developers and content aggregators.

Over the next few days I will be compiling my notes on all of the presentations I saw and putting them up online in the special Alex Brown collection. The companies I have described in the past few days and many more will be featured in far more detail than I have been able to give in the Evening News. I hope that the daily coverage in conjunction with this more in-depth reporting has made a useful package for Foolish investors and hope to embark on another convention like this one, once I recover fully.

In the meantime, stay tuned for another new series of Investment Perspectives: Technophrenia is coming!

ANOTHER FOOLISH THING: The Weekly Fool on Paper

For those among you who prefer paper and staples to chips and bytes, The Weekly Fool is now available in a paper format. Ideal for Fools on the run, The Weekly Fool is a compilation of the week's happenings. If you don't have time to scour every corner of Fooldom, yet you want to stay in the loop---sign up! This paper version is also an ideal gift for your friends or relatives who have Foolish inclinations but no Foolish technology. Share this unique newsletter with them, and help them learn about sound investing principles and strategies as well as potential stock picks. To subscribe, for more information, or for a sample copy, contact MF Numbers ([email protected] or 800-717-0701).

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)