HEROES

Telecom services company MCI COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCIC)") else Response.Write("(NASDAQ: MCIC)") end if %> announced that it is in strategic talks, possibly ending in a merger, with BRITISH TELECOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BTY)") else Response.Write("(NYSE: BTY)") end if %>, which already owns approximately 19% of the company. The stock surged ahead $5 1/8 to $30 1/4 on the news while SPRINT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %> added $4 1/4 to $43 1/2 as investors probably figured that its broad fiberoptic network might be useful to another strategic partner such as Deutsche Telecom or France Telecom, which each own 10% of Sprint. Given the company's modern plant due to its massive annual spending, the company's ATM and SONET (synchronous optical network) asset base will become that much more valuable as consumers have access to broadband delivery vehicles such as digital subscriber line. In that case, MCI's spending on software and its $1-2 billion investment in content giant NEWS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWS)") else Response.Write("(NYSE: NWS)") end if %> may be heading toward fruition in investment returns.

Elsewhere on the telecom front, LCI INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCI)") else Response.Write("(NYSE: LCI)") end if %> gained $2 1/8 to $34 on the MCI news as the investors are eyeing this company's 1,400 mile owned network and rights-of-way... FRONTIER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRO)") else Response.Write("(NYSE: FRO)") end if %>, one of the more innovative LATA (local access transport area) companies which started to open up its nearly 100% digital local network to competition before telecom reform passed, moved up $7/8 to $29 7/8 today... GTE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTE)") else Response.Write("(NYSE: GTE)") end if %> moved down $1 5/8 to $40 1/2 as the second-largest LATA carrier in the US did not escape the effects of a possible MCI-BT merger... Interestingly, neither AT&T nor the Baby Bells really moved on the news.

VIACOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VIA)") else Response.Write("(AMEX: VIA)") end if %> came out of the quarter with its gloves laced up, punching out a $2 3/8 to $35 gain today. Network and broadcasting earnings before interest, taxes, depreciation and amortization (EBITDA) from MTV, VH-1, Nickelodeon and Showtime drove the company's overall EBITDA up. A strong performance from Paramount with the success of "Mission: Impossible," "Primal Fear," and "The First Wives Club" did not hurt, nor did strength at Paramount theme parks and publisher Simon & Schuster (driven, no doubt, by record sales of a certain book about investing written by two brothers). Even the lackluster Blockbuster seems to be turning around, although Viacom said it lost $30 million in revenues due to the Olympics. Chairman Sumner Redstone continues to exhibit his nimble ability to stay ahead of the curve, booking a huge one-time gain on the sale of cable systems the quarter before the bottom fell out of the cable-related stocks. Huge growth in satellite systems has taken the wind out of the company on the buying end of that transaction, though, with TELECOMMUNICATIONS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCOMA)") else Response.Write("(NASDAQ: TCOMA)") end if %>, now trading at a five-year low.

QUICK TAKES: RALSTON-PURINA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAL)") else Response.Write("(NYSE: RAL)") end if %>, maker of the familiar Animal Chow and Energizer batteries, added $3 3/4 to $69 7/8, announcing a 38% increase in third quarter operating net income... Wireless telecom information management and security company CELLULAR TECHNICAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CTSC)") else Response.Write("(NASDAQ: CTSC)") end if %> jumped $2 1/2 to $18 5/8 after signing a service contract with Midwest Baby Bell AMERITECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AIT)") else Response.Write("(NYSE: AIT)") end if %>... SAMSONITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SAMC)") else Response.Write("(NASDAQ: SAMC)") end if %>, the world's largest luggage maker, gained $3 3/16 to $36 15/16 after announcing that it will restructure its operations... Announcing its own financial reorganization, CIRCUIT CITY STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CC)") else Response.Write("(NYSE: CC)") end if %> rose $2 1/4 to $35, saying it will sell stock in its CarMax unit, creating separately-traded stocks in that company and its Circuit City division.

MORE QUICK TAKES: Thoroughbred racing facility and real estate owner SANTA ANITA REALTY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAR)") else Response.Write("(NYSE: SAR)") end if %> gained $2 in closing at $23 1/2 as competing investment groups vie for the company... Florida supermarket chain KASH N KARRY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KASH)") else Response.Write("(NASDAQ: KASH)") end if %> traded up $1 1/2 to $25 1/2 after agreed to be acquired for $26 per share by FOOD LION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FDLNA)") else Response.Write("(NASDAQ: FDLNA)") end if %> in an all-cash deal... STRATASYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SSYS)") else Response.Write("(NASDAQ: SSYS)") end if %> moved up $1 5/8 to $16 1/4 after the rapid prototype modeling hardware/software company reported a quarterly sales increase of 92% and a 66% level of gross profit... Announcing the completion of two acquisitions, SPECIALTY PAPERBOARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPBI)") else Response.Write("(NASDAQ: SPBI)") end if %> rose $2 1/4 to $18 1/2.

GOATS

BOEING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> extended flaps, moving down $3 1/2 to $91 7/8, after The Wall Street Journal reported that the company said that it will need to spend between five and seven billion dollars to develop its 747-X series of jumbo jets. The next aircraft in this venerable series are the 747-500 and 600, which will either add about 12% more seats and extend the 747's range 20% or accept a lower increase in range but up its standard seating capacity by one-third. Boeing has been remarkably free-cash-flow positive since 1989, which was the last time that capital expenditures outweighed gross cash flow. In the past few years, capital spending per share has been dropping, from a peak of $4.47 per share in 1992 to $1.75 per share in the last twelve months. As the 747 is the most economical commercial aircraft in the world and the growth markets in regions like Asia span huge distances, this is probably the best program for which the company can increase its R&D spending.

Montgomery Securities analyst Alice Ruth trimmed her estimates on NIKE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> by two to three cents a share today, clipping the stock for $4 3/8 to $54 3/4. Ruth is worried about the company's huge marketing budget, given that Nike has signed Tiger Woods and the Brazilian soccer team and opened NikeTown in New York City all in the same quarter. Shelley Hale Young at Hambrecht & Quist pooh-poohed Ruth's concerns, maintaining her numbers, while Josephine Esquivel at Morgan Stanley upgraded the stock to "strong buy" from "outperform" based on the move, calling Friday's drop "very much overstated." With estimates hovering around $3.07 EPS for next year and the stock at $54 3/4, the company trades at about 17 times forward earnings with half a world of people to put in shoes and sports apparel yet.

Customer service help-desk software company INFERENCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INFR)") else Response.Write("(NASDAQ: INFR)") end if %> was dashed on the rocks of expectation, falling $5 1/4 to $7 as the company came clean and pre-announced flat revenues and a loss for the quarter ended yesterday. Since last week, the stock has been absolutely crushed as word started to work it way into the market that the company's CEO was not to be found at a trade show where he would normally be seen. While such whisperings are usually just "noise," this time it appears as though that is material to the company's situation. Just another casualty of a market environment where double-digit sales multiples are handily justified and in which many weaker niche-market software companies fall prey to the few masters of those markets.

PHAMIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHAM)") else Response.Write("(NASDAQ: PHAM)") end if %> slid $3 1/8 to $11 7/8 after reporting EPS of $0.14 (before one-time charges) in its third quarter, a penny below estimates and down from $0.17 per share last year. The healthcare information systems company also reported a record backlog, which was built, in part, by delays in orders. NatWest's analyst cut his rating on the company to "accumulate" from "buy," saying, "While software license fee shortfalls contributed to the lower-than-expected EPS, we believe PHAM's problems are more related to implementation delays rather than new contract closings, separating it from many peers." Depending on your method of valuation, an order taken and a measure of profit made 180 days later than expected really don't change the intrinsic value of a stock all that much.

QUICK CUTS: GLOBAL DIRECTMAIL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GML)") else Response.Write("(NYSE: GML)") end if %>, off $5 1/4 to $44, reported a 27% increase in per-share earnings, meeting First Call estimates but falling short of the 47% growth that some felt was needed to justify its price/earnings ratio of 47... Citrus grower and marketer UNIMARK GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UNMG)") else Response.Write("(NASDAQ: UNMG)") end if %> dropped $2 1/8 to $7 3/4 after announcing a slew of operating events that will bring a loss for the third quarter... DONNA KARAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %> shed $1 3/8 to finish at $17 1/8 as a Wall Street newspaper reported that investors have cooled their jets on luxury goods companies... Embedded software systems company RADISYS CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RSYS)") else Response.Write("(NASDAQ: RSYS)") end if %> moved down $6 1/8 to $57 5/8 even after the company thrashed earnings estimates earlier this week... A company can meet earnings estimates and fall, as did ATC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ATCT)") else Response.Write("(NASDAQ: ATCT)") end if %>, which fell another $2 1/2 to $16 1/2 today.

MORE QUICK CUTS: TRANSACTION SYSTEMS ARCHITECTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TSAI)") else Response.Write("(NASDAQ: TSAI)") end if %> dropped $2 3/8 to $39 1/8 after the electronic commerce systems company reported EPS of $0.16 (net of merger charges), in line with estimates... CARRINGTON LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CARN)") else Response.Write("(NASDAQ: CARN)") end if %> dropped another $2 3/8 to $10 1/8 today after dropping $9 yesterday. Within the last week, the company raised $6.6 million in a debt offering to extend its clinical trials -- and then, within 48 hours, the company announced that its clinical testing of a drug had not shown anything statistically special... TRANS WORLD AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %> lost $1 to $7 as the crash of its 747 is still in the news and as its flight attendants' union fights off a takeover attempt by TWA's machinists' union.

FOOL ON THE HILL
An Investment Opinion by MF Templar

My Bookshelf, Part One of A Few

I regularly get inquiries from readers about what specific books I recommend for investors, both neophytes and sophisticates. The volume of these occasional queries is enough that I figured it was time to dedicate an entire column to the subject, rather than continue to give out spotty, clipped answers to a pretty legitimate query. Although my regular readers will probably be familiar with most of these books, I will try to give the most comprehensive accounting possible and hope that my comments on the books are prescient enough to entertain you. I plan to continue with this in a series of installments over the next few weeks, until I have covered every investment book that could help investors enhance their overall returns.

COMMON STOCKS, UNCOMMON PROFITS by Philip Fisher. Fisher is probably the most under-rated investment thinker on the planet, bar none. Common Stocks, Uncommon Profits was his late '50s answer to Ben Graham's Security Analysis and Intelligent Investor combo two decades earlier. Relatively unknown since its hey-day in the growth-stock-oriented '60s, the recent Wiley Investment Classics reprinting makes this critical work available to all investors for the first time in more than twenty years. Fisher's emphasis is entirely on the core business -- the fact that companies actually have stock is almost derivative in his analysis. Although commonly labeled an investment book, Fisher barely mentions concepts like price/earnings ratios or working capital, sticking strictly to qualitative measures of a company's success with the least math in the investment galaxy. Readers will find it no surprise that this book is one of Tom Gardner's favorite books, as well as a very influential book upon Charles Munger, the lesser-known half of Warren Buffett's BERKSHIRE HATHAWAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRK)") else Response.Write("(NYSE: BRK)") end if %>.

Fisher's thorough examination of the fifteen qualities of an excellent business should be required reading for every chief executive officer in the country. His comments on scuttlebutt speak directly to the contemporary reality of online message boards. Fisher extols the virtues of getting out there and talking with employees, customers and suppliers to a company in order to get the broadest sense of how the company is doing -- something individual investors can now do every day. Using lively anecdotes to support his entire approach to investing, his final conclusion is pretty straightforward -- buy and hold great companies with world-class managements and you will be well rewarded. Despite the fact that it was written in the '50s, it is hard to read the book and not want to purchase MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> or TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %>, two companies Fisher bought in the '50s and held for his entire life. We can only hope that Wiley also sees fit to reprint Conservative Investors Sleep Well, Fisher's second book, written in part with his son Ken.

THE INTELLIGENT INVESTOR by Ben Graham. Ben Graham is single-handedly responsible for the fact that investors even think about ratios like the price/earnings ratio, the current ratio or working capital-to-market capitalization. Coming out of the stock market's total implosion in 1929 and throughout the '30s, Graham knew that he needed to discover logical rules that any investor could use in order to attain safe, sustainable, market-beating results. He was so preoccupied with ensuring that anyone could duplicate his methods towards the end of his career that he often told his junior analysts at Graham-Newman like Albert Schloss or Warren Buffett that they could not involve themselves in complicated financial shenanigans to make money -- it all had to be plain vanilla.

The Intelligent Investor was Graham's attempt to make his cumbersome joint-effort with David Dodd -- Security Analysis -- comprehensible to the average person. Much like Nietzsche's Beyond Good & Evil was intended to make Thus Spoke Zarathustra transparent, Graham's Intelligent Investor set about educating the average person as to what made an investment, what made a speculation and how this knowledge could be applied to build wealth in the most risk-averse way possible. Although he was a little bond-crazy, Graham's zeal for the common investor made him about as Foolish as they come. The fifth edition of The Intelligent Investor comes with the added bonus of a laudatory introduction by editor Warren Buffett as well as the best essay Warren Buffett ever wrote, bar none, called "The Superinvestors of Graham & Doddsville." Although it can make for pretty dense, didactic reading, the investor will come away from The Intelligent Investor with a new-found understanding of how the numbers fit together to make a great stock.

SUPER STOCKS, by Ken Fisher. The son of the aforementioned Philip Fisher, rebel Ken had to make his own way in the investment world. Super Stocks is the product of his unique take on investing in the stock market. Eschewing a good deal of his father's no-numbers approach, Ken popularized the use of the price/sales ratio (PSR) and price/research ratio (PRR) in this 1984 classic that earned him a permanent spot as a columnist in Forbes. Although Fisher hardly invented the price/sales ratio, his emphasis of it is unmatched in investment history save perhaps Ernie Kiehne, formerly of Legg Mason's Value Fund.

Fisher's Super Stocks is an idiosyncratic romp through the technology hey-day of the early '80s. Fisher tells story after story of how high-fliers hit a short-term flame-out he called the "glitch" and the price/sales ratio and price/research ratio got him in at the bottom. Although he only gives quantitative price/sales ratios on technology-related stocks for the 1983 and 1984 timeframe, his ability to construct an entire approach to valuation outside of the earnings-preoccupied mainstream still makes for compelling reading. Fisher has not completely escaped his father, though. The guy talks about the businesses he buys in lurid detail, advising investors that to be successful they need to do the same. As rich in investment war stories as it is in knowledge, Super Stocks makes for an excellent read.

BUFFETT: THE MAKING OF AN AMERICAN CAPITALIST, by Roger Lowenstein. You've read his Wall Street Journal columns, now read his book. Sure, Fools around the world are not terribly impressed with Lowenstein's Intrinsic Value comments on high-flier IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %>, but he wrote one heck of a good book about Buffett. Reviewed by Roguish Fool Louis Corrigan a few weeks ago, the book takes you from Buffett's humble Omaha origins through his early investment career at Graham-Newman to his status today as the richest man in America. The book is more than biography, however. There are quite a number of investment truths laced in a book that contains the lurid details of the man's life, strengthening my belief that your investment approach is deeply influenced by your approach to life.

Warren Buffett emerges as a philosopher of value in Lowenstein's work. Buffett's fantastic ability to simply see when a business is undervalued and act with incredible confidence is part of who he is. His thinking is not simply looking at dozens of ratios and buying the cheapest stock -- the man literally ingests the business and is able to determine truth, better known as intrinsic value. Although much has been made of Buffett as an anti-technology buy-and-holder, this book goes a long way to dispelling the absolute nature of those myths. Whether it is Buffett trading copper futures in his personal account or his purchase of defense contractor GENERAL DYNAMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GD)") else Response.Write("(NYSE: GD)") end if %>, the details overwhelm the paper-thin legend. Anyone who reads this will walk away from the experience with a much richer sense of who Warren Buffett is and what makes him a great investor, perhaps enhancing their own investment returns as well.

[These books are available in FoolMart.]

FOOLISH FEATURES

The Lunchtime News features MF Templar's Fool Plate Special on the zygging and zagging of Zygo, a manufacturer of electro-optical instruments that's up strongly today following its earnings announcement.

Earnings Central is a great place to look for new stock ideas. We've added another billion (ok, it's only been sixteen, but that's practically a billion) calls this week, including America Online, 3M, and CompUSA.

This weekend, Fool's Gold features our Ticker Treat & Scary Stocks special, which will have some new tricks from the Ghoul News staff. In honor of Dia de los Muertos, the Fool's Gold Sector Snapshot will focus on publicly traded deathcare firms, those companies that own & operate cemeteries and funeral homes. As always, we'll also mine some shiny research nuggets in the Weekend Research Center, and the EETimes will dig up the latest in technology.

CONFERENCE CALLS

None

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