HEROES

METRO ONE TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MTON)") else Response.Write("(NASDAQ: MTON)") end if %> connected investors with a $3 1/4 gain to close at $12 after the company signed a broad service pact with Sprint PCS. Sprint PCS is a joint venture involving SPRINT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>, TELE-COMMUNICATIONS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TCOMA)") else Response.Write("(NASDAQ: TCOMA)") end if %>, COX COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COX)") else Response.Write("(NYSE: COX)") end if %>, and COMCAST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CMCSA)") else Response.Write("(NASDAQ: CMCSA)") end if %>, and owns licenses in 33 major markets covering 190 million people. Metro One will serve each of the company's markets, 15-20 of which are scheduled to open by year-end, doing things like providing directory assistance.

Network integrator POMEROY COMPUTER RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PMRY)") else Response.Write("(NASDAQ: PMRY)") end if %> moved up $4 1/4 to $26 3/4 today on earnings news. Fitting the profile of what every growth company aspires to, the company reported year-over-year sales growth of 43.1% in its third quarter and a 54% increase in earnings per share to go along with that. Estimates from the two analysts who follow the company averaged $0.36 per share, but Pomeroy reported fully $0.40. One criticism that can be made, though, is that such thin net margins on almost $100 million in quarterly sales means that for every tenth of a percentage point in net margin mis-estimated, actual earnings per share will deviate from that estimate by 1.42 pennies. Forgetting the estimating game and looking at it from the management's perspective, a net margin of 2.8% leaves little room for mistakes.

The delicious combination of good news and low interest rates are powering ahead credit card-related companies today. Stronger-than-expected credit card earnings at DEAN WITTER-DISCOVER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DWD)") else Response.Write("(NYSE: DWD)") end if %> two weeks ago still shine on the shares, which climbed $1 7/8 to $61 1/8. CAPITAL ONE FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> advanced $1 3/8 to $32 7/8, still riding its confirmation last week of a 20% growth rate for next year. Credit quality indications from reported earnings of companies like BENEFICIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BNL)") else Response.Write("(NYSE: BNL)") end if %>, up $1 3/8 to $59 3/8, have been good and AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> even went as far to cut rates on its cards today to spark business. Others up today included: FIRST USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FUS)") else Response.Write("(NYSE: FUS)") end if %>, up $1 7/8 to $59 1/2, HOUSEHOLD INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HI)") else Response.Write("(NYSE: HI)") end if %> rising $1 3/4 to $90 3/4, and AMERICAN EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %>, rising $7/8 to $48 3/8.

QUICK TAKES: Satellite telecom company GLOBALSTAR TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GSTRF)") else Response.Write("(NASDAQ: GSTRF)") end if %> jumped $3 1/8 to $53 3/8 after Bear Stearns started the company with a "buy" rating... ORION NETWORK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ONSI)") else Response.Write("(NASDAQ: ONSI)") end if %> was also launched by a Bear Stearns investment opinion, moving up $1 3/8 to $11 1/4 on initiation of coverage with an "attractive" rating... Disk drive-maker SEAGATE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> gained $4 1/8 to close at $71 7/8, possibly on good feelings surrounding an upgrade for customer COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, which rose $4 1/8 to $70 3/8. DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DELL)") else Response.Write("(NASDAQ: DELL)") end if %>, another Seagate customer, moved up $4 3/8 to $82 1/8... ITRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ITRI)") else Response.Write("(NASDAQ: ITRI)") end if %> came back $1 7/8 to $19 1/8 after the automated meter reader concern signed a contract with Southern California Edison... SPLASH TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPLH)") else Response.Write("(NASDAQ: SPLH)") end if %> moved up $3 3/4 to $20 1/4 after Alex. Brown initiated coverage of the network print server company with a "strong buy"... Telecommunications equipment maker TELTREND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TLTN)") else Response.Write("(NASDAQ: TLTN)") end if %> jumped $3 1/4 to $32 1/2 in anticipation of strong earnings -- the company's management threw cold water on that move, though, as they pre-announced flat earnings after the bell.

GOATS

GT INTERACTIVE SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GTIS)") else Response.Write("(NASDAQ: GTIS)") end if %> was nuked for a $5 loss to close at $13 today after reporting quarterly earnings far below estimates of $0.29 per share. One analyst commented that the company strained to make its $0.20 per share pre-tax numbers by pushing a bunch of product into the retail channel, according to his view of the balance sheet (where accounts/receivable jumped and cash declined). Maybe that's a little conspiratorial, going into the holiday season for a gaming software company, but there's no denying that the company is bringing in cash right now through channels other than operations. Well, we say "company," but for the most part, the recently-announced secondary offering will be comprised of shares being sold by the company's owners. Analysts were already working with their red pens to cut estimates for upcoming quarters.

Radio company AMERICAN RADIO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMRD)") else Response.Write("(NASDAQ: AMRD)") end if %> dropped $3 7/8 to $26 1/4 even after it reported a 109% increase in quarterly revenues and an 86% increase in broadcast cash flow for the quarter. Someone was unhappy with the performance, though, as double- and triple-digit increases in profit & loss statement numbers don't always tell the whole story, especially when a company makes so many changes in the composition of its broadcast properties portfolio. Also affected by ARS's sell-off today was E-Z COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EZCIA)") else Response.Write("(NASDAQ: EZCIA)") end if %>, which was down $4 1/2 to $34 1/4. ARS is offering 0.9 of its shares and $11 in cash for each E-Z share. After the deal, ARS will have about $650 million in debt and 31.2 million shares outstanding.

BELMONT HOMES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BHIX)") else Response.Write("(NASDAQ: BHIX)") end if %> was crushed for $5 3/8 to $11 1/4 after the firm not only missed third quarter estimates but said that the fourth quarter would come in below last year's 33 cents per share. Belmont earned $0.35 per share, compared to consensus estimates of $0.37 EPS, and blamed its problems on increased costs and greater competition at the retail dealer level. Belmont is ramping up production at a new single-section manufactured home plant and sees expenses related to training new workers for the plant continuing into the next quarter. It was not all hail in the manufactured home universe, though -- CHAMPION ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHB)") else Response.Write("(NYSE: CHB)") end if %> rose $2 to $21 7/8 after Goldman Sachs put the company on the firm's priority list.

QUICK CUTS: Shares of UNIFY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UNFY)") else Response.Write("(NASDAQ: UNFY)") end if %> plunged $3 5/8 to $5 3/4 after the company announced that it anticipates a $0.22-per-share loss on $7.2 million in revenues in the upcoming second quarter... AMERICAN RADIO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMRD)") else Response.Write("(NASDAQ: AMRD)") end if %> became the latest casualty in the radio and broadcast business to slide on disappointing earnings and cash flow results, falling $3 7/8 to $26 1/4 after reporting third quarter cash flow of $17.1 million... Construction concern FORTRESS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FRTG)") else Response.Write("(NASDAQ: FRTG)") end if %> descended $1 1/2 to $5 1/4, downgraded from "buy" to "underperform" by BT Securities... Client/server software concern FOREFRONT GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FFGI)") else Response.Write("(NASDAQ: FFGI)") end if %> dropped $7/8 to $6 7/8 after posting a third quarter loss of $0.44 per share, compared with a nickel gain a year ago... Shareholders apparently weren't impressed with OLYMPIC FINANCIAL'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %> new shareholder rights plan, sending the stock down $7/8 to $14... Health informatics specialist PRIMARK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PMK)") else Response.Write("(NYSE: PMK)") end if %> beat estimates by a penny, but fell $1 7/8 to $22 anyway... KCS ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KCS)") else Response.Write("(NYSE: KCS)") end if %> shares fell as low as $37 3/4 before closing off $1 3/4 at $40 7/8, with the company saying that its policy is to not comment on price movement.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Relative Strength

Investors are bombarded with various sure-fire stratagems for choosing winning stocks all the time, often without the benefit of any formal explanation of exactly what the selection process is or how it works. Even though there are plenty of tools that are consistently misused or misunderstood, the title of "most misunderstood metric" goes hands-down to one that goes by the sobriquet "relative strength." Relative strength is one of the most popular measures for choosing stocks, originally championed in print by William O'Neil and in his book How To Make Money In Stocks but more recently emphasized in James O'Shaughnessy's What Works on Wall Street. Relative strength is a measure of a stock's price gains "relative" to the broader market as a whole over a given period, with the Standard & Poors 500 index normally used as a stand-in for the market.

How does relative strength work? It is pretty simple, actually. If a company's shares have risen 100% over the past year while the market has only climbed 5%, it is said to have a high relative strength. However, if the market has risen 99%, then the company's "relative" strength is not as great -- even though it has climbed the same 100% in both examples. Relative strength even works when the market goes down. If the market is down 10% and a particular stock is down 20%, then it is said to exhibit much worse relative strength than a stock that is only down 5%. The key to understanding relative strength is to focus in on the word "relative" -- it is a measure of performance that is completely dependent on the time period and the index you choose to benchmark it against.

There are many competing versions of relative strength. The print version in Investor's Business Daily has the most popular relative strength measures, ranking stocks from 1 to 99 with 99 being the best-performing stocks on the planet. Investor's Business Daily uses a proprietary mix of performance over the past five years, the past year and the past two quarters, in order to come up with its relative strength numbers. There are as many measures of relative strength as there are screening programs that include it, with most concentrating on relative performance of the stock versus the S&P 500 over the past year. Screening software from Market Guide, American Association of Individual Investors and Morningstar all include the ability to screen for relative strength with various degrees of sophistication. The reason why the IBD numbers are so frequently used is that they not only measure relative strength, they also rank it and show which companies had the best relative strength -- one of the reasons why Tom and David Gardner like the thing so much.

Relative strength is a number that causes die-hard efficient market theorists to have conniption fits, though -- a phenomenon James O'Shaughnessy explained in his recent book. O'Shaughnessey correctly pointed out that in some versions of the efficient market theory, price changes are seen as completely random, meaning that investors are best served investing in indices and not trying to pick individual stocks. However, if high relative strength stocks have a tendency to outperform the broader market over any period of time, it means that price changes are somehow predictive, blowing a hole right through the theory. This stance does not take into account the predominant "weak" efficient market theory, which simply holds that day-to-day stock price movements do a "random walk," while long-term changes tend to be driven by earnings-per-share gains.

Relative strength is often claimed by technical analysts as a technical indicator. Although it is true that technical analysis uses price changes as a very important component of its overall approach, it is not the same as saying that relative strength is only a technical indicator, and not a fundamental one. Nothing is more fundamental about a stock than its price. All fundamental measures are based off of the price at one specific point in time. Even further, companies whose shares have outperformed more often than not are the companies with the strongest fundamental stories, stories that have driven their growth over whatever period was measured. As relative strength consistently brings to light companies with superior fundamentals, it is just as useful to those working from a fundamental viewpoint as it is to those using technical analysis -- and in the end it cannot be claimed by either side.

In that stocks with high relative strengths tend to represent the companies with the best fundamental stories going forward, it is not a major surprise that this indicator can help pick stocks that have a tendency to outperform. In What Works On Wall Street, O'Shaughnessy discovered that in the universe of stocks with market capitalizations above $150 million, the 50 stocks with the highest relative strength over the past year tended to outperform the group by a statistically significant margin of about two percent. The problem with this metric alone was one of volatility, a fact that caused O'Shaughnessy to link it with other factors later in his book. His implied conclusion is in my opinion an accurate one: relative strength is an excellent tool for your kit bag, but a tool that must be used in conjunction with valuation metrics to ensure that volatility is kept at a reasonable level.

FOOLISH FEATURES

For those of you who answered Election Day, we've got a special for you, too -- Rogue's coverage of Prop 211, a California ballot initiative that could have nationwide impact on securities litigation. Vote early, vote often. ;)

And, for those who knew that it was, in fact, Networking Day, the Lunchtime News has the added treat of a Fool Plate Special on US Robotics, which is up strongly following yesterday's earnings announcement.

CONFERENCE CALLS

None

ANOTHER FOOLISH THING

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Randy Befumo (MF Templar), a Fool
Fool On the Hill

Dale Wettlaufer (MF Raleigh), another Fool
Heroes & Goats

Selena Maranjian (MF Selena), a Fool
Editing

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