HEROES

HONG KONG TELECOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HKT)") else Response.Write("(NYSE: HKT)") end if %> rose $1 1/4 to $17 3/4 as majority-owner CABLE & WIRELESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %> is rumored to be looking at playing this card in the global high-stakes game of telecom alliance-building. According to Dow Jones, Cable & Wireless is proposing to gang up on the British Telecom-MCI nee Concert alliance with Global One, which is the alliance among Deutsche Telecom, France Telecom, and SPRINT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FON)") else Response.Write("(NYSE: FON)") end if %>. Some investors look at the 1997 turnover of Hong Kong to China with trepidation and others look at the move as a huge opportunity. Considering that Hong Kong will be a major gateway to mainland China, the players involved, the need of the Chinese government not to freeze out Western capital, the annual 14% 8-year increase in share price growth and the current 5%+ yield on Hong Kong Telecom, some investors are looking for value plus the Eastern angle on the telecom fireworks going on in the world right now.

Elsewhere in telecommunications, GLOBALSTAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GSTRF)") else Response.Write("(NASDAQ: GSTRF)") end if %> moved up $2 7/8 to $56 1/2 upon announcing a deal with the Chinese telecommunications ministry. This global consortium of telecom and military/industrial complex heavyweights such as LORAL SPACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOR)") else Response.Write("(NYSE: LOR)") end if %> and AIRTOUCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> will be serving the whole of China, which is the bull's penultimate dream. Low-earth orbit satellite (LEOS) systems are sucking up a bunch of capital, though many believe more productively than dubious software or other "technology" ventures. As MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> develops and deploys its Iridium satellite system and now 38 Ghz LEOs and MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> and Craig McCaw talk about Teledesic, some think that Globalstar is definitely in the lead at the moment, while others think that Motorola's business model is better and is proceeding at the more careful rate.

QUICK TAKES: Carbonics company NUCO2 (NASDQ: NUCO) blasted its way upward $2 1/4 to $15 1/2 after announcing on Friday that it has reached a supply agreement with BP oil service stations -- a Raymond James analyst also decided that he think's the company is a "buy" once again... US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USRX)") else Response.Write("(NASDAQ: USRX)") end if %> dialed up a $4 7/8 gain to close at $68 7/8 as the company lines up industry support for its X-2 56 kbps modems... Computer products re-seller INGRAM MICRO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IM)") else Response.Write("(NYSE: IM)") end if %> added $3 to $27 3/4 after the company announced an expansion of its product offerings with Acer America... MICROCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MNPI)") else Response.Write("(NASDAQ: MNPI)") end if %> leapt $1 3/4 to $10 5/8 on announcing a remote access modem pact with DIGITAL EQUIPMENT CORP. (NYSE DEC)... Specialty semiconductor firm QUALITY SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QUAL)") else Response.Write("(NASDAQ: QUAL)") end if %> moved up $1 5/16 to $9 as Needham & Co. raised its rating to "buy," citing the company's fast ethernet product designs... Recent telemarketing/help desk software IPO AURUM SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AURM)") else Response.Write("(NASDAQ: AURM)") end if %> continued to oscillate, trading up $4 9/16 at $36 1/4, still in the neighborhood of its first-trade price of $30...SABA PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: SAB)") else Response.Write("(AMEX: SAB)") end if %> permeated its 52 week high, closing up $3 1/2 at $31 3/4, as the market continued to distill last week's Louisiana acquisition news.

GOATS

CHILDTIME LEARNING CENTERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CTIM)") else Response.Write("(NASDAQ: CTIM)") end if %> fell down $2 1/8 and went boom, finishing the day at $8 7/8. The company announced that it will grow revenues by 20% in its second quarter, but earnings would come in below analysts' estimates of $0.14 per share. In the company's first quarter as a public company, it grew revenues by the same 20% pace and EPS by 13%. The company looks more like a seasonal player, though, as normalized July quarter EPS can be estimated somewhere in the $0.20 per share range. A good chunk of the company's approximately $33 million in book value lies in its real-estate holdings, so an annualized 14%+ return on equity doesn't look so shabby for a newly-public company with that sort of asset make-up. Given those numbers, if the company has a good brand name and can turn in at least 75% of the EPS estimated for this year, this might be an interesting company to look at if one isn't afraid of KINDERCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KCLC)") else Response.Write("(NASDAQ: KCLC)") end if %>. In fact, investors might want to compare that enterprise with Childtime and see what interested the legendary Henry Kravis.

This is a scary thing to look at, but there's no denying the fact that PPT VISION INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PPTV)") else Response.Write("(NASDAQ: PPTV)") end if %>, which fell $1 7/8 to $7 1/4 on the day, topped out this year around $18 per share, a level which it had not seen since 1987 -- October 1987, pretty much. While the company today said that it made its numbers for the last quarter, it also said that it expects the semiconductor infrastructure slowdown to hit it in the coming months. That's pretty much one way to say "we're experiencing pushouts." The interesting thing about this company's experience is that it can be stoned so quickly by investors, while others such as PRI AUTOMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRIA)") else Response.Write("(NASDAQ: PRIA)") end if %> can report caution and not really suffer a net setback in share price, despite volatile trading. It could have to do with the fact that this is such a ruthless industry -- investors really don't reward the laggards with any sort of growth multiple if they don't make their numbers. One of the companies to really differentiate itself as the grand-daddy of building owners' wealth is APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMAT)") else Response.Write("(NASDAQ: AMAT)") end if %>, which has built public shareholders' wealth in every year since 1987, save 1996.

QUICK CUTS: IVAX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: IVX)") else Response.Write("(AMEX: IVX)") end if %> slid $3 3/8 to $13 after the large generic drug maker agreed to merge with #2 distributor BERGEN BRUNSWIG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBC)") else Response.Write("(NYSE: BBC)") end if %>. The deal valued Ivax below last night's close but Brunswig investors voiced their skepticism by voting with their "sell" tickets... RED ROOF INNS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RRI)") else Response.Write("(NYSE: RRI)") end if %> slid $1 3/8 to $15 1/4 as investors are probably looking with concern at the corporate travel market and HFS... Healthcare equipment finance company ROCKFORD INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ROCF)") else Response.Write("(NASDAQ: ROCF)") end if %> was crushed for a $4 3/4 loss to crawl across the finish line at $17 5/8 after announcing that it will re-state second and third quarter earnings... BUSINESS OBJECTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BOBJY)") else Response.Write("(NASDAQ: BOBJY)") end if %> lost another $1 11/32 to close at $9 5/8 as investors continue to wax bearish on the company's next-generation software... Institutional children's care company CHILDREN'S COMPREHENSIVE SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KIDS)") else Response.Write("(NASDAQ: KIDS)") end if %> lost $1 to $13 1/4, possibly in relation to Childtime's loss... CYGNUS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CYGN)") else Response.Write("(NASDAQ: CYGN)") end if %> fell $2 1/2 to $12 1/4 on the downgrade of PaineWebber's analyst, who said that the company's glucose monitoring device will be delayed for another couple months.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Merger Momentum Gathers

The time was the late '60s. The investment era was quaintly called "Go-Go." The players were Gerald Tsai, Fred Carr and Fred Mates. The funds went by names like the Manhatten Fund or the Mates Investment Fund. The company? National Student Marketing. Started by a "thirty-something Gatsby" named Cortes Wesley Randall, the "story" was a pretty simple one. Let's lump all of the businesses out there that serve students under one corporate umbrella, cross-market the heck out of them and get rich in the process. Buying book publishers, record producers, youth airfare card sellers and anything else that could possibly end up with a student, the stock went public at $6 and traded at $82 within twelve months. As notoriety spread, Bankers Trust, Morgan Guaranty and the Harvard endowment all joined on as shareholders, pushing the shares up over $140.

Things were good.

Until it came crashing to earth.

National Student Marketing, one of the hotest stocks on the planet in the late '60s, did not even exist a decade later.

Fast-forward to the early '90s. The investment era is now known as "Momentum." The players are nameless hedge fund managers dancing around companies showing strong sequential acceleration of revenues and earnings combined with outperformance of analysts estimates. The name is chief executive Harry Silverman. The company today? HFS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HFS)") else Response.Write("(NYSE: HFS)") end if %>, formerly known as Hospitality Franchise Systems. Shares have leapt from a mere $13 in June of 1995 to stand now at $72 7/8 -- nearly a six-bagger. The concept is fairly simple. Acquire major brand names in related industries and cross-market the heck out of them. The company started with a family of hotel brands that it managed, including Days Inn, Ramada, Knights Inn, Villager Lodge, Wingate Inn, Howard Johnson and Super 8, and has gone on to nab a series of related businesses -- Coldwell Banker, ERA, Century 21, Resort Condomiums, Avis and -- after today -- PHH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PHH)") else Response.Write("(NYSE: PHH)") end if %>.

PHH Corp. leapt $16 3/4 to $47 1/2 this afternoon after HFS announced a $1.7 billion, $49 1/2 per share merger agreement between the two companies. PHH is involved with corporate relocation, automobile fleet management services, and mortgage banking services. Blended in with HFS's existing family of real estate and mortgage brokers, hotels and rental properties, it now appears that HFS can move you across the country, put you up in a hotel, give you a car, help you find a house and close the financing deal. In case this process is overwhelming to you, no problemo. You are just another customer for Resort Condominiums, an HFS-owned purveyor of time-share condos throughout the world.

HFS has been on a tear over the last few months, making strategic acquisitions using stock to bolster its portfolio of franchise-based businesses. The franchise market is pretty straightforward. A franchisor licenses out its name in return for annual fees, taking care of national advertising and marketing campaigns. An almost perfect business, a franchisor has no inventory, deals with no customers and does not have to worry about returns. Generating cash, a franchisor often looks to plow this into company-owned units. HFS has decided to instead focus on becoming an integrated provider of relocation, vacation, and moving services, making acquisition after acquisition using its stock. At 20 times earnings, 2.8 times sales, and 2.8 times book value, HFS benefits from the issuance of cheap equity because if it buys companies valued for less than it is, it suffers no dilution and can justify an even higher multiple.

The question is, will this work? Harry Silverman has convinced the Street that his acquisitions hold together, warranting an ever growing valuation. Similar to Wayne Huizenga's REPUBLIC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: RWIN)") else Response.Write("(NASDAQ: RWIN)") end if %>, Silverman has assembled a motley combination of businesses, given them a theme and promised robust cash flows springing from the fact that franchising is not a capital-intensive business. With $4.1 billion in acquisitions over the past twelve months, it has been hard to keep a hold on the unifying construct that underlies HFS's business plan. Silverman's strength? As an ex-franchisee in the '70s, Silverman brings a new era of cooperation between himself and his franchisees, letting them all work together to cross-market customers and create win-win situations. Will this cross-marketing work? History suggests that investors maintain some degree of skepticism and not overpay until the acquisitions of the past twelve months are shown to pay off. If this is truly a 15 to 20 percent grower, a higher price could be paid by long-term investors and still virtually guarantee success. If it does not, investors side-step a potential implosion in valuation.

FOOLISH FEATURES

Today's Lunchtime News puts Rockford Industries on the examining table. Rockford is a financing company specializing in funding for medical equipment. They have to restate earnings for the second and third quarters, and they're down on the news.

October semiconductor book-to-bill figures are due out tonight after the market close. The Fool will have coverage when the numbers are released, including a really snazzy graph of bookings and billings for the past four years.

CONFERENCE CALLS

WHOLE FOODS MARKET <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WFMI)") else Response.Write("(NASDAQ: WFMI)") end if %>
replay avail. until 11/14
(800) 633-8284 (reservation # 2147984)

11/12/96
HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
9:00 a.m. EST
(402) 220-6028 -- replay, available after noon

11/12/96, 11/13/96
WINSTAR COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WCII)") else Response.Write("(NASDAQ: WCII)") end if %>
Tuesday 5:30-11:30 EST and Wed. 6:30am to 12:30pm EST
(800) 633-8284, code 2026447#

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

Brian Bauer (MF Hoops), one more Fool
Editing

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