HEROES

TYCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TTI)") else Response.Write("(NYSE: TTI)") end if %> blasted ahead $4 1/2 to $11 1/2 after receiving a super action-packed offer from MATTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAT)") else Response.Write("(NYSE: MAT)") end if %>. The number-one toymaker is going to acquire the number-three toymaker in a deal worth $12.50 per share, well above the price at which Tyco closed on Friday. For $755 million in equity (which means that Mattel will call in all the preferred stock of Tyco) plus $223 million in debt, Mattel is getting brands such as Matchbox cars, Tyco Radio Control, Sesame Street toys, and the ever-popular View Master. Based on last year's performance, Mattel is picking up Tyco for an enterprise value-to-sales ratio of about 1.3 to 1. Tyco has recently improved operations and upped their sales, so it may be that Mattel is getting the company for a 1-to-1 ratio with 10% operating margins. Add in some synergies and a large chunk of goodwill amortization that will likely be written off, and Mattel is probably picking up a good bargain with evergreen brands and possibilities of 11%+ operating margins.

Would Ben Graham be happy? ELECTROGLAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: EGLS)") else Response.Write("(NASDAQ: EGLS)") end if %> jumped $1 5/8 to $16 1/4 today after being the subject of a glowing review in Barron's this weekend. It might not be low enough for the master value investor, but for many, the price of Electroglas is quite nice at $170 million when you back out net debt (which is cash minus debt). At that price, an investor can buy one of the three members of the world's wafer-probe oligopoly at four times free-cash-flow. That's not annualized off one quarter's cash flow, that's three quarters in a bad year for the semiconductor capital equipment industry. Who knows when the bottom will come for that industry, but when you can pick up a company at such multiples, with management that is known for being excellent and with only two competitors, it's worth a look for value-oriented investors or for those looking for "secular growth."

TRUSTED INFORMATION SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TISX)") else Response.Write("(NASDAQ: TISX)") end if %> jumped $5 3/8 to $15 3/8 on hype related to some COMDEX announcements. COMDEX, the largest information technology trade show in North America, is always a hit with Wall Street as it creates a buying frenzy when a company makes a "big" announcement. Trusted Information is supplying HEWLETT-PACKARD'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> new encryption standard with RecoverKey, which protects against the loss of encrypted data. The deal is potentially a windfall for Trusted Information, which had a mere $7.7 million in revenues in its last fiscal quarter. Although INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %>, MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> and NETSCAPE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NSCP)") else Response.Write("(NASDAQ: NSCP)") end if %> are all partners with Hewlett-Packard on the deal, the company's future profits are very dependent on deployment of the product by larger partners and market acceptance over other competing standards.

QUICK TAKES: Former Twentieth Century Fox owner and billionaire Marvin Davis increased his buyout offer by $2 to $20 for each CARTER-WALLACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAR)") else Response.Write("(NYSE: CAR)") end if %> share. The condom and flea-collar maker rose $1 1/4 to $16 on the news -- no mention of whether Heidi Fleiss advised on the deal.... TOSCO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOS)") else Response.Write("(NYSE: TOS)") end if %> jumped $12 3/8 to $72 1/2, continuing a torrid one-year run that includes the integration of convenience store chain Circle K. This time, the company has a $2 billion agreement to add the Union76 label of UNOCAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCL)") else Response.Write("(NYSE: UCL)") end if %> to its new position as the nation's largest refiner and retailer of gasoline... Former United Kingdom national monopoly BRITISH GAS PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRG)") else Response.Write("(NYSE: BRG)") end if %> heated up $3 7/8 to $38 3/4 as takeover rumors are circulating in London. ROYAL DUTCH PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RD)") else Response.Write("(NYSE: RD)") end if %> and SHELL<% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SC)") else Response.Write("(NYSE: SC)") end if %> have been identified as the potential acquirers for the company, which now throws off 6.8% in dividends.

Yale forklift maker/Hamilton Beach/Procter-Silex owner NACCO INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NC)") else Response.Write("(NYSE: NC)") end if %> moved up $4 5/8 to $47 7/8 after announcing a Dutch auction buyback of 7.7% to 8.9% of its shares for prices between $43.50 and $50... JLG INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JLG)") else Response.Write("(NYSE: JLG)") end if %> added $2 1/8 to $19 5/8 in anticipation of earnings. After the bell, the maker of lift-platforms and other neat industrial stuff reported a 56% increase in per-share net in its first quarter... US AIR GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %> climbed $1 7/8 to $22 3/8 as investors pick through the company's third-quarter earnings report... Electronic data interchange company PREMENOS TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRMO)") else Response.Write("(NASDAQ: PRMO)") end if %> spurted upward $1 3/4 to $10 3/4 as the company unveiled a new line of products... CONNECT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CNKT)") else Response.Write("(NASDAQ: CNKT)") end if %> leapt $1 to $6 1/2 -- let us guess: the company is at COMDEX showing a hot new product? Gosh, that was difficult... ERLY INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ERLY)") else Response.Write("(NASDAQ: ERLY)") end if %>, up $1 1/8 to $9 1/8, continues to follow-up on Friday's good earnings report, which included revenues from its recent acquisition of the olive business of CAMPBELL SOUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %>... ZOLTEC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZOLT)") else Response.Write("(NASDAQ: ZOLT)") end if %> is doing the same, adding another $4 to $36, though the company makes carbon fiber, not olives...

GOATS

Communications cable maker CABLE DESIGN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CDTC)") else Response.Write("(NASDAQ: CDTC)") end if %> slipped $2 5/16 to $31 11/16 on earning $0.40 per share in its first quarter, missing the mean estimate by a penny. Investors dumped the shares this morning, pushing them to a low of $28 1/2. While quarterly sales grew more than 70%, earnings per share only grew at less than one-third that rate, or 21%. Investors might have been spooked by the lower gross margin on sales from units that the company acquired since last year's reporting period and the company's report that average selling prices are lower than last year. However, they added that some products are experiencing longer sales cycles due to efforts educating customers, which is not the worst thing in the world. If the company can shape up the acquired operations as well as educate investors on what to expect and how to measure their future performance, it will probably justify the snapback in its shares today. Rather than keeping information closed, it behooves companies to inform investors so that missing estimates by a penny does not turn into the farcical exercise in re-valuation that often occurs on such days.

ABR INFORMATION SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ABRX)") else Response.Write("(NASDAQ: ABRX)") end if %> continues to trade in multi-point jumps, diving $11 3/8 to $44 5/8 today as investors continue to psych out the potential impact of recent management changes at the firm. On Thursday, ABR ditched Chief Financial Officer and Treasurer Vincent Addonisio due to "differences with the board and management." The stock was down $6 that day, recovered $5 on Friday, and has now turned down again in the continuing roller-coaster ride. ABR provides benefits administration and information services to companies that are outsourcing. The firm specializes in COBRA, a federal program that requires employers with 20 or more employees to continue to offer healthcare coverage to former employees. Apparently this can be a major hassle and has caused ABR to surge. With only $32 million in trailing revenues and a $600 million market capitalization, the volatility is not terribly surprising given the company trades at more than 20 times sales.

TEXACO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TX)") else Response.Write("(NYSE: TX)") end if %> slid $2 3/4 to $98 3/8 today after the company agreed to pay $176.1 million to settle a class-action discrimination lawsuit. Dean Witter hastened to up the shares of the oil giant to "buy" from "hold," saying that the troubles can be quickly put behind the company. Indeed, there are very few who have let their purchasing decisions be influenced by the memory of the EXXON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XON)") else Response.Write("(NYSE: XON)") end if %> Valdez tragedy. Does Texaco just slide by and forget about an ugly chapter in its history, or does it follow the logical microeconomic concept that bigotry is wasteful? If a company doesn't want to promote the most able people and bring out the best in employees through enlightened policies, those people will go where they will be compensated for their abilities, leaving that discriminatory company in a less effective competitive position. While the settlement is the first step, the difference will also be seen in future income statements. For when a company of such size can create a one-tenth of one percentage point operating advantage, that's $40 million extra for capital investment, increased pay for employees, or increased return for shareholders.

QUICK CUTS: MCDONNELL DOUGLAS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MD)") else Response.Write("(NYSE: MD)") end if %> fell $4 1/4 to $52 1/2 after losing out on the DOD Joint Strike Fighter project to BOEING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> and LOCKHEED MARTIN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %>. MF Templar examined the issue in greater detail in the Lunchtime News today... Software utility company SYSTEMSOFT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYSF)") else Response.Write("(NASDAQ: SYSF)") end if %> dropped $3 1/2 to $20 7/8 as non-plussed analysts and investors phoned in their sell orders from the floor of COMDEX, where the company is failing to dazzle. Apparently, a deal with AST RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASTA)") else Response.Write("(NASDAQ: ASTA)") end if %> wasn't good enough to quell the flood of sell orders... BE AEROSPACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BEAV)") else Response.Write("(NASDAQ: BEAV)") end if %> lost $1 13/16 to trade at $21 3/4 following the aircraft interior company's Friday announcement that it will expand its share base by over 20% in a secondary offering... Having announced an expansion of an existing relationship with Lockheed Martin, CHIPS & TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CHPS)") else Response.Write("(NASDAQ: CHPS)") end if %> dropped $3 1/8 to $ 20 3/4... HUNGARIAN TELEPHONE & CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: HTC)") else Response.Write("(AMEX: HTC)") end if %> lost $1 to $10 1/4 as investors continue to feel ill after the company reported earnings late last week... Automotive parts company HARVARD INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HAVA)") else Response.Write("(NASDAQ: HAVA)") end if %> lost $2 to $5 3/8 for unknown reasons. The Motley Fool news was referred to the company's lawyer. Thanks, but no thanks... USSB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USSB)") else Response.Write("(NASDAQ: USSB)") end if %> was beamed down for a $2 3/8 loss to close at $10 3/4 after First Boston downgraded the Direct Satellite Broadcaster to a "hold" from "strong buy"... Earth-based microwave broadcaster WIRELESS ONE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WIRL)") else Response.Write("(NASDAQ: WIRL)") end if %> was pounded like tough steak, losing $1 7/8 to $10 1/8 as investors looked over the company's earnings, comparing them to those of HEARTLAND WIRELESS COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HART)") else Response.Write("(NASDAQ: HART)") end if %> which showed poor results late last week.

FOOL ON THE HILL
An Investment Opinion by MF Templar

DNKY or DONKEY?

In July, people were talking about DONNKENNY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DNKY)") else Response.Write("(NASDAQ: DNKY)") end if %> because its ticker symbol resembled DONNA KARAN'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %> corporate logo, DKNY. The company's line of cartoon character imprinted sportswear was jokingly compared to Donna Karan's fast-growing line of "bridgewear", sweats and T-shirts bearing the imprint DKNY. Today, people are saying that Donnkenny's ticker symbol looks a heck of a lot more like the word "DONKEY," as the shares have stubbornly traded lower over the past two weeks. Today, Donnkenny is getting mashed for $2 7/8 to $4 3/16 after reporting earnings per share (EPS) for the fiscal third quarter of $0.33, $0.16 below consensus estimates. The disappointment is particularly sharp given that management had reassured analysts about the quarter's earnings during a debacle two weeks ago involving the resignation of the company's auditor and the restatement of past financial results.

The sportswear manufacturer announced on November 6th that it had "reassigned" its controller and assistant controller to "non-financial responsibilities" and that its auditor, KPMG Peat Marwick, had resigned. To top it off, the company announced it would need to restate its financial results for 1995 and the first two quarters of fiscal 1996, saying "''the previously issued financial statements should no longer be relied upon'' in its October 15th 10-Q filing. Although Donnkenny quickly replaced the lost auditors with Deloitte & Touche and named Stewart Levy as chief financial officer, concerns about a possible accounting scandal drove shares down from the $13 range to close the week at about $7. The only thing that saved the shares? Company director Harvey Horowitz's statement that 1996 estimates should fall in line with the existing estimates of $1.30 to $1.40 EPS.

In spite of the fact that Harvey sits on the audit committee for Donnkenny, it appears his knowledge of potential earnings power in fiscal 1996 might have been a little overstated. Although the accounting irregularities appear to be related to revenue recognition issues between 1994 and 1995, the company's current quarter suffered from a decided lack of profit. The firm stated that fiscal 1996 will be "''significantly below analyst estimates of $1.30 to $1.40 EPS," prompting a number of analysts who had earlier raised ratings on the stock due to Horowitz's comments to slash their ratings on the company. Prudential Securities quickly downgraded the shares to "sell" after moving them up to "buy" on November 8th after the analyst chatted with management. Dillon Read went from "buy" to "underperform" today after making the move to "buy" only days ago as well. Frankly, it is not a great surprise that the company will find itself defending against a shareholder lawsuit that alleges a violation of federal securities law through misrepresentation of material facts.

For the third quarter, Donnkenny reported a 29.8 percent increase in revenues, aided by the acquisition of Beldoch Industries, Oak Hill Sportswear and Fashion Avenue Knits in the past year and a half. The company's shift in fiscal year has also created a confusing comparison, as the 1996 figures include the month of September, whereas the 1995 figures include the month of May. The $86 million in sales have been boosted by focusing all of the company's pre-holiday sales into one quarter, making any comparisons of this number to the prior quarter or to year ago levels touch and go. The most alarming component of the results is the margin deterioration. Gross margins have dropped 3.8 percent, accounting almost entirely for the sorry showing of 10 percent EPS growth on the bottom line. With a sparse cash position and more than $45 million in long-term debt, Donnkenny has suddenly been transformed into a heavily indebted, troubled clothing-maker from a hip growth company with a key deal with DISNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> in less than two weeks.

With prior estimates of $1.30 to $1.40 EPS out the window, the question investors face is how much can Donnkenny make in this fiscal year? Given the margin deterioration in what should have been its strongest quarter, and only $0.32 EPS in trailing earnings after the company restated its fiscal first half to show a $0.01 EPS loss, those $1.35 EPS consensus targets of yesteryear seem a bit of a pipedream at this point. Numbers more like $0.50 to $0.65 EPS seem possible if the company can come close to repeating its performance. With 14.034 million shares outstanding, the company has $59.6 million in stock, $45 million in long-term debt and $254 million in revenues. The company had operating margins in excess of 10 percent in the last quarter, but net margins of only 5.3 percent due to the large chunk of change the company spends funding its debt -- now standing at 45 percent of its market capitalization, but only 17.7 percent of its trailing sales.

Although the company clearly qualifies as "distressed," the sharp discount to sales and trailing earnings might warrant a close look. The reaction today appears to be driven by the analyst's downgrades and performance relative to estimates, not the inherent ability of the company to generate cash. If it can even come close to this quarter next quarter, you are looking at a company at eight to ten times earnings and with an enterprise value of 0.40 times sales. A more detailed look at the company's current financial state will be available when it files its 10-Q for the quarter, due 45 days from the end of the quarter -- December 15th. The only concern is that Donnkenny runs with so much debt that any substantial change in its operating model could be disastrous. Its avenues of financing should its distress get acute are limited -- it cannot issue stock at the current price without diluting shareholders, relative to its market value it is already debt-ridden, and it has absolutely nothing in the way of cash reserves to support it. Whatever restatement turned more than $0.30 EPS in profits for the first half into a penny loss is pretty severe and makes it difficult to estimate what the company can do going forward. Definitely one to do a lot of homework on.

CONFERENCE CALLS

11/18/96
HEWLETT PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("
(303):NYSE" & CHR(34) & ">(NYSE: HWP
(303)") else Response.Write("
(303)" & CHR(34) & " onClick=" & Chr(34) & "openWindow('http://quote.fool.com/uberdata.asp?symbols=HWP
(303)', 'quotebox', 640, 460); return false;" & CHR(34) & ">(NYSE: HWP
(303)") end if %> 446-5399 (code: 2004539) -- replay (after 8:30 p.m. EST through 8p.m. EST on 11/25)

11/19/96
DAYTON HUDSON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
(800) 633-8284 (reservation # 2053944) -- replay (avail. from 12:30-5:00 p.m. EST only)

11/19/96
ROSS STORES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ROST)") else Response.Write("(NASDAQ: ROST)") end if %>
(402) 222-9948 -- replay (avail. after 5PM EST 11/19 thru 8PM EST 11/26)

ANOTHER FOOLISH THING

Painless Stock Valuations

Learn to value stocks painlessly! In the Industry Decathlon primer, MF Bogey takes readers by the hand and walks them through five stock valuation methods and ten financial ratios. While demystifying the Balance Sheet, Statement of Cash Flows, and Income Statement, Bogey demonstrates how to compare a bunch of companies in your industry of choice and find the most promising one. This is very useful stuff, folks! Check it out in FoolMart.

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

Dale Wettlaufer (MF Raleigh), Born Under Street Sign
Heroes & Goats

Brian Bauer (MF Hoops), one more Fool
Editing

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