HEROES

Car-care products company ARMOR ALL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ARMR)") else Response.Write("(NASDAQ: ARMR)") end if %> rose $1 5/8 to $18 7/8 today after CLOROX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLX)") else Response.Write("(NYSE: CLX)") end if %> won the approval of majority shareholder MCKESSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCK)") else Response.Write("(NYSE: MCK)") end if %> to buy the company for $19.09 per share, or a little over $400 million. Armor All had a tough fiscal 1996, when sales fell 14% and cash flow and earnings took a dive. Through the first half of fiscal 1997, the numbers looked better, but a cruel summer held down second quarter sales from last year's level. Armor All reacted by cutting SG&A (sales, general and administrative) expenses enough that earnings per share came out 23% ahead of last year's Q2. Normally, the company can achieve operating margins in the 15-20% range, which puts it in the league of the top household products companies. Add in a good brand name and over $50 million in cash, Clorox's production capabilities, and an enterprise value-to-sales ratio of less than 2x, and one can say this is a pretty good buy for Clorox.

EASCO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ESCO)") else Response.Write("(NASDAQ: ESCO)") end if %> gained $1 1/2 to $7 1/4 as investors in the aluminum products company bid farewell to the company's CEO and CFO and welcomed in two industry veterans. While the company said that its decline in profitability this year is due to the worsening spread between the price of aluminum and average selling price of its products, its SEC filings indicate that this usually does not have an effect on overall profitability. Using the LIFO (Last In, First Out) method of inventory valuation, Easco seeks to match its cost of goods sold so that when selling prices go down, the company takes out of inventory the aluminum it bought at lower prices. The company has indeed managed this line well. The real problem, though, lies in the SG&A expense line, which has exploded relative to the flat sales. The fact that the company is not realizing any return on these extra expenditures is why two of the policy/strategy guys are gone.

Timeshare developer VACATION BREAK USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VBRK)") else Response.Write("(NASDAQ: VBRK)") end if %> rose $6 to $16 3/4 as the company signed a merger agreement with private developer The Berkley Group. The company's press release contains no mention of the value of the deal other than to say that it will issue 21 million shares in what appears to be the public market debut of Berkley, the much larger timeshare developer. As of today, the market is valuing the new entity at over $500 million, whereas the equity value of Vacation Break was about $97 million last night.

QUICK TAKES: OWEN HEALTHCARE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OWN)") else Response.Write("(NYSE: OWN)") end if %> jumped $8 3/4 to $25 1/2 as the pharmacy management company signed a definitive pact to merge with CARDINAL HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAH)") else Response.Write("(NYSE: CAH)") end if %> in a stock swap that values Owen at $27.25 per share... NATIONAL EDUCATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEC)") else Response.Write("(NYSE: NEC)") end if %> rose $1 7/8 to $14 as Smith Barney raised its rating on the education and training products company to "buy" from "outperform"... Midwestern retailer FRED MEYER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMY)") else Response.Write("(NYSE: FMY)") end if %> rose $2 5/8 to $34 3/8 as Goldman Sachs added the company to its "priority list"... CLAIRE'S STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLE)") else Response.Write("(NYSE: CLE)") end if %> added $3/4 to $14 7/8 as brokerage J.W. Charles upgraded the young women's fashion retailer to "buy" from "hold" on valuation reasons... APPLIED DIGITAL ACCESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADAX)") else Response.Write("(NASDAQ: ADAX)") end if %> moved up $7/8 to $7 1/2 as investors reacted to yesterday's joint development agreement between the network management software company and xDSL networking products leader PAIRGAIN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PAIR)") else Response.Write("(NASDAQ: PAIR)") end if %>.

MORE TAKES: Specialty chemicals firm and, of course, brush manufacturer, H.B. FULLER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: FULL)") else Response.Write("(NASDAQ: FULL)") end if %> rose $3 to $47 as Merrill Lynch upped the company to "buy" and put the stock on their "single best idea" list.... TRIANGLE PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VIRS)") else Response.Write("(NASDAQ: VIRS)") end if %> exploded upward $2 3/4 to $13 1/2 as Dillon Read initiated coverage of the drug developer with a "buy" rating... Jumping $2 3/4 to $20 1/4, MRV COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MRVC)") else Response.Write("(NASDAQ: MRVC)") end if %> said that INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: INTC)") else Response.Write("(NASDAQ: INTC)") end if %> will acquire 200,000 newly-issued MRV shares at $20 apiece in furthering an already existing relationship between Intel and the LAN switching company... ORTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORTL)") else Response.Write("(NASDAQ: ORTL)") end if %> rose $4 3/8 to $20 1/2 on yesterday's earnings report in which the wireless telecom infrastructure company said second quarter revenues rose 45% and earnings per share increased 31%.

GOATS

U.S. FRANCHISE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USFS)") else Response.Write("(NASDAQ: USFS)") end if %> lost $5/8 to $10 1/2 today for no discernible reason, though the story of a company that came public last month at $13 1/2, peaked at $16, and is now at $10 1/2 is quite interesting. The two analysts that cover the company estimate that it will lose $0.68 per share this year and $0.40 per share in 1997. The company was formed last year to franchise the Microtel brand of budget hotels, which the company cites as the area of the lodging industry where growth in demand most heavily outstrips growth in supply. The firm's other brand is Hawthorn Suites, an extended-stay luxury hotel. U.S. Franchise's prospectus cites an industry group's figures which show that 30% of hotel stays last year could be classified as "extended stay" (over five nights), while the number of rooms of this type made up only 1% of total room supply in 1995. In addition, occupancy in this segment beats general hotel occupancy by far.

SYSTEMSOFT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SYSF)") else Response.Write("(NASDAQ: SYSF)") end if %> dropped $2 to $18 5/8 after the software utility company reported a 75% increase in third quarter earnings per share and a 66% increase in revenues. Investors have been troubled recently by a report that SystemSoft has not properly recognized software R&D as expenses, but has instead capitalized the expenses. Another company familiar to Motley Fool readers has been through this before: AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>. If these expenses create revenues down the road and the company can make the case that its projections are reasonable, then it matches the precepts of accrual accounting. Judging by the persistence of sales growth, the company is able to turn R&D into sales. We would point out that the Statement of Cash Flows contains valuable information for those who are having trouble with the capitalization concept.

QUICK CUTS: Healthcare finance management company HEALTH MANAGEMENT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HMSY)") else Response.Write("(NASDAQ: HMSY)") end if %> dropped $2 to $15 1/2 as the company reported flat earnings of $0.16 per share yesterday. Though the company had pre-announced poor earnings, the number still came in below estimates... CHECKPOINT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKP)") else Response.Write("(NYSE: CKP)") end if %> lost $1 3/4 to $22 1/4 as The Wall Street Journal's "Inside Track" column pointed out heavy insider selling of late at the company... Computer training firm LEARNING TREE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LTRE)") else Response.Write("(NASDAQ: LTRE)") end if %> slipped $2 3/8 to $45 1/2 as brokerage Piper Jaffray downgraded the company, but only from "strong buy" to "buy," because of valuation concerns... CELLSTAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLST)") else Response.Write("(NASDAQ: CLST)") end if %> dropped $1 1/4 to $11 1/4 as the company neared total retreat from selling cellular phones on a retail basis by selling its Communications Centers to MCI <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MCIC)") else Response.Write("(NASDAQ: MCIC)") end if %>.

FOOL ON THE HILL
An Investment Opinion by MF Templar

The Outsourcing Zeitgeist

Outsourcing is pretty common among large companies these days. Even small companies are getting into the zeitgeist, finding that many traditional functions once thought part and parcel of the corporate culture are actually best done under the umbrella of "human resources." Looking across the vast array of companies vying for investment dollars, there are a number of popular names that provide client companies of any size with services to outsource their human resource functions. In fact, one wonders when some enterprising analyst at a major brokerage firm will pick up on the overall outsourcing theme and try to bill him- or herself as the outsourcing analyst. As always here at the Fool, we aim to bring you the scoop on emerging trends first, so I wanted to highlight the industry today in an attempt to head those ol' sell-side analysts off at the pass.

The human resources departments at most major companies manage hiring and benefit packages. The hiring part requires getting a company all of the "human" resources that it can for the best price, charting the murky waters of regulatory compliance while doing so. The benefits side of human resources is an immense task as well. This includes, but is not limited to, healthcare, retirement, workers' compensation and post-employment benefit management, the most important of these being healthcare. Yep, even after you fire someone, with the human resources department ensuring that you have done it in an entirely legal way, you have to offer them healthcare benefits for a fixed amount of time under a program called COBRA. Yikes!

One of the simplest ways to deal with complicated human resources issues is to not hire the employee at all. Instead, you can simply go through a temporary employment agency and get all the manpower you need, paying a fixed cost that you know up front without ever having to deal with benefits again. We discussed the staffing firms last week when OLSTEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %> imploded, dragging the rest of the group down with it. There are a number of companies in the conventional temporary employee business, offering services as straightforward as office pool secretaries, like KELLY SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: KELYA)") else Response.Write("(NASDAQ: KELYA)") end if %>, to people who can do your accounting, such as ON ASSIGNMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ASGN)") else Response.Write("(NASDAQ: ASGN)") end if %>. A temporary agency can offer a nice short- to intermediate-solution, but if you are really trying to hire people and sidestep the human resources mess, it can be a little inefficient as the temporary firm controls the assignment and the employee has no sense of belonging.

One company trying to reinvent the distinction between temporary worker and full-time employee is the aptly-named EMPLOYEE SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ESOL)") else Response.Write("(NASDAQ: ESOL)") end if %>. Employee Solutions leases employees to companies, although unlike auto manufacturers they do not give out mileage minimums. Employee Solutions becomes the employer of record, dealing with all of the human resources stuff while the client retains management control of the employee, including salary control and hiring/firing authority. Employee Solutions is essentially the only public company that I know of doing the employee leasing thing, which either means that it is a new area to explore or some kind of mutant phenomenon that will fade just as quickly as it came into being. Priced at around $18 with $0.36 EPS in trailing 12 month earnings, Employee Solutions is in no danger of becoming a low P/E stock anytime soon. That P/E of 50 doesn't look quite so scary when you realize the company has been growing in excess of 150 percent a quarter for the last four quarters. The downside of the current valuation includes a low operating margin of 4.8 percent, although the enterprise value-to-sales ratio of 1.58 is not stratospheric.

Canny management at Employee Solutions also recognized another niche in the benefits business -- managing worker's compensation. This type of ailment is one of the few areas managed care has not penetrated significantly into and represents a huge cost burden on employers. As well as Employee Solutions, there are other companies in this space, namely OCCUSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OSYS)") else Response.Write("(NASDAQ: OSYS)") end if %>. OccuSystems provides outpatient medical clinics for employees who suffer relatively minor on-the-job injuries, allowing employers to bypass more expensive emergency rooms entirely. Essentially operating as a physician practice management company specialized in occupational health, OccuSystems is carving out new territory with the specific way it partners with industry. Like anything with a strong "story," the stock has been a volatile high-flyer, most recently trading at around $28 a share. Sporting a P/E of 50 with an enterprise value-to-sales ratio of 4.08, it ain't cheap either. Earnings growth has been strong, but has slowed in recently months.

A company trying to do it all on the outsourcing side is VINCAM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VCAM)") else Response.Write("(NASDAQ: VCAM)") end if %> --you guessed it, another high-flyer. Vincam does not want to just do part of a company's human resources work. Vincam wants to become their human resources department. Vincam offers to do it all for small companies so they do not have to bother with any human resources functions, "provid[ing] businesses with an outsourcing solution to the complexities and costs related to employment and human resources." At 97 times earnings, it is unclear whether Vincam provides a solution to the complexities of its valuation, hanging tough at only 0.80 times sales. I am unsure how they specifically structure their business, but the disparity between the earnings ratio and the sales ratio implies that the business does not command a high margin, making one wonder what exactly the economics of the business are.

Finally, the last interesting company in the outsourcing field is none other than ABR INFORMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ABRX)") else Response.Write("(NASDAQ: ABRX)") end if %>. ABR specializes in COBRA, a law mentioned above that requires that employers offer employees access to healthcare insurance even after they leave their job. Expensive to administer, many companies turn to ABR as a way to make sure they are in compliance with the law. Unfortunately for shareholders, the stock does not seem to be in compliance with gravity, as it has been bouncing all over of late. An analyst report questioning its accounting caused some volatility last week, but the stock seems to have bottomed out in the near-term. At around $43 a stub, the company trades at 90 times earnings and close to 18 times sales, a level some might describe as lofty. Certainly ABR has a major place in the outsourcing market, but one cannot help but wonder if the price is really right, even $34 below the early October high.

FOOL FEATURES

The Lunchtime News features a "smoked" Fool Plate Special on Philip Morris. The stock was lit up today following news that David Kessler was stepping down from his post with the FDA. Kessler was a vocal opponent of the tobacco industry, leading a charge to get Congress to regulate nicotine as a drug.

While we were in the kitchen, we figured that we'd cook up a special collection on stocks that we're thankful for. It's in the oven now, but should be ready by tonight. Mmmm-mmm, that's some good cookin'.

Finally, with the holiday season in full swing, we know that many out there are looking for gift ideas. Why not consider DRIPs for Kids? DRIPs (Dividend ReInvestment Plans) are a great way to get a youngster interested in investing. DRIPs can be entered with a minimal initial investment, teach the value of saving for the long term, and are offered by many big-name companies that kids can understand.

CONFERENCE CALLS

NOVELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NOVL)") else Response.Write("(NASDAQ: NOVL)") end if %>
(402) 220-1006

ANOTHER FOOLISH THING

Take The Fool Quiz

Tired of taking all those quizzes in Redbook magazine? Bored with the Sunday crossword puzzle? Then try taking the Fool Quiz! Penned by MF Swagman, this is one of our most fun primers -- chock full of entertaining questions and situations where you have to make an investment decision. And no, you don't have to order the teacher's guide separately! The detailed answers are included. Learn all about investing from the stories of Wenceslas Widgets and Mercutio's Church Doors. Make sure you know when to buy, when to short, and when to sell. Find out what CANSLIM and the PEG and the PPP really are. A masterful Foolish overview, and as interactive as printed paper can get! The Fool Quiz is available in FoolMart.

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

THE DAILY NEWS CAN BE DELIVERED DIRECTLY TO ANY INTERNET E-MAIL BOX.