HEROES

CENTRAL PARKING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PK)") else Response.Write("(NYSE: PK)") end if %> rose $2 5/8 to $35 1/2 after announcing the acquisition of SQUARE INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SQAI)") else Response.Write("(NYSE: SQAI)") end if %> for $31 per share. Central Parking owns and operates parking facilities throughout the U.S. and does contract work for facilities such as Heathrow Airport. The acquisition will increase Central Parking's capacity by 11%, but not counting spaces operated under contract, the capacity addition is much larger. The added facilities include parking for such venues as Shea Stadium, Rockefeller Center, and One Penn Plaza in New York City. In addition to the $31 per share that Central is paying, investors should also figure in debt minus cash to get at Enterprise Value. On that basis, the whole deal here is worth about $65 million, or one times revenues, which works out to about $1,065 per parking spot.

After rising last week on an unsolicited merger offer from NEWMONT MINING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEM)") else Response.Write("(NYSE: NEM)") end if %>, SANTA FE PACIFIC GOLD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLD)") else Response.Write("(NYSE: GLD)") end if %> rose $1 1/8 to $16 1/2 after agreeing to merge with HOMESTAKE MINING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HM)") else Response.Write("(NYSE: HM)") end if %> in a deal valued at $17.42 per share. Homestake said the deal values Santa Fe's reserves at $125 per ounce and that the combined company can generate $30 million in cost savings by the end of next year. With that cost savings in mind, combining 1997 estimates for the two companies and using an estimated sharecount of 294 million shares outstanding, earnings estimates of above $0.32 per share may result. Homestake is currently trading around 47 times that estimate, which is somewhat rich compared to the premiere North American producer, BARRICK GOLD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABX)") else Response.Write("(NYSE: ABX)") end if %>, which trades at 35 times 1997 estimates.

QUIXOTE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QUIX)") else Response.Write("(Nasdaq: QUIX)") end if %> rose $2 to $10 3/4 today after announcing that it will shed its CD manufacturing unit to focus on its highway safety systems business. Earlier this year, the company sold its Legal Technologies subsidiary as well as its share of a pyrotechnics company involved in auto safety systems. Today's sale brings in $80 million in cash, which means that the company could pay down almost all of its long-term debt. The company says that the CD-ROM business is becoming crowded -- looking at the segment results, this is apparent. While its highway systems business generated 25% operating margin last year, CDs generated less than 10%, and the software business was a money-loser. The company can now potentially generate a very strong net margin of 16% or more -- at less than two times sales, some see a good value.

QUICK TAKES: Medical device company UROQUEST MEDICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UROQ)") else Response.Write("(Nasdaq: UROQ)") end if %> jumped $1 3/4 to $7 1/2 after underwriter Prudential Securities initiated coverage of the company with a "buy" rating... MICRODYNE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCDY)") else Response.Write("(Nasdaq: MCDY)") end if %> popped $1 1/4 to $6 3/8 on announcing an $11 million contract for its communications products, its largest contract ever... Mobile data software company PUMA TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PUMA)") else Response.Write("(Nasdaq: PUMA)") end if %> rose $3 7/16 to $19 1/4 as the market turns over the shares of last week's initial public offering... ENGINEERED SUPPORT SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EASI)") else Response.Write("(Nasdaq: EASI)") end if %> moved up $2 1/8 to $12 1/8 after the military support equipment and plastics company reported a 50% increase in fourth quarter earnings per share (EPS)... Electronics contract manufacturer SIGMATRON INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SGMA)") else Response.Write("(Nasdaq: SGMA)") end if %> jumped $2 3/8 to $15 1/8 after reporting a better than 100% increase in second quarter EPS... ISG INTERNATIONAL SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SISGF)") else Response.Write("(Nasdaq: SISGF)") end if %> rose $2 3/4 to $19 3/8 after signing a deal with DIGITAL EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %>.

MORE TAKES: Year 2000 software company VIASOFT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VIAS)") else Response.Write("(Nasdaq: VIAS)") end if %> flew $6 1/4 to $52 1/4 after the company closed its purchase of a German software systems company late last week... THE LEARNING COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TLC)") else Response.Write("(NYSE: TLC)") end if %> rose $2 to $16 1/2 on the Barron's effect -- this weekend's edition also mentioned BRODERBUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %>, which moved up $2 1/8 to $31 7/8, as an article opined that the computer game market might be ready to rebound... Medical imaging company ENDOSONICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESON)") else Response.Write("(Nasdaq: ESON)") end if %> gained $1 3/8 to $13 1/4 following an upgrade to "strong buy" from Piper Jaffray... CENTENNIAL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTN)") else Response.Write("(NYSE: CTN)") end if %> added $5 to $46 1/4 as investors delighted in the company's 12% acquisition of ViA, Inc., which makes a computer you can wear... Credit reporting agency EQUIFAX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EFX)") else Response.Write("(NYSE: EFX)") end if %> moved up $2 1/8 to $33 3/4 after making a series of announcements today, including the news that it will spin off its insurance Information unit... CYPRESS SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CY)") else Response.Write("(NYSE: CY)") end if %> ticked up $1 3/4 to $15 5/8 after Robertson Stephens & Co. upped its rating on the company to "buy" and added the shares to its "Focus List."

GOATS

QUALITY DINING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QDIN)") else Response.Write("(Nasdaq: QDIN)") end if %> lost $1 9/16 to $19 after Piper Jaffray dropped its rating on the restaurant operator to a blase "market perform" from a glowing "strong buy." The analyst at the brokerage said the company lacks operational focus on its Brueggers Bagel Bakery expansion and, furthermore, that it lacks financing strength. The analyst said that EINSTEIN/NOAH BAGEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENBX)") else Response.Write("(Nasdaq: ENBX)") end if %> has a capital advantage over the company. If a company doesn't have focus in this crowded market, it stands to reason it would be downgraded. With the expansion of local and regional private bagel bakeries, the addition of bagel lines to already-existing eateries, and the onrush of competitors such as Einstein and the aggressive MANHATTAN BAGEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BGLS)") else Response.Write("(Nasdaq: BGLS)") end if %>, playing catch-up can turn into an expensive game.

Consumer products outlet REX STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RSC)") else Response.Write("(NYSE: RSC)") end if %> was dropped for a $1 1/4 loss to $8 1/4 today as the company reported a horrifying same-store sales decrease of 18.9% for its third quarter ending October 31. Net income per share came in at $0.03, well below the $0.12 analysts were expecting. Not that this wasn't totally unexpected -- the shares were sporting a 6 price/earnings (P/E) ratio coming into today. When the P/E declines to this level, many times it's a presage of decreasing earnings. This time around, the low P/E did foretell the problems that some of the analysts didn't see -- one brokerage dropped its rating to "hold" from "buy," while Everen dropped its rating to "market perform" from "outperform." Is this another dead business model or is this just a case of cruddy third quarter consumer spending? Everybody has their favorite theory.

PRESSTEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRST)") else Response.Write("(Nasdaq: PRST)") end if %> reclaimed its rightful spot on the most active list today when the Securities & Exchange Commission (SEC) reiterated that it was investigating trading in the company's shares -- something that almost anybody paying attention has known for months. Efficient as always, the market priced down shares of the printing press producer $6 1/4 to $75 1/2. Once upon a when, Presstek was the poster-child for the Tulipmaniacs, a group of hard-core bears who liken the rise in stocks over the past decade and a half to the radical appreciation of tulip bulbs in post-war Amsterdam. Presstek had been a favorite of the Cabot Market Letter, a fallen publication that has pulled its boosting commercials on CNBC while the SEC sorts out the Presstek details.

QUICK CUTS: DECKERS OUTDOOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DECK)") else Response.Write("(Nasdaq: DECK)") end if %> flopped $1 1/4 to $6 3/4 after Gruntal & Co. cut its rating on the Tiva sandals maker to "neutral" from "outperform"... Communications equipment maker FARALLON COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRLN)") else Response.Write("(Nasdaq: FRLN)") end if %> lost $1 3/8 to $10 3/8 as stockholders outside the newly-public company are free to unload shares, according to the company.

FOOL ON THE HILL
An Investment Opinion by MF Templar

What's In a Split?

Individual investors tend to get excited about stock splits. The conventional wisdom holds that stocks that have split tend to outperform the market. Conversation often centers on when a particular company will split its stock, whether or not you should buy before or after the split, and when one should sell a stock after it has split. Today's twin splitting of DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> and MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> invites discussion of whether or not Fools should view stock splits as an unparalleled opportunity to mint money or just another chunk of Wall Street's received wisdom that should be ridiculed.

A study called "What Do Stock Splits Really Signal?" in September of 1995 examined the performance of stock splits on the New York Stock Exchange and American Stock Exchange from 1975 to 1990. Authors David Ikenberry and Earl Kay Stice discovered that companies that split their stock outperform the S&P 500 by 7.94% in the first year following the announcement. A full 3.38% of that outperformance occurs in the first five days after the split. The most significant excess returns over the long-term tend to occur in the small companies that have split their shares, as opposed to the large companies. With a sizable 6% of companies on the New York Stock Exchange and American Stock Exchange splitting their stock every year, it would appear that this outperformance is statistically significant.

Because stocks tend to outperform the market after a stock split, does it therefore make sense to purchase a company based solely on the fact that it is going to split its shares? Before we can reach a conclusion here, we need to understand why stocks that have split tend to outperform the major indexes. There are two main theories in academic circles to explain the stock split effect, implicit communication and affordability. Implicit communication is the idea that the stock split is somehow a signal from management or the board of directors to investors that they anticipate good things over the next few months that will drive the stock price even higher. Technically defined, management is communicating "its optimistic expectations about future cash flows."

Affordability is simply maintaining the share price within a certain range. Although share price might appear to be an arbitrary thing, different share prices tend to communicate different things to investors. Even though it is completely irrational and unFoolish, an investor with $4000 to invest will often purchase 800 shares of a $5 stock over 40 shares of a $100 stock because the $5 stock is "cheaper." When the share price gets to about $50 or so, many small investors view the stock as out of their price range because they could only buy a few shares, leaving them to concentrate on stocks that are more attractively priced. AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> has one of the more proactive takes on this phenomenon, aggressively splitting their stock whenever it sustains a price above $75 in order to leave it "affordable" to the average consumer. The company believes that the stock of a consumer company should be attractive to consumers, and keeps the stock within a proscribed range.

All of this theorizing can get away from the core reason a company is forced to split its stock. A company splits its stock when the price has appreciated. Not very many companies have ever decided to do a three-for-one split when the stock is down 50%, although many have split their stock after it has gone up significantly. One cannot view the stock split outside of the rapid appreciation of the stock's price -- the two are intimately connected. The same factors that cause a stock to rapidly appreciate drive companies to split their stock. Strong growth in earnings, revenues, cash-flow, profit margins and other significant news often stand behind the companies that have decided to split their stock. Companies that are doing stock splits tend to have very high relative strength ratings, another by-product of the good news that is pouring out from corporate headquarters. As David Gardner wrote in the Motley Fool Investment Guide, strong price appreciation means that "things are better than they ever have been before."

So, if we have underlying fundamental changes driving stock price increases, and concomitantly driving the stock splits, of course stocks that split as a group will outperform the market price-wise -- they are outperforming the market earnings-wise, cash flow-wise, revenue-wise and so on. Attributing the price increase to the stock split and not the underlying fundamentals of the business is the old ice cream-monsoon analog. One sharp statistician figured out many moons ago that the increase in the number of ice cream cones sold in New York City correlates quite well with the increase in the number of deaths in Southeast Asia. Should people stop buying ice cream cones in an attempt to save lives? Of course not. They should simply recognize that summer in New York City is monsoon season in Southeast Asia and that these two events are only connected via the underlying weather phenomenon, not through any direct linkage. So it is with stock splits and stock price appreciation -- underlying positive change in the fundamentals drives both phenomenon. Independently, they are not related.

CONFERENCE CALLS

None until later this week. We'll spring back at you with a ton of 'em after the holidays.

ANOTHER FOOLISH THING

The Dow Dividend Spreadsheet

Fooldom is all about interactivity and do-it-yourself investing, right? (Answer: Right.) What fits in better with such a tradition than the Dow Dividend Spreadsheet? Developed by our own industrious MF Templar, this is a living, breathing spreadsheet -- one you can manipulate and tinker with. It offers returns and dividends for all 30 stocks in the Dow Jones Industrial Average for 35 years (1961 through 1995), as well as returns for all eight Dow Dividend Strategies -- year by year. This allows you to test out any hypothesis in your search for the ultimate investing approach. Construct what-if scenarios and test them. What if you only bought the 17th-highest-priced stock each year for 35 years? What if you bought all but the lowest-yielding stocks? What if...

The spreadsheet is available in FoolMart and will be delivered to your e-mailbox electronically in your preferred format (Excel 4.0, 5.0, 6.0, or 7.0 only).

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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