HEROES

TYLAN GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TYGN)") else Response.Write("(Nasdaq: TYGN)") end if %> rose $1 1/2 to $15 3/4 as the semiconductor equipment company agreed to be acquired for $16 per share in cash plus debt by MILLIPORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIL)") else Response.Write("(Nasdaq: MIL)") end if %>, a process controls company serving the biotechnology, pharmaceutical, and electronics industries. Millipore also recently acquired the Amicon Separation business of W.R. GRACE & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRA)") else Response.Write("(NYSE: GRA)") end if %> for $125 million in cash. The $148 million purchase of Tylan came at a lower price/sales multiple than the Amicon purchase due to the downturn in the semiconductor process business. Tylan's sales will almost double Millipore's semiconductor equipment exposure, which is a faster-growing industry than Millipore's core business. Millipore figures, then, that it can stretch a bit on the debt to acquire Tylan.

Publisher and investment manager VALUE LINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VALU)") else Response.Write("(Nasdaq: VALU)") end if %> rose $4 5/8 to $47 1/8 after the company declared a dividend of $15 per share. If the companies that program mechanical stock quotes don't pay attention, it's going to look like this company pays a 50% dividend following the distribution, which it doesn't normally do. The story is somewhat complex: the Chair of Value Line and members of her family own a company that in turn owns 80% of Value Line. The Chair's twin brother sued her and that holding company for not representing his interests in the holding company. To settle that suit, the Chair asked the Value Line board to kick off the $15 per share dividend so that the holding company could buy out the brother. An interesting story in the sometimes complicated world of family business ownership.

APOLLO GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APOL)") else Response.Write("(Nasdaq: APOL)") end if %> rose $2 1/8 to $28 after the for-profit education company reported earnings per share (EPS) of $0.14, a 56% increase, comfortably above estimates of $0.12. Last quarter, the company reported EPS of $0.12 per share. Apollo, best known for its University of Phoenix, is now the largest private educational institution in the U.S. with close to 50,000 students enrolled throughout the range of its courses. The company is now working on development of online courses and has started enrolling students in its online MBA program. Will it ever carry the same cache of a Harvard MBA? Judging by the company's steady growth in revenues and earnings, the students appear to be pretty happy with the services.

QUICK TAKES: BRITISH SKY BROADCASTING GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSY)") else Response.Write("(NYSE: BSY)") end if %> climbed $3 to $51 1/4 as the UK moves to deregulate the market for digital satellite broadcasting... Exclusive MARVEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRV)") else Response.Write("(NYSE: MRV)") end if %> comics licensee TOY BIZ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBZ)") else Response.Write("(NYSE: TBZ)") end if %> gained $1 to $18 5/8 as junkbond guy Ronald Perelman's Andrews Group upped its takeover bid for the company to $22.50 per share... PARAGON GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAO)") else Response.Write("(NYSE: PAO)") end if %> gained $1 1/8 to $17 1/2 as apartment REIT rival CAMDEN PROPERTY TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPT)") else Response.Write("(NYSE: CPT)") end if %> offered to acquire the company... Biotech company PROTEIN DESIGN LABS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PDLI)") else Response.Write("(Nasdaq: PDLI)") end if %> advanced $4 to $31 1/2 as the company was granted a patent on processes involving Humanized Monoclonal Antibodies... NU SKIN ASIA PACIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NUS)") else Response.Write("(NYSE: NUS)") end if %> rose $1 7/8 to $28 3/8 after Merrill Lynch and Dean Witter both initiated coverage of the network marketing company with favorable ratings... Oil and gas drilling company NOBLE DRILLING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NE)") else Response.Write("(NYSE: NE)") end if %> moved up $1 to $19 3/8 as Salomon Brothers pounded the table on the company and the offshore drilling group with a "strong buy" rating... OWENS-ILLINOIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OI)") else Response.Write("(NYSE: OI)") end if %> gained $1 to $20 1/4 after announcing that it will acquire Italy's largest maker of glass containers... Communications gear company STANFORD TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STII)") else Response.Write("(Nasdaq: STII)") end if %> gained $4 1/8 to $29 3/4 after being upgraded to "buy" yesterday by Oppenheimer... ST. MARY LAND & EXPLORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MARY)") else Response.Write("(Nasdaq: MARY)") end if %> jumped $2 3/16 to $21 7/16 on announcing it has added 26 billion cubic feet of natural gas to its proved reserves... Electronic commerce company CYBERCASH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYCH)") else Response.Write("(Nasdaq: CYCH)") end if %> gained $2 3/4 to $26 after AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> said it will use the company's services in its web-hosting business... Electronic games company ELECTRONIC ARTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERTS)") else Response.Write("(Nasdaq: ERTS)") end if %> gained $2 1/2 to $30 5/8 after announcing a cross-promotion pact with golf club maker Taylor Made.

GOATS

FRONTIER COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRO)") else Response.Write("(NYSE: FRO)") end if %> dove $5 5/8 to $20 3/4 after the local and long-distance telephone company advised investors to lower earnings expectations for the quarter. Frontier now estimates Q4 earnings to come in at $0.30-0.34 per share, down from $0.47 per share estimated 90 days ago. Today's announcement echoes what long-distance retailer EXCEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> announced last week -- that Excel's wholesaler (Frontier) wasn't moving quickly enough to expand capacity and that churn was hurting sales. While Frontier expected Excel to complete the move of "1+" service from its network by the end of this quarter, the company may have lost some high-margin telephony revenues, such as 800 and 888 service, too. With the buildout of a nationwide fiber optic network, though, the company expects to win back business from Excel and increase gross margin within the next year.

Video game company ACCLAIM ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AKLM)") else Response.Write("(Nasdaq: AKLM)") end if %> lost $2 5/8 to $3 3/4 after reporting a net loss of close to one-quarter of a billion dollars for the 1996 fiscal year, which is pretty rough for a company that started the day with a market capitalization around $325 million. While "content is king" in the new media world, some investors' minds continue to be boggled by the stunning losses compiled by companies publishing hit products such as Mortal Kombat or GT INTERACTIVE's <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GTIS)") else Response.Write("(Nasdaq: GTIS)") end if %> Duke Nukem. With Acclaim, it's not the success of the games themselves, it's the platform. The company will take a huge hit to write down its 16-bit game inventory in the sales channel as gamers are now clamoring for 32 and 64-bit game cartridges.

QUICK CUTS:  Modem maker GLOBAL VILLAGE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GVIL)") else Response.Write("(Nasdaq: GVIL)") end if %> slumped $1 13/16 to $3 15/16 on announcing it will take a third quarter operating loss of $25-30 million to restructure the company... CASINO DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSDS)") else Response.Write("(Nasdaq: CSDS)") end if %> lost another $1 1/8 to $7 3/8 after the gambling systems company announced it expects a fourth quarter operating loss of $0.10 to $0.14 per share... In-line skate maker FIRST TEAM SPORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FTSP)") else Response.Write("(Nasdaq: FTSP)") end if %> skidded $1 3/8 to $7 3/8 after announcing that price competition is hurting its business and that Q3 earnings will come in below estimates of $0.13 per share... C COR ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCBL)") else Response.Write("(Nasdaq: CCBL)") end if %> fell $1 3/8 to $12 3/4 after the wireless and fiberoptic equipment company said second quarter revenues and earnings will come in below expectations... Electronics contract manufacturer SOLECTRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> dropped $3 1/4 to $54 5/8 after reporting first quarter earnings of $0.63 per share (before a non-recurring charge), below the mean estimate of $0.65... LCI INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCI)") else Response.Write("(NYSE: LCI)") end if %> lost $2 7/8 to $25 1/2 as the long-distance discounter shuddered at the churn rate news from Frontier Communications... Semiconductor company MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> dropped $2 1/2 to $32 1/4 as the company's Q1 EPS of $0.07 underperformed the bullish estimates of bullish analysts... GOODY'S FAMILY CLOTHING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GDYS)") else Response.Write("(Nasdaq: GDYS)") end if %> lost $1 1/16 to $17 7/16 as the clothing retailer's chairman cut his ownership stake to 56%... PC scanner company STORM TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EASY)") else Response.Write("(Nasdaq: EASY)") end if %> swooned $4 1/4 to $5 1/4 after the company said it will take a fourth quarter loss... PACIFIC SUNWEAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSUN)") else Response.Write("(Nasdaq: PSUN)") end if %> lost $1 5/8 to $20 7/8 as a bunch of the retailer's insiders have filed to sell or have already sold shares... Telecom equipment maker TELETECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TTEC)") else Response.Write("(Nasdaq: TTEC)") end if %> fell $4 3/4 to $29 3/4 despite signing a multi-year service contract with Australian national telephone company Telstra... MANCHESTER EQUIPMENT CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MANC)") else Response.Write("(Nasdaq: MANC)") end if %> lost $1 1/8 to $7 3/4 even though the PC equipment re-seller reported a 20% increase in first quarter EPS.

FOOL ON THE HILL
An Investment Opinion by MF Templar

The Call of the Market

How can one make a case for the relative value of the market being within reason without being dismissed as another person saying, "This time, it is different." Whether or not we are analyzing the predictive value of the dividend yield (December 3, 1996), the acquisition value of financial assets implied by recent takeovers (December 16, 1996), or the relevance of measures like the total market capitalization versus U.S. Gross Domestic Product (GDP), the short-lived Tobin's Q and the more enduring price/book value (June 19, 1996), there are legitimate point by point rebuttals.

Not to parrot a certain Federal Reserve Chairman, but when do we know whether or not financial assets are overvalued? Single-factor models abound that seek to link the relative value of the market to the average dividend yield, price/earnings or price/sales ratios of various indices as well as the above mentioned metrics, but the simple fact is that none of these single factor models are perfect. The valuation of equities is a machine with a heck of a lot of moving parts. Underlying inflation and growth, relative guaranteed yields from Treasury bonds, the current price and direction of commodities, and the perceived risk of systematic shocks to the delicate economic structure all need to be considered before making a call.

One of the core tenets of Foolishness is that the market is absolutely impossible to call and that attempting to do so only results in humiliation. Far too many single-factor theorists have been trotted out to prance in front of the media over the past few decades without any accountability. The more sophisticated theorists who attempt to build more complicated models end up useless to the media outlets -- these folks by and large talk about a number of potential outcomes without fixating on the most extreme, constantly emphasizing the degree that remains uncertain. The net result is that individual investors trying to make investment decisions end up frozen without any credible source articulating a viable strategy that seems to assuage their legitimate concerns about their savings.

The first thing that people need to understand is that unlike commodities or options, the stock market is not a zero sum game. The total aggregate value of the wealth that the market has created since its inception in its current form in the 19th century is absolutely staggering. Through boom and bust, the return on equities relative to the returns of every other possible financial assets is laughable. Jeremy Siegel's Stocks for the Long Run looks at the value of a dollar invested in various types of financial assets in 1800 and then calculates where you would have stood in 1992 had you followed the much vilified buy-and-hold strategy. (A strategy I tried to defend in The Buy And Hold Apocalypse? this summer when many were announcing the beginning of a new "bear" market.)

--- $1 in 1800 dollars is equivalent to $11.80 in 1992 dollars due to inflation.
--- $1 in 1800 dollars became worth $13.40 in 1992 dollars if you put it in gold, the asset everyone amazingly flees to when stuff gets rough, barely beating inflation.
--- $1 in 1800 dollars became worth $2,934 in 1992 dollars if you put it in Treasury Bills, a short-duration form of bond.
--- $1 in 1800 dollars became worth $6,620 in 1992 dollars if you put it in Treasury Bonds, your average bond.
--- $1 in 1800 dollars became worth $3,050,000 in 1992 dollars if you put it in blue chip stocks.

Are people afraid of stocks because they are guaranteed to underperform? No. In fact, if you read the Buy and Hold Apocalypse?, you will see that over periods of 15 years or more your odds of outperforming any other financial asset class by investing in stocks is extremely high. This chance of outperforming grows until you are 30 years out, at which point you hit a 99% chance, the highest degree of certainty that any form of statistical analysis can provide. The thing is that other assets that are not as volatile seem safer, even though the risk of underperforming stocks over significant periods of time is very high.

For some reason, risk has been equated with volatility and not with the possibility of underperformance over long periods of time. The way that risk has been defined by the financial community drives the individual investor's decision process in a profound way, causing them to dally with things like precious metals in spite of the fact that they have been dismal performers for two centuries. Sure, gold had a hey-day in the '70s... but then again, so did leisure suits. The original Motley Fool Investment Primer, that imperfect work that appeared years before the book that many are now familiar with, said something that I have long considered to border on profound: "The least-mentioned, biggest risk of all is not taking enough risk." It is kinda like dating -- the only sure way to not go out with someone is never to ask them out to begin with.

Prognostication, as imperfect as it is, is something everyone dabbles with. Is the market as a whole going up or down? Frankly, who really knows? What is possible for the individual investor is to identify good businesses with strong financial characteristics (not simply great stories) and commit to them for long periods of time unless their value becomes so exaggerated relative to their potential that one has better prospects elsewhere. This methodology escapes the silliness of single factor models, the instability of multi-factor models, and the round-and-round exhaustion most investors put themselves through, chasing their own tails by desperately trying to predict the next "bear" market -- something that boggles even the most practiced professionals. Do what is within your purview, accept uncertainty and take comfort in odds significantly in your favor over long periods of time.

CONFERENCE CALLS

MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>
after 8:45 PM EST through midnight 12/17
(402) 220-1004

VANS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VANS)") else Response.Write("(Nasdaq: VANS)") end if %>
replay available after 6:00 p.m. EST
(888) 243-0810 (toll-free)

SERVICE MERCHANDISE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SME)") else Response.Write("(NYSE: SME)") end if %>
(holiday update message #2, 5-10 minutes)
starts at 9:00 AM EST (runs continually until 12/31)
(402) 280-9014

ECHLIN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
replay avail. 1:00 p.m. EST 12/17 thru 12/20
(800) 683-1535 (password: Auto Parts)

ANOTHER FOOLISH THING

Special Holiday Gift Packs!

You can't give many better gifts to your loved ones than a nudge in the direction of financial independence. With only a few shopping days left until the Great Murksneeveling, if you haven't loaded up on gifts for your loved ones for Plankity-Plankity Day, you may be in trouble. That is, unless you hop over to FoolMart, where our holiday gnomes have assembled some special deals for you. They've put together carefully-bundled packages for college students, parents & grandparents, friends & neighbors, and Fool fanatics -- all offering you a special, limited-time discount over our regular prices.

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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