HEROES

EMC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> gained $2 1/4 to $34 1/2 today as the computer storage company said it expects revenues to increase 25% in 1997, which would be an acceleration of this year's 15.2% growth rate. Investors hope that exploiting non-mainframe sales opportunities will preserve gross margin, which has slid almost 7 percentage points in the last year due to mainframe storage pricing pressures. Though the company has grown earnings and revenues tremendously over the last three years, its stock price has languished. However, investors are starting to pay attention as these opportunities open up. Some jaded investors will ask whether EMC is fully valued, though, at around 70% of its estimated forward growth rate. Due to the fierce competition in the storage market, such investors normally demand a wide margin of safety, and have sold at these valuation levels in the past.

Due to extremely strong oil and gas prices and the cold weather, a number of stocks that search for energy or facilitate that search were up sharply today, including NABORS INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NBR)") else Response.Write("(NYSE: NBR)") end if %>, up $1 1/8 to $20; SCHLUMBERGER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %>, up $3 3/8 to $104 5/8; ALBEMARLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALB)") else Response.Write("(NYSE: ALB)") end if %> up $1 5/8 to $18 1/4; BJ SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BJS)") else Response.Write("(NYSE: BJS)") end if %> up $3 1/4 to $49 7/8; ENSCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ESV)") else Response.Write("(NYSE: ESV)") end if %>, up $2 3/4 to $48; TUBOSCOPE VETCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TUBO)") else Response.Write("(Nasdaq: TUBO)") end if %>, up $1 1/8 to $15 1/8; and SMITH INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SII)") else Response.Write("(NYSE: SII)") end if %>, up $3 1/4 to $45 3/4. Spot market prices in crude oil, natural gas, and heating oil have been strong, but investors should also pay attention to the energy futures market. While investors in PCs and semiconductors have to guess the future sales prices of those goods, one can know the prices that energy companies can lock in for delivery next year.

QUICK TAKES: DEAN FOODS CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DF)") else Response.Write("(NYSE: DF)") end if %> gained $3 1/4 to $29 3/8 after the dairy producer reported a 17.5% increase in second quarter earnings per share (EPS)... Restaurant chain WENDY'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WEN)") else Response.Write("(NYSE: WEN)") end if %> rose $1 7/8 to $20 3/8 after Donaldson, Lufkin & Jenrette initiated coverage of the company with a "buy" rating... AMERICA SERVICE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASGR)") else Response.Write("(Nasdaq: ASGR)") end if %> rose $1 3/8 to $10 7/8 after agreeing to merge with privately-held Wexford Health Services, another prisoner healthcare company... Athletic shoe company FILA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLH)") else Response.Write("(NYSE: FLH)") end if %> jumped $4 7/8 to $64 3/4 on no apparent news other than the blowout sales and earnings performance of NIKE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %>, which gained $1 7/8 to $60 7/8... JUST FOR FEET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FEET)") else Response.Write("(Nasdaq: FEET)") end if %> jogged up $1 3/4 to $25 7/8 by investors hooking onto the Nike wagon... California bank GLENDALE FEDERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLN)") else Response.Write("(NYSE: GLN)") end if %> gained $1 7/8 to $23 7/8 after a Federal court ruled that the bank can collect further damages allegedly inflicted upon it by government regulations... NICHOLS RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NRES)") else Response.Write("(Nasdaq: NRES)") end if %> rose $2 1/4 to $25 3/4 after the defense technology services company reported a 20% increase in per-share earnings.

MORE TAKES: Energy producer POGO PRODUCING CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPP)") else Response.Write("(NYSE: PPP)") end if %> rose $3 3/8 to $44 7/8 as the company announced its interest in an oil company doing business off Thailand... NATIONSBANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> jumped $4 3/8 to $98 1/2 after S&P took the company off its "Credit Watch" due to its pending merger with BOATMENS BANKSHARES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOAT)") else Response.Write("(Nasdaq: BOAT)") end if %> -- NationsBank also filed a registration statement for $1 billion debt following the close of the market... Banks were strong today on the bond market's torrid performance, with BANKERS TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BT)") else Response.Write("(NYSE: BT)") end if %> up $3 3/4 to $89 5/8; PEOPLE'S BANK OF BRIDGEPORT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PBCT)") else Response.Write("(Nasdaq: PBCT)") end if %> up $2 3/4 to $30; FIFTH THIRD BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("ITB:NASDAQ" & CHR(34) & ">(Nasdaq: FITB)") else Response.Write("ITB" & CHR(34) & " onClick=" & Chr(34) & "openWindow('http://quote.fool.com/uberdata.asp?symbols=FITB', 'quotebox', 640, 460); return false;" & CHR(34) & ">(Nasdaq: FITB)") end if %> up $3 1/4 to $65 1/2; CITICORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCI)") else Response.Write("(NYSE: CCI)") end if %> up $3 1/8 to $104 1/8; and CHASE MANHATTAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> up $3 3/8 to $90 3/4... Semiconductor test equipment maker LTX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LTXX)") else Response.Write("(Nasdaq: LTXX)") end if %> gained $1 1/16 to $6 1/4 after brokerage Gruntal raised its rating on the company... U.S. XPRESS ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XPRSA)") else Response.Write("(Nasdaq: XPRSA)") end if %> rose $1 3/4 to $12 1/4 after the trucking and warehousing company said it expects third quarter earnings to exceed estimates of $0.15-0.16 per share.

GOATS

LCI INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCI)") else Response.Write("(NYSE: LCI)") end if %> dropped $3 7/8 to $21 7/8 as nervous long-distance telephone company investors react to another blow in a barrage of bad news. Yesterday, LCI announced that it is calling off a sale of stock due to falling share prices throughout the sector -- EXCEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECI)") else Response.Write("(NYSE: ECI)") end if %> and FRONTIER Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRO)") else Response.Write("(NYSE: FRO)") end if %> being prime examples of market conditions. LCI also said that Minutes of Use (MOU) will increase 5-6% and revenues will increase 1-2%, both on a sequential basis. While the fourth quarter at LCI is normally a slow period, this growth lags what they've done in this quarter the last two years. The ratio of revenue increase to the MOU increase is also smaller than this year's trend -- which some have construed to mean that competition has brought a margin squeeze.

PC direct seller MICRO WAREHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MWHS)") else Response.Write("(Nasdaq: MWHS)") end if %> toppled $7 1/2 to $12 1/2, nearing its four-year low. Investors were willing to forgive the company its mis-accounting sins when it reported third quarter earnings in late November, but today's announcement demonstrates what happens when the low value-added distribution channel gets bid up to levels much higher than the box-makers themselves. The company said today that revenues for its fourth quarter will come in as expected, but margins will drop because it is selling more hardware and less high-margin software. Is the retail catalog business a weak spot for investing in PC distribution, or does this particular company just spend too much on marketing and inventory?

The destruction in the share price of MULTIPLE ZONES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MZON)") else Response.Write("(Nasdaq: MZON)") end if %>, which imploded $7 3/4 to $10 1/2 today, attests to some of the problems Micro Warehouse is experiencing. While that catalog retailer mentioned softness in sales of APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> products as a secondary weakness, Multiple Zones has historically derived 75% of its sales from Apple products. If today's action in the shares of Apple's distribution partners means Apple is squeezing those partners, that's one thing. If it means that sales at Apple are falling further, that's another. All of this makes one wonder why Apple just doesn't go with the direct sales model itself. With its name-brand recognition, web building talent, and focus on the customer (rather than the "technology"), such a move doesn't seem totally out of the question.

QUICK CUTS: SILICON STORAGE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSTI)") else Response.Write("(Nasdaq: SSTI)") end if %> was flattened for a $2 3/4 loss to $5 5/8 after the flash memory chip company said fourth quarter revenues and earnings will decline sequentially... Biotech company GENELABS TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNLB)") else Response.Write("(Nasdaq: GNLB)") end if %> lost $1 to $5 1/4 even though the company announced yesterday a collaboration agreement with a DUPONT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DD)") else Response.Write("(NYSE: DD)") end if %> and MERCK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> joint venture... UNITED COMPANIES FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UC)") else Response.Write("(NYSE: UC)") end if %> lost $1 5/8 to $26 1/8 after the mortgage lender announced the issuance of $100 million in debt... Long-distance company FRONTIER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRO)") else Response.Write("(NYSE: FRO)") end if %> followed up recent weakness in light of LCI's fall by dropping $1 1/2 to $21... ZENITH ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZE)") else Response.Write("(NYSE: ZE)") end if %> sank $1 3/8 to $10 3/8 after announcing a major restructuring... Toy maker GALOOB TOYS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GAL)") else Response.Write("(NYSE: GAL)") end if %> fell another $1 1/4 to $16 1/4 after appearing in a Wall Street Journal column that discussed the company's troubles this holiday season... CELERITEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLTK)") else Response.Write("(Nasdaq: CLTK)") end if %> lost $4 1/4 to $9 3/4 after the communications equipment maker said that sales are slower than expected.

FOOL ON THE HILL
An Investment Opinion by MF Templar

THE TAX EFFECT, PART 2:
SHORTING AGAINST THE BOX

At the end of the year, individual investors are consumed by a single thought: How can I avoid the tax consequences associated with selling a security for a gain? Yesterday we discussed the nitty-gritty of balancing taxable gains with taxable losses in order to dull the sting of the IRS come April 15th. Today I wanted to touch on a proactive strategy many investors use in order to postpone or diminish the tax consequences of being a successful investor, namely shorting against the box.

Short-selling is a strategy that enables investors to profit when stock prices go down. Detailed in the Eleventh Step to Investing Foolishly, short-sellers essentially borrow stock in a company from someone else and sell it. Short-sellers are often credited with exacerbating the price swings of many high-flying stocks. (An argument that was examined in detail in the September 26th edition of the Evening News.) Sometimes you can actually use short-selling to lock in profits on a successful investment instead of just as a bet that the stock will go lower. This is called shorting against the box.

Imagine you have 1000 shares of JABIL CIRCUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBIL)") else Response.Write("(Nasdaq: JBIL)") end if %> that you purchased for $5 a share in January. At today's quote of $38 and change, you have a substantial, IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %> scale profit. Jabil's earnings of $0.47 per share were very strong and put the company at a $2.00 EPS run-rate for the fiscal year. (Run-rate is a term used when you take the last quarter and "run" the company at that "rate" for the next three quarters, getting a very speculative estimate of what the company could earn.) Priced at $38 a stub, the company trades here at 19 times that run-rate -- pretty close to the 20% growth the company has forecast over the next few years.

An investor in Jabil Circuit might conceivably think the stock is fairly priced but be concerned about selling it because of tax consequences. In this situation, there are two scenarios where shorting against the box would be legitimate, in my opinion. The first is if the sale would bump them into another tax-bracket because it was a short-term gain and not a long-term gain. The second scenario would be if they had a short-term gain and just wanted to hold on to it until it became a long-term gain, but were concerned that the stock might go down in the interim.

To short against the box, you take out a short position in a particular stock that is equal to your current holdings, or your "long" position. Thus, in our example, the investor would short 1,000 shares of Jabil to balance out the 1,000 shares that she currently held in her brokerage account. This way, our canny Jabil investor has the same net profit regardless of whether the stock goes up or down, less the tax-deductible interest they get charged for their margin account to hold the short position. If the stock goes up, the long position increases in value and the short position decreases by the same amount. If the stock goes down, the short position increases in value and the long position decreases by the same amount.

When you short against the box, you effectively lock in the profits regardless of where the stock price goes. When you decide that you want to realize the profit, or that you have held the position long enough to convert it into a long-term capital gain instead of a short term capital gain, you just close the short position and sell all of your shares. Many have argued that a lot of the short interest in many successful companies comes from insiders with significant positions shorting against the box to protect profits rather than having to disclose insider selling and risk hurting the company's stock price. Tomorrow, we will talk about strategically locking in capital losses for tax purposes and "swapping."

CONFERENCE CALLS

12/19/96 (Thursday)
COGNOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %>
(800) 997-6911 -- replay avail. 12/19 @ 1:15 p.m. EST thru 12/24

12/23/96 (Monday)
CABLETRON SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %>
(402) 220-6028 -- replay

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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