DJIA: 6489.02 +4.62 (+0.07%)
S&P 500: 746.92 -1.95 (-0.26%)
Nasdaq: 1279.52 -9.04 (-0.70%)

Correction: In today's Lunchtime News, Bear Stearns analyst A.J. Rice was incorrectly identified as an officer of U.S. Diagnostics. In fact, Mr. Rice is the Bear Stearns analyst who dropped his rating on U.S. Diagnostics. We apologize for the error.

HEROES

Insurance company HOME BENEFICIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBENB)") else Response.Write("(Nasdaq: HBENB)") end if %> jumped $8 11/16 to $37 15/16 after financial services firm AMERICAN GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGC)") else Response.Write("(NYSE: AGC)") end if %> agreed to acquire the company for $39 per share. American General believes that it can achieve cost efficiencies of $20 million, which would boost Home Beneficial's earnings more than 50%, based on annualized results through the first nine months of 1996. The deal values the company at 127% of book value, which is small ratio compared to the rest of the life insurance industry. However, Home Beneficial's return on that book value (around 7% annualized) is below the quality companies in the segment. The projected cost savings would bring return on equity closer to the 10% level, which makes this deal more of a value than it might first appear.

FLORIDA PANTHERS HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PUCK)") else Response.Write("(Nasdaq: PUCK)") end if %> skated $2 3/4 higher to $12 3/4 after the company announced that it will buy the Hyatt Regency Pier 66 and Radisson Bahia Mar hotel and resort properties in Fort Lauderdale, Florida. The company's principal business is operating the NHL Atlantic Division-leading Florida Panthers, but as long it has a stock float and Wayne Huizenga at the helm, why be constrained by hockey? The deal fits into Huizenga's previous investment style, such as Waste Management -- WMX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %> -- buying up waste disposal companies, or Blockbuster consolidating the video industry. At a value of $84 million in stock, the company gets prime hotel and resort space for $124,000 per room, and at that rate, it gets the 66 acres of prime resort land along the Intracoastal Waterway and Atlantic Ocean for free.

Database company AMERICAN BUSINESS INFORMATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ABII)") else Response.Write("(Nasdaq: ABII)") end if %> rose $2 3/8 to $22 1/4 after announcing that it will merge with privately-held competitor Database America Companies. The new company will be closer to the size of METROMAIL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ML)") else Response.Write("(NYSE: ML)") end if %>, which owns a huge database on more than 190 million U.S. households. Metromail was recently smashed by a Morgan Stanley analyst downgrade. Judging by that company's net margins, there may not be such a large moat around zip code and Standard Industrial Code information. Such information is becoming a commodity, being available on the web and through online providers. If this is the case, consolidation is one of the first, though possibly not the best, answers to an industry under attack by unstoppable secular change.

QUICK TAKES: ROOSEVELT FINANCIAL GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RFED)") else Response.Write("(Nasdaq: RFED)") end if %> gained $2 3/8 to $20 1/2 after signing a $22 per share merger agreement with fellow Midwestern bank MERCANTILE BANCORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MTL)") else Response.Write("(NYSE: MTL)") end if %>... Environmental equipment maker THERMO ELECTRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMO)") else Response.Write("(NYSE: TMO)") end if %> jumped $2 3/8 to $36 3/4 after the company said it will repurchase up to $50 million of its subsidiaries' stock... TALX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TALX)") else Response.Write("(Nasdaq: TALX)") end if %> gained $2 1/2 to $8 3/8 after the database query vendor said third quarter revenues will increase 55% and that the earnings will at least hit the low-end of estimates... Medical waste company STERICYLCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SRCL)") else Response.Write("(Nasdaq: SRCL)") end if %> climbed $1 1/2 to $9 1/4 after announcing that it has acquired the majority of the medical waste business of WMX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %>... GERON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GERN)") else Response.Write("(Nasdaq: GERN)") end if %> moved up $2 5/8 to $11 1/2 after the company announced a research agreement with PHARMACIA & UPJOHN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNU)") else Response.Write("(NYSE: PNU)") end if %> and that P&U will make an investment in Geron... Storage products company ODETICS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ODETA)") else Response.Write("(Nasdaq: ODETA)") end if %> rose $2 1/4 to $16 3/4 after filing a registration statement to sell stock in its ATL Products Division... GENOME THERAPEUTICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENE)") else Response.Write("(Nasdaq: GENE)") end if %> gained $1 7/16 to $12 after signing an asthma research deal with SCHERING PLOUGH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %>.

GOATS

MESA AIR GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MESA)") else Response.Write("(Nasdaq: MESA)") end if %> tumbled $1 9/16 to $7 1/8 as the regional air carrier announced that it will report first quarter earnings "substantially" below Street estimates of $0.15 per share. The company said disappointing November revenues have affected operations, which echoes the company's announcement earlier this month when it said load factor, available seat miles, and revenue seat miles have had all declined in November. These are all pretty negative developments for any airline, as MF Wings points out in her "Valuing the Industry" article in the Airlines industry area. Other warning signs scaring off investors include the aversion flyers have had to the smaller carriers since the VALUJET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VJET)") else Response.Write("(Nasdaq: VJET)") end if %> crash, and the small carriers' inability to buy fuel on the same terms as the larger airlines.

Shares of U.S. DIAGNOSTIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USDL)") else Response.Write("(Nasdaq: USDL)") end if %> tumbled $2 11/16 to $9 3/8 today after Bear Stearns analyst A. J. Rice completely dropped his rating on the company. Rice made this move after discovering one of the companies eight founders, Keith Greenberg, currently a consultant for the firm, was convicted of fraud in 1994. Rice felt compelled to pull his rating because the company failed to disclose the fact that the consultant in their merger and acquisition activity had a fraud conviction. U.S. Diagnostic maintains that because Greenberg is a consultant, they were not required to disclose this information. U.S. Diagnostic owns, operates and manages outpatient radiological centers.

QUICK CUTS: Utility company PACIFIC GAS & ELECTRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PCG)") else Response.Write("(NYSE: PCG)") end if %> browned out $1 1/4 to $21 5/8 after Smith Barney cut its rating to "neutral" from "outperform"... CLAIRE'S STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLE)") else Response.Write("(NYSE: CLE)") end if %> was crushed $2 3/4 to $11 3/4 after announcing that same-store sales last week were flat... Medical and industrial gas products company AIRGAS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARG)") else Response.Write("(NYSE: ARG)") end if %> fell $3 to $21 1/4 after announcing that it believes it has been duped by a supplier in a $23 million purchase and that it may take a loss on that inventory... CABLETRON SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> lost $4 3/8 to $36 1/8 after reporting a 27% increase in quarterly sales and a estimate-matching earnings performance of $0.46 per share... Office products company OFFICE DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ODP)") else Response.Write("(NYSE: ODP)") end if %> lost $1 1/8 to $17 1/4 as the Federal Trade Commission may hold up its merger with STAPLES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLS)") else Response.Write("(Nasdaq: SPLS)") end if %> due to antitrust concerns... GENZYME CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %> lost $2 3/8 to $23 1/8 after Cowan & Co. cut its earnings estimates for the biotech company... Networking products company FARALLON COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FRLN)") else Response.Write("(Nasdaq: FRLN)") end if %> lost $2 to $7 as tax-loss selling hit one of 1996's worst-performing initial public offerings... Metals company WYMAN-GORDON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WYMN)") else Response.Write("(Nasdaq: WYMN)") end if %> fell $1 3/8 to $21 after a blast at its plant near Houston killed five people and wounded two yesterday... DRILEX INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRLX)") else Response.Write("(Nasdaq: DRLX)") end if %> lost $2 3/4 to $11 1/2 after Merrill Lynch downgraded the oil services company to "intermediate-term neutral"... Consumer auto loan company NAL FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NALF)") else Response.Write("(Nasdaq: NALF)") end if %> fell $1 1/4 to $8 1/2 after selling 2.5 million shares at $7.50 a share, far below the market price and far below Friday's closing price when they said that current market conditions would not allow for a secondary offering. Uhh, guess they need the cash.

FOOL ON THE HILL
An Investment Opinion by MF Templar

The Tax Effect, Part 4 

SHORTING & SWAPPING

The "January effect" is as much a part of investing parlance as "bull markets" or "downtrends," and in the end just as nebulous. The notion that small stocks outperform relative to large stocks in the first few weeks of January dates back decades. Beyond this, conventional financial journalism does not offer much explanation. The mutual fund marketing machine occasionally seizes on the January effect as a reason to buy small company funds at the beginning of the year, but beyond this very little is offered as a coherent explanation for why small stocks should outperform large stocks in the first few weeks of the year.

The reason why I have dedicated three days to a topic I normally do not deal with very much, namely taxes, is because understanding the logic that drives tax-related decisions is crucial to understanding why the January effect works. At the end of the year, investors descend on losing stocks in droves and issue sell orders, seeking to capture the tax benefit of capital losses. These losers, large and small companies alike, undergo weeks of selling from the end of the mutual fund tax year (October 31st) to the end of the individual investor tax year (December 31st).

Not all stocks are created equal. Some companies have "floats" that are much smaller than others, normally because they have less shares outstanding. A "float" is the number of shares available for trading, and is different from shares outstanding in that restricted shares and shares owned by insiders are subtracted from the calculation. If you have an equal amount of shares sold of two companies, the one with the smaller float will see its price disproportionately affected. As small companies tend to have small floats, one can see where towards the end of the year illiquid small stocks could get battered down by waves of tax-induced selling. Some large companies with thin floats might also be buffeted by the ill-winds of tax-time.

Add to this volatile mix a sudden influx of new money to various institutional money managers in January and you have two factors that can explain the January effect. The first is a return to normal equilibrium between buying and selling, an equilibrium that was thrown off towards the end of the year due to tax loss capturing. The second is an influx of fresh money looking for "cheap" names to add to their portfolios. The two together will cause companies with small floats, normally small companies, to have a disproportionate fall in November and December and rise in January. In fact, the statistics on the January effect show that most of the benefit comes in the first few trading days of the year.

Does this mean you should run out and buy a small company mutual fund on December 31st? Frankly, no. Although the January effect does appear to have statistical legitimacy, the difference in performance over the S&P 500 index is normally one or two percentage points -- nothing to scream about. However, if you understand the inefficiencies in the market and specifically look to purchase companies with small floats that have been disproportionately affected by tax-loss selling, you can stand to make some money. We will look at this tomorrow.

NO-PRIZE WINNERS

More fallout from my article on "shorting against the box." (link) "Robra," now a two-time No-Prize winner, pointed out to me that when you short against the box, you reset your holding period on the underlying asset to zero days. Yikes!

"Rule 2. The holding period of the substantially identical property begins on the date of the closing of the short sale or on the date of the sale of this property, whichever comes first."

CONFERENCE CALLS

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

12/31/96 (Tuesday)
SERVICE MERCHANDISE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SME)") else Response.Write("(NYSE: SME)") end if %>
(holiday update message #3, 5-10 minutes)
starts at 9:00 a.m. EST (and runs continually until 12/31)
(402) 280-9014

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

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