HEROES

CUMMINS ENGINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CUM)") else Response.Write("(NYSE: CUM)") end if %> gained $2 1/4 to $48 1/4 after the company re-purchased 1.7 million shares of its stock from FORD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> and announced that it will purchase 1.7 million more shares in the open market. The company will have to issue the same amount of shares to its employee pension plans to fulfill already-standing obligations there, and the funding of those plans removes the possibility of issuing new shares to cover that obligation. Today's move takes the shares to within a hair's breadth of its two-year high. Though earnings have been kept down by soft industrial demand outside the U.S., Cummins is not experiencing the deep cyclicality it has in the past following boom years. Its relationship with CHRYSLER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %> in outfitting that company's popular Ram pickups with turbo diesels and its Chinese ventures look like they are cushioning the less-robust sales years for the largely-industrial engine maker.

Shares of KLA INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> surged $2 3/4 to $38 7/8 today after Morgan Stanley raised its rating on the company to "strong buy" based on analyst Jay Deahna's belief that the industry will hit an inflection point and turn upward in mid-1997. Deahna raised estimates for the company to $1.75 per share for 1997 and $2.15 per share for 1998. The company earned $2.31 in 1996 and is not lagging last year's strong results all that much, so some investors believe that Deahna's 1998 numbers are conservative. Those investors back up that belief with the argument that bit growth in non-commodity chip businesses will drive KLA's yield-enhancement business and that newer DRAM devices, such as 64 Mbit and 256 Mbit, can become profitable quickly as manufacturers drive yields higher.

TELEFONOS DE MEXICO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TMX)") else Response.Write("(NYSE: TMX)") end if %> rang up a $2 1/2 gain to $35 7/8 after CS First Boston raised its rating on the company to "buy" from "hold". The company ran ads detailing its new rate plan, increasing prices up to 60%. Though the increase still keeps long-distance (within Mexico) charges slightly above par with American long-distance rates, analysts figure the new rate structure will goose the company's earnings, which have been depressed in part by the late-1994 peso devaluation. That devaluation took the exchange ratio of the peso down 87% against the dollar. Mexico's peso is now trading about where it bottomed out that spring, so that means that the company has experienced little foreign exchange erosion in the last two years. With some signs of life in Mexico-U.S. trade and the collection of U.S. dollars on incoming calls, the company's earnings picture is looking bright.

QUICK TAKES: CADUS PHARMACEUTICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KDUS)") else Response.Write("(Nasdaq: KDUS)") end if %> rose $2 3/8 to $12 1/4 after brokerage Genesis Merchant raised its 12-18 month price target on the "misunderstood and undervalued" biotech company to $40-45... Niche cruise company COMMODORE HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCLNF)") else Response.Write("(Nasdaq: CCLNF)") end if %> sailed 1/2 higher to $3 1/16 after reporting 1996 earnings of $0.34 per share... SANGSTAT MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANG)") else Response.Write("(Nasdaq: SANG)") end if %> jumped $6 to $34 3/8 after the company filed a product license application with the FDA for its organ rejection-suppressing drug... Software company TTI TEAM TELECOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TTILF)") else Response.Write("(Nasdaq: TTILF)") end if %> gained $1 to $7 1/2 on a "strong buy" recommendation from Volpe Welty & Co.... COUNSEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CXSNF)") else Response.Write("(Nasdaq: CXSNF)") end if %> brightened $1 1/2 to $11 5/8 as the pharmaceutical company announced that its Chair has exercised options to buy over one million shares... Private education company DEVRY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DV)") else Response.Write("(NYSE: DV)") end if %> was boosted $2 1/8 to $25 1/8 after Lehman Brothers issued a "buy" recommendation... Hotel operator RENAISSANCE HOTEL GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RHG)") else Response.Write("(NYSE: RHG)") end if %> gained $1 7/8 to $24 3/8 after signing a memorandum of understanding on a bid to be acquired by DOUBLETREE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TREE)") else Response.Write("(Nasdaq: TREE)") end if %> in a deal valued at $27.21a share as of today's close... MASCOTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MSX)") else Response.Write("(NYSE: MSX)") end if %> ratcheted up $1 to $17 3/4 after Smith Barney upped its rating on the automotive parts company to "buy"... Baby conglomerate REPUBLIC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RWIN)") else Response.Write("(Nasdaq: RWIN)") end if %> added $1 7/8 to $32 3/4 after agreeing to acquire National Car Rental in a $600 million stock swap... PROFIT RECOVERY GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRGX)") else Response.Write("(Nasdaq: PRGX)") end if %> gained $2 to $16 3/4 after the accounts/payable recovery firm said it is branching out of its traditional retail market through an acquisition... Commerce software firm HARBINGER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRBC)") else Response.Write("(Nasdaq: HRBC)") end if %> jumped $3 1/8 to $30 3/4 as the company closed its merger with SupplyTech and said the combination would be accretive to earnings in 1997.

GOATS

TOYS "R" US <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOY)") else Response.Write("(NYSE: TOY)") end if %> was stepped on for a loss of $4 5/8, closing at $26 1/8 today after the company said holiday season same-store sales growth was flat. The company instituted a $397 million restructuring plan last year, cutting down the number of stores it operates and thinning out its inventory. By reducing its inventory, the plan is for shoppers to have a clearer selection and for the company to reduce low-margin offerings. The company identified tight availability on video game cartridges for 64 bit gaming systems, which is supposed to be one of those winning products. Now that the holiday season is blown, the company will focus on its BABY SUPERSTORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BSST)") else Response.Write("(Nasdaq: BSST)") end if %> merger. By reducing its reliance on the Christmas season and evening out the cash flow throughout the year, the company hopes to create better shareholder return, which its sizable stock buybacks have not been able to do.

Computer and software distributor INGRAM MICRO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IM)") else Response.Write("(NYSE: IM)") end if %> fell $1 1/2 to $19 7/8, below its 52-week low of $20 7/8 that was its first-day's trading price following its Initial Public Offering. Ingram believes that it is the market share leader in offering a one-stop shopping solution for everyone from local computer stores to international computer integration firms. Being the market share leader doesn't necessarily mean that the company has the strategic advantage needed to make a great business. Since 1993, the company's gross margin has dropped from 8.1% of sales to 6.8% through the third quarter of this year. In addition, its net margin is running less than 1% of sales. Keeping in mind the perception problems and low margins from high hardware sales that COMPUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> has experienced, investors are ascribing those same worries to Ingram, where there is less wiggle room on margins.

AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> lost $1 7/8 to $39 5/8 after Salomon Brothers sliced its earnings estimates for the telecommunications giant. Highly-respected telecom analyst Jack Grubman cut his 1997 estimate to $3 from $3.60 per share and 1998 to $3.25 from $3.80. Grubman's 1997 estimate was the highest of all 26 analysts First Call covers, but now his estimate for the coming year is the lowest. At the same time, Grubman issued bullish comments on MFS WORLDCOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WCOM)") else Response.Write("(Nasdaq: WCOM)") end if %>, likening that company to MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> as a core investment position. Grubman believes that AT&T must spend spend heavily to prepare for the coming of further long-distance competition from the Baby Bells and make extensive investments in local loop service. Grubman also sees the Worldnet internet service as being a drag on earnings, whereas data is a core strength for MFS Worldcom.

QUICK CUTS: RAINFOREST CAFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %> took a $3 3/8 spill to $20 5/8 as regional brokerage Wessels, Arnold said the company's Mall of America same-store sales may be flattish due to a weak retail season... Wireless equipment company RETIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RETX)") else Response.Write("(Nasdaq: RETX)") end if %> fell $1 3/4 to $5 3/8 after announcing Q4 sales will fall short of expectations... OLYMPIC STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZEUS)") else Response.Write("(Nasdaq: ZEUS)") end if %> lost $3 3/4 to $22 1/8 after Salomon Brothers knocked down its rating based on price, a week after Prudential upgraded the stock... Network management software company NOVADIGM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NVDM)") else Response.Write("(Nasdaq: NVDM)") end if %> was slammed $2 3/4 to $6 1/4 after the company said third quarter revenue and earnings will come in below expectations... RAWLINGS SPORTING GOODS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAWL)") else Response.Write("(Nasdaq: RAWL)") end if %> swung and missed for a $1 9/16 loss to $11 1/16 as buyout rumors have moved the shares lately... Post-holiday blues hit retailer ABERCROMBIE & FITCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANF)") else Response.Write("(NYSE: ANF)") end if %> for a $2 7/8 loss to $13 1/2... Same story for jewelry retailer ZALE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZLC)") else Response.Write("(NYSE: ZLC)") end if %>, down $2 to $16 1/4... CENTENNIAL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CTN)") else Response.Write("(AMEX: CTN)") end if %> fell $3 3/8 to $45 7/8 even though the PC-card and printer consumable maker announced record quarterly orders... Further selling hit COMPUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> for a loss of $1 1/8 to $13 7/8 as the Wall Street Journal detailed November insider stock selling... AUTOZONE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZO)") else Response.Write("(NYSE: AZO)") end if %> lost $3 7/8 to $20 1/8 on a downgrade from brokerage Chicago Corp.

FOOL ON THE HILL
An Investment Opinion by MF Templar

APPLE COMPUTER

The task of reinventing APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> is not an enviable one. With market share in the hyper-competitive personal computer business plummeting while the company undergoes a painful restructuring, the only thing most analysts can agree upon is that the future is uncertain for the Cupertino, California-based concern. Volatility in the shares has been tremendous this year, roiled by optimistic high-notes from respected analysts followed by gruesome preannouncements of money-losing quarters. Today was no exception, with Apple down $3 7/8 to $17 7/8 after the company reported that the first quarter was going to blow chunks.

Revenues for the first quarter will come in below expectations because of poor performance in the company's Performa line of home PCs and shortages of many PowerBook models, despite strength in the PowerMac line and 40% year-over-year growth in servers. Poor results already preannounced by MICRO WAREHOUSE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MWHS)") else Response.Write("(Nasdaq: MWHS)") end if %> and MULTIPLE ZONES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MZON)") else Response.Write("(Nasdaq: MZON)") end if %> telegraphed weak Macintosh-related sales, but apparently some were waiting for the company to clarify how bad things were. The company anticipates a 10% drop in sequential revenues and an operating loss of between $100 million and $150 million.

In response to this development, Apple Chief Executive Gil Amelio stressed that the company's strategy remained the same, but they "need to reduce Apple's cost infrastructure so that we can achieve break-even results at a revenue level of $8 billion." Ideally, the pending acquisition of Steve Jobs-owned NeXT Software will help with this process by saving them some research and development costs. The revenue implosion the company is undergoing has dramatically reshaped its cost structure, making Amelio's main job cost-cutting in an effort to stave off cash depletion. As of last quarter, the company had $1.74 billion in cash and short-term investments.

Amelio's move to bring break-even down to $8 billion highlights the revenue shrinkage problem Apple is enduring. With revenues down to $9.83 billion in 1996 from $11.1 billion in 1995, it appears that 1997 will be another year where Apple sees the topline shrink in double digits. The sequential decrease of 10% in revenues will put the company at about $2.1 billion, meaning that if break-even can be moved to $8 billion at that run-rate, you are looking at profit margins about of about 5% for the full year if they can just stabilize revenue depletion. With 124.5 million shares outstanding, however, these 5% profit margins could yield as much as $3.00 earnings per share (EPS). Apple has become extremely sensitive to the topline, as even a 5% shortfall in this model would have the company earning a big fat zero EPS for the entire year.

When valuing the future cash flows that a more focused Apple Computer can generate, everything hinges on the assumptions that you make. Before today, estimates for this year varied widely and estimates for next year range between $1.25 and $4.00 EPS. Bear Stearns analyst Andrew Neff has since suspended any earnings estimates on the company, rating it "unattractive." Chicago Corp. and Prudential both cut Apple to "hold" from "buy" after today's announcement, decreasing dramatically the number of analysts actually recommending the shares for purchase. While analysts are tripping over themselves to get away from Apple because of the uncertainty, it seems clear to many that the company is not going out of business.

Here at about $18 a share, a dollar above the 52-week low, the company's market capitalization is $2.241 billion. With $949 billion in debt and $1.74 billion in cash and short-term investments, the enterprise value is $1.45 billion, which gives the company an enterprise value-to-sales ratio of roughly 0.17 if you assume the it can make $8.4 million in revenues over the next twelve months. No fan of the Macintosh, the price still seems to be getting quite low for the assets that Apple has. The negative cloud that hangs over the company and the uncertainty about the next few quarters might limit potential upside, but unless the company actually starts to lose substantially more than $100 million to $150 million a quarter, the sucker ain't going out of business. The key question is: Can Apple compete in niche markets efficiently or will it simply go the way of the Dodo? The 40% year-over-year increase in server sales as well as the strength of the PowerMac line implies that the answer might be yes.

ANOTHER FOOLISH THING
Painless Stock Valuations

Learn to value stocks painlessly! In the Industry Decathlon primer, MF Bogey takes readers by the hand and walks them through five stock valuation methods and ten financial ratios, demonstrating how to compare a bunch of companies in your industry of choice and find the most promising one. This is very useful stuff, folks! Check it out at keyword: FoolMart on America Online or at our website (). You might also be interested in his weekly Industry Decathlon report, delivered by e-mail or fax. In it, Bogey examines a different industry each week and runs its top players through his decathlon to discover which one company looks the most attractive.

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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