HEROES

ABERCROMBIE & FITCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANF)") else Response.Write("(NYSE: ANF)") end if %> climbed $1 5/8 to $14 1/4 today after the clothing and accessories retailer reported that it will meet Street expectations for the quarter and the year. The Street is expecting Q4 earnings of $0.38 per share and yearly results of $0.46 per share, which puts the current valuation at 31 times earnings. Analysts estimate that the company will be able to grow earnings anywhere from 30% to 37% in the coming year, so the company looks as though it's approaching full value. The firm made a splash earlier this year when it closed its first day of trading at $23 1/8, up nicely from its IPO price of $16. Owing to the fact that its parent, THE LIMITED <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LTD)") else Response.Write("(NYSE: LTD)") end if %>, Provident Financial, and Smith Barney own the majority of the company, the small float (shares available to trade in the market) has exaggerated the manic-depressive nature of the trading and valuation of these shares.

TIFFANY & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TIF)") else Response.Write("(NYSE: TIF)") end if %> gained $1 7/8 to $37 1/4 after the Street was reassured by the company that it performed well in the holiday season. Worldwide sales increased 15% in the holiday period, and same-store sales rose 10% and 16% in the U.S. and Japan, the company's two largest markets. The results point to Tiffany's efforts to extend the appeal of its products beyond its traditional demographics through new advertising efforts, such as television ads. Absent any surprises, Tiffany looks as though it will earn $1.55 per share this year, putting the valuation at 24 times earnings. While that looks rich based on its growth rate, some believe the company's reputation -- its moat -- must be priced in. A solid balance sheet and room to shift non-mandatory expenditures also gives shareholders some comfort in that valuation.

The lodging industry has HFS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HFS)") else Response.Write("(NYSE: HFS)") end if %>; the deathcare industry has LOEWEN GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LWN)") else Response.Write("(NYSE: LWN)") end if %>; and the golf industry has GOLDEN BEAR GOLF <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JACK)") else Response.Write("(Nasdaq: JACK)") end if %>. The Bear was up $1 3/8 to $14 after announcing earlier this week that it has acquired four golfing facilities, bringing its total facilities count to 12. Golden Bear's CFO said, "We continue to believe that this highly fragmented segment of the golf industry presents tremendous opportunities for the company," echoing the aforementioned companies' strategies of buying private companies at 10 times earnings, shaping up operations, and then being capitalized by the market at upwards of 80 times earnings. Operated correctly, a well-placed facility is like an annuity due to the addictive and life-long nature of golfing. Plus, it's not a big deal for Jack to visit each facility once a year and get Arnie to come, too.

QUICK TAKES: HUGHES ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GMH)") else Response.Write("(NYSE: GMH)") end if %> gained $2 to $63 1/2 as investors expect that bidding for its defense division between RAYTHEON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RTN)") else Response.Write("(NYSE: RTN)") end if %> and NORTHROP GRUMMAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOC)") else Response.Write("(NYSE: NOC)") end if %> will yield full value for the company... HARVEYS CASINO RESORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HVY)") else Response.Write("(NYSE: HVY)") end if %> rose $1 1/4 to $15 3/4 on reporting Q4 earnings of $0.30 per share, trumping estimates... Power generation equipment company MCDERMOTT INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDR)") else Response.Write("(NYSE: MDR)") end if %> gained $1 3/8 to $17 3/8 after receiving a $31 million order along with another company... PRONET INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PNET)") else Response.Write("(Nasdaq: PNET)") end if %> gained $1 5/16 to $5 13/16 as the January effect might be lifting battered paging company stocks... Pharmacy management company MIM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIMS)") else Response.Write("(Nasdaq: MIMS)") end if %> gained $1 3/8 to $6 3/4 after signing a new long-term care client... C-PHONE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CFON)") else Response.Write("(Nasdaq: CFON)") end if %> surged $5 1/4 to $12 1/4 after demonstrating its new videoconferencing system on Good Morning America... OPTIKA IMAGING SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OPTK)") else Response.Write("(Nasdaq: OPTK)") end if %> rose $1 1/4 to $7 1/8 as the software company pre-announced record Q4 and year-end results... Semiconductor equipment company KULICKE & SOFFA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLIC)") else Response.Write("(Nasdaq: KLIC)") end if %> rose $2 7/16 to $24 9/16 after Morgan Stanley raised its rating to "strong buy"... ZORAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZRAN)") else Response.Write("(Nasdaq: ZRAN)") end if %> zipped $2 1/2 higher to $21 1/4 after the DVD-chip company made a good showing at the Consumer Electronics Show in Las Vegas... Reporting positive results in its Phase III trials of a kidney treatment, GELTEX PHARMACEUTICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GELX)") else Response.Write("(Nasdaq: GELX)") end if %> rose $1 1/2 to $24 1/2... RIBOZYME PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RZYM)") else Response.Write("(Nasdaq: RZYM)") end if %> rose $2 3/8 to $15 on announcing it will test an HIV therapy with CHIRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHIR)") else Response.Write("(Nasdaq: CHIR)") end if %>... Information systems company TRANS LUX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TLX)") else Response.Write("(AMEX: TLX)") end if %> gained $1 5/8 to $12 3/4 after saying it has signed a multi-million dollar deal with the New York Mercantile Exchange.

GOATS

Caller ID company CIDCO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDCO)") else Response.Write("(Nasdaq: CDCO)") end if %> was hung up on by investors, losing $5 3/16 to $12 11/16 after the company announced it will just break even this quarter, compared to estimates of $0.38 per share. CIDCO said it has gone to a more direct marketing approach while still working with its "partners," the Baby Bells. Its sales and marketing expenses will increase $9 million this quarter, immediately whacking operating margin by at least 17%. Such a large variance indicates that the company either doesn't have a very tight reign over its business or there is something wrong with the overall business of selling caller ID boxes. Recently, Colonial Data Technologies, one of the original leaders in the field, blew up and subsequently merged with another company to form INTELIDATA TECHNOLOGIES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTD)") else Response.Write("(Nasdaq: INTD)") end if %>.

NEIMAN-MARCUS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NMG)") else Response.Write("(NYSE: NMG)") end if %> represents the painful flipside of our retail heroes today, plunging $3 3/8 to $23 3/8. The company reported flat same-store sales for the holiday period. Neiman-Marcus also reported that it would finish the quarter with earnings of $0.50 per share, below estimates of $0.57 per share. They did reassure stockholders that the company is on track to finish the fiscal year ending in July with strong results, but some have become disenchanted with the "needless mark-up" retail approach. In valuing this company, Fools are cautioned that earnings growth of late has been "recovery" growth from troubles in the last few years, and earnings growth over the next couple of years represents a normalization of earnings. Taking the 5-year annualized growth rate of 13% and multiplying by the 1998 earnings estimate gives a fair value around $26, and much less if discounting that to the present.

QUICK CUTS: After providing an operating update today, CHESAPEAKE ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHK)") else Response.Write("(NYSE: CHK)") end if %> slipped $1 5/8 to $29 7/8... HEILIG MEYERS CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %> lost $1 7/8 to $13 1/8 on disappointing December same-store sales... Semiconductor memory company XICOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XICO)") else Response.Write("(Nasdaq: XICO)") end if %> fell $2 to $8 1/8, warning of weak Q4 results... VWR SCIENTIFIC PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VWRX)") else Response.Write("(Nasdaq: VWRX)") end if %> was sacked for a $2 5/8 loss to $13 5/8 after warning of Q4 results far below estimates of $0.18 per share... Machine vision company PPT VISION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PPTV)") else Response.Write("(Nasdaq: PPTV)") end if %> lost $1 to $7 1/8 after Alex. Brown downgraded the stock, saying restructuring at customer AMP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMP)") else Response.Write("(NYSE: AMP)") end if %> will hurt results... MOSAIX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOSX)") else Response.Write("(Nasdaq: MOSX)") end if %> fell $3 15/16 to $11 5/16 after Dain Bosworth cut its rating on the call-center software systems company... After announcing secondary share offerings, SPECTRAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPTR)") else Response.Write("(Nasdaq: SPTR)") end if %> lost $2 1/4 to $20 3/4 and U.S. OFFICE PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OFIS)") else Response.Write("(Nasdaq: OFIS)") end if %> fell $1 1/8 to $33 3/4.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Kickin' Earnings

KOSS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KOSS)") else Response.Write("(Nasdaq: KOSS)") end if %> danced up $1 1/2 to $11 1/4 today after posting a 47% gain yesterday on strong second quarter earnings. The maker of headphones, loudspeakers and CDs posted earnings of $0.45 per share, up 104.5% from the prior year. This earnings growth came on a revenue increase of 34.8% to $13.3 million, with the company boasting net margins of 11.1%. Apparently investors were quite excited by this development, as they have driven shares of Koss to a 52-week high over the past two days.

Investors encouraged by the strong results should dig deeper into the story. The basic business at Koss is very seasonal, driven by holiday demand for stereo-related gifts. Koss also went into this quarter with $2 million backlog in orders caused by a combination of strong sales and a shortage of workers. Apparently one morning in September Koss management woke up to discover that about 70 temporary workers trained in July and August would no longer be at their disposal, causing a significant production setback and driving backorders to their highest level since the company landed a premium K-Mart contract seven years ago.

The production shortfall caused results at Koss to be flat when they reported earnings last quarter, making $0.25 EPS versus $0.23 EPS in the year before. More importantly for the second quarter's results, it had the effect of transferring some profits from the first quarter into the second quarter as the company aggressively moved to reduce its backlog, offering to pay some pretty high wages as reported by the company's hometown newspaper, the Milwaukee Sentinel.

A company like Koss operates with some pretty high fixed expenses -- they gotta operate the plant, run the distribution center, pay for the front office, do payroll for all of their permanent workers and so on. When fate allows them to transfer revenues from one quarter to the next, because the fixed costs don't change, those sales deliver a disproportionate amount of earnings to the bottom line. You can actually see this in the underlying profit margin, which jumped more than 2.6% from the first quarter to the second quarter.

All of the good news was not simply the result of this one-time deal. With headphone sales accounting for more than 80% of revenues, the two year profit drought due to low-cost Asian competition in the computer speaker market has also had less effect on the overall bottom line. In the current quarter, Chief Executive Michael Koss said that Koss had boasted its sales of computer speakers to computer manufacturers and expanded its model selection with existing retail customers. The company also has a slew of products to introduce at the Consumer Electronics Show, including stereophones with interchangeable add-ons and a new Reference line of headphones that have removable cords, boom microphone attachments, and multiple headband assemblies.

With only 3.34 million shares outstanding, Koss ranks as a lightweight on the capitalization index. Even at $11 1/4, almost double where it traded at the beginning of the week, the total capitalization still remains a mere $37.6 million, squarely in microcap territory. The stock is far from its hey-day in late-1993 and early-1994 when it achieved a high of roughly $15 before collapsing to the $6 to $7 level. Trailing revenues of $40 million compare well with fiscal 1996's $36.4 million. The company has been stuck in the mid to low $30 million revenue range since 1993. The enterprise value/sales ratio sits at about 1.0, and the trailing price/earnings ratio is currently at 10.2, implying the valuation is not ridiculous.

If most of the profits from this quarter were from actual growth and not simply boosted by the large backlog, imagining EPS growth of around 100% this year and a multiple of 12 to 15 times trailing earnings of $1.20 EPS is not entirely unreasonable, although the risk-reward is much higher now. Investors need to determine whether this is just a blip due to the backlog or earnings are set to grow as the company manages to increase revenues.

CONFERENCE CALLS

INTERNATIONAL RECTIFIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IRF)") else Response.Write("(NYSE: IRF)") end if %>
(800) 633-8284 (reservation # 2316641) -- replay
(avail. for 1 week following call)

TENET HEALTH CARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THC)") else Response.Write("(NYSE: THC)") end if %>
available until Friday, 1/10
(402) 220-1008

FIRST TEAM SPORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FTSP)") else Response.Write("(Nasdaq: FTSP)") end if %>
available through 6:00 p.m. EST on 1/10
1-800-633-8284 (reservation # 2329724)

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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