HEROES

ZURICH REINSURANCE CENTRE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZRC)") else Response.Write("(NYSE: ZRC)") end if %> climbed $7 1/8 to $37 7/8 after its parent, insurance company Zurich Group, announced it is offering $36 per share in cash to make it a wholly-owned subsidiary. The idea here is to compete with other reinsurance companies which have been consolidating, notably GENERAL RE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRN)") else Response.Write("(NYSE: GRN)") end if %>, which recently merged with National Re and Cologne. Inside the industry, competitors figure Zurich will go with a direct sales model, saving on commissions that present a significant operating expense. The other way to save money through the acquisition is by winning insurance ratings upgrades, thereby lowering the cost of capital. Moody's has the company on review for a possible upgrade, which would present a two-fold win along with the cheap-ish 1.38 price/book acquisition price.

Satellite telephony company GLOBALSTAR TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSTRF)") else Response.Write("(Nasdaq: GSTRF)") end if %> jumped $5 7/16 to $69 5/16 on no news, leaving investors to believe that the delay in Iridium -- the same sort of system that MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %> is rolling out -- has helped perceptions of Globalstar. The first three Iridium satellites have been sitting on a launch pad awaiting liftoff after a number of delays. As Motorola starts up depreciation and other expenses and Iridium moves toward the start of commercial services, perceptions of the sector will shift over short-term problems such as this delay. Motorola's shift in strategy to concentrate on business customers with proven needs probably shouldn't hearten owners of the competition. Though it seemed in the conference call the other day that Motorola has conceded a certain part of this market, that's probably not a long-term concession.

QUICK TAKES: SHOWBOAT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBO)") else Response.Write("(NYSE: SBO)") end if %> gained $3 1/2 to $23 1/4 after an Australian company agreed to purchase a significant portion of the company's casino in Sydney, Australia... Electronic components maker AVX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVX)") else Response.Write("(NYSE: AVX)") end if %> rose $2 3/8 to $23 1/2 as bookings reached their highest level since 1995... SHELBY WILLIAMS INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SY)") else Response.Write("(NYSE: SY)") end if %> was fluffed up $1 1/4 to $14 1/4 on projecting better-than-expected Q4 and yearly earnings... Off-line stock chatter sent the shares of DOW JONES & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJ)") else Response.Write("(NYSE: DJ)") end if %> $3 1/8 higher to $38 7/8 as the company's Chair was recently interviewed by Fortune Magazine... ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> rose $2 to $29 3/4 on the release of its 166 Mhz Pentium-compatible processors... Heating and cooling company AAON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAON)") else Response.Write("(Nasdaq: AAON)") end if %> added $2 1/4 to $7 5/8 after the company's CFO said Q4 earnings will at least increase from last year's fourth quarter... NORTHSTAR COMPUTER FORMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCF)") else Response.Write("(Nasdaq: NSCF)") end if %> climbed $2 3/4 to $15 after last week's report of a 100% increase in Q4 earnings per share... Manufacturing software firm CONSILIUM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSIM)") else Response.Write("(Nasdaq: CSIM)") end if %> gained $1 1/2 to $7 1/2 after reporting a large order with a Korean equipment company... MATRIA HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MATR)") else Response.Write("(Nasdaq: MATR)") end if %> jumped $1 7/8 to $7 after the company received FDA approval to market a pre-term delivery test for pregnant women... Biotech company SYSTEMIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STMX)") else Response.Write("(Nasdaq: STMX)") end if %> ran up $4 to $19 5/16 after a Swiss life sciences company offered to buy out Systemix for $19.50 per share... PARLEX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRLX)") else Response.Write("(Nasdaq: PRLX)") end if %> moved up $3 1/4 to $15 1/4 following last week's positive earnings report... Semiconductor equipment maker ONTRAK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONTK)") else Response.Write("(Nasdaq: ONTK)") end if %> rose $3 3/16 to $18 5/8 after Needham & Co. upped its rating to "buy" from "hold"... PINNACLE MICRO <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PNCL)") else Response.Write("(Nasdaq: PNCL)") end if %> rose $1 1/8 to $7 1/16 after the company announced the appointment of a executive formerly with the Conner division of SEAGATE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %>... K-V PHARMACEUTICAL CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: KV.A and KV.B)") else Response.Write("(AMEX: KV.A and KV.B)") end if %> gained $2 to $14 3/8 after signing an agreement with Roche... AMC ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AEN)") else Response.Write("(AMEX: AEN)") end if %> gained $1 3/4 to $17 7/8 after assuring investors of stability at the movie theater company while its CEO undergoes cancer treatment.

GOATS

PONCEBANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PBK)") else Response.Write("(NYSE: PBK)") end if %> dropped $4 3/8 to $20 1/4 today after the Puerto Rican thrift institution reported earnings of $2.31 per share for the year, excluding a charge for a contribution to the Savings Association Insurance Fund, a mandatory regulatory payment. Core earnings per share (EPS) increased 36.6% from last year, an earnings increase almost twice what NATIONSBANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> reported today. The main measures of a bank's performance, return on equity (ROE) and return on assets (ROA), were mixed this quarter. On an annualized basis, the ROE of 16.7% was pretty good, while the ROA of 1.21% was a little anemic for a small bank, especially considering last year's spectacular 1.78% annualized ROA in Q4 1995. Two of the reasons for the fall today were the bank's cautious outlook for 1997 and the loan losses it took, as the hurricanes last year contributed to a number of bankruptcies in Puerto Rico.

PEOPLE'S CHOICE TV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCTV)") else Response.Write("(Nasdaq: PCTV)") end if %> fell $1 13/16 to $4 1/8 today after Alex. Brown & Sons cut its rating on the company to "hold" from "strong buy." The company owns the rights to broadcast wireless cable TV to 3.3 million households, which puts the price of the company at $30 per "pop," or unit of population. For a wireless telephony company, or even a company like AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>, that's pretty cheap, as member-based valuations pretty much start north of $500 per pop. If there is a future for companies such as People's Choice or CAI WIRELESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CAWS)") else Response.Write("(Nasdaq: CAWS)") end if %>, then they are trading on the steep cheap right now. Maybe if they had been viable entities 15 years ago, when cable companies operated as effective monopolies, they would have value. Telco deregulation, as well as the inferiority of this particular technology, reduce the investment merits of these companies.

Internet connection wholesaler PSINET INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSIX)") else Response.Write("(Nasdaq: PSIX)") end if %> timed out, losing $2 3/8 to $10 3/4, after announcing that it will experience larger-than-expected losses for the coming quarter and that revenues will be softer than expected. Prudential cut its rating in the company to "hold" from "buy," while Montgomery Securities went so far as to issue a "sell" recommendation, a beast as rare as the Bengal tiger these days. That sort of recommendation is usually issued when an analyst feels that a company has been dishonest or malfeasant in some way. PSINet's public statements indicate that they've been looking more toward next year, having written off this year. Its decision announced today to go with a radically different network structure using ASCEND (Nasdaq ASND) GRF IP switches shows the company departing from its old modes of business in more than one way.

QUICK CUTS: Web software company ONEWAVE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OWAV)") else Response.Write("(Nasdaq: OWAV)") end if %> lost $3 7/8 to $4 on announcing December quarter revenues will fall up to 34%... CARDIOVASCULAR DYNAMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCVD)") else Response.Write("(Nasdaq: CCVD)") end if %> lost $3 to $9 1/2 after brokerage Volte Welpe cut its rating on the company to "buy" from "strong buy," citing lower sales expectations... Data processing service company ACXIOM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACXM)") else Response.Write("(Nasdaq: ACXM)") end if %> lost $4 5/8 to $17 5/8 after reporting Q3 earnings of $0.15 per share, right in line with estimates... UNIMED PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UMED)") else Response.Write("(Nasdaq: UMED)") end if %> lost $1 1/8 to $6 3/4 after announcing the resignation of its CEO... Data communications company TRANSACTION NETWORK SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNSI)") else Response.Write("(Nasdaq: TNSI)") end if %> lost $2 1/4 to $11 after the company said Q4 results will fall below expectations... METATEC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: META)") else Response.Write("(Nasdaq: META)") end if %> fell $1 1/8 to $5 3/4 after pre-announcing poor Q4 results... After announcing the delay of an important beta test, printing equipment company CHECK TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTCQ)") else Response.Write("(Nasdaq: CTCQ)") end if %> fell $1 1/8 to $6 1/2... Biopharm company REGENERON PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REGN)") else Response.Write("(Nasdaq: REGN)") end if %> fell another $1 5/8 to $9 3/8 after Friday's announcement of a failure in clinical trials of a Lou Gehrig's disease treatment with AMGEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMGN)") else Response.Write("(Nasdaq: AMGN)") end if %>... RECOVERY ENGINEERING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: REIN)") else Response.Write("(Nasdaq: REIN)") end if %> fell $1 to $6 7/8 after CLOROX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLX)") else Response.Write("(NYSE: CLX)") end if %> filed a patent infringement suit against the company... Offshore oil services company J. RAY MCDERMOTT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JRM)") else Response.Write("(NYSE: JRM)") end if %> was drilled for a $1 5/8 loss to $23 1/2 after the company's operating chief and president resigned.

FOOL ON THE HILL
An Investment Opinion by MF Templar

There's a Consensus?
Yes, and It Can Be Mean

You have probably heard the words "earnings estimates" more than once in your life if you follow the stock market. A report will say, "Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> slumped $16 to $45 today after missing consensus earnings estimates by 4 cents..." What the heck is an earnings estimate, and how do people use them to invest?

The inexact science of estimating earnings actually has a fairly long pedigree. Ben Graham warned in his 1934 classic, Security Analysis, that estimating future earnings and investing based on these presumptions was a perilous enterprise -- an indication that one of the factors that caused the crash of 1929 might have been overly optimistic estimates of earnings power. "Estimates" are essentially guesses at how much a public company will earn in the next quarter, the next year or over the next five years. These guesses can be made by almost anyone, but when they are made by analysts they tend to get the most coverage.

An analyst is an individual hired by a brokerage or money-management firm whose entire job is based on figuring out which stocks are good to buy and which stocks are not. Part of this job involves determining whether future earnings from a company are going to be higher or lower than past earnings, a process that requires estimating what the future revenues, the future earnings and the future cash-flow will be. When analysts work for a fund or a firm that manages a client's money, they are called "buy-side" analysts, and they typically keep their estimates to themselves. "Buy-side" analysts simply advise the fund manager that they work for to buy something without ever having to talk to clients. When analysts work for a brokerage firm, they are called "sell-side" analysts, and they publish their numbers in reports that are meant to inspire investors and institutions to buy the shares. The reason they are called "sell-side" is because they have to "sell" their advice to clients, convincing the customers that their ideas are sound.

How do these analysts come up with estimates? A lot of people believe they just concoct them out of the ether, but this is very far from the truth. Depending on the company and the analyst, there are many ways to develop estimates. Many companies provide what is called "guidance" about many aspects of their business going forward. They will tell you how much they think revenues will grow, where gross margins will be and, sometimes, go so far as to tell you how much they are going to make. There are professional industry watchers, as well, who will tell you what kind of growth an industry will have in various segments. Analysts often use this data to inform their estimates. Only in the most rare case will an analyst construct estimates without even talking to the company.

In the 1960s, investing based on estimates became extremely popular, and within the decade a number of services sprang up that were dedicated to keeping track of all estimates on all companies and averaging the numbers. Called "consensus estimates," the easy availability of these numbers began to change the way people looked at investing in stocks. Suddenly, the consensus estimate became an extremely important figure, and any changes in this number could cause a stock to rise or fall -- even if the company itself published no news to warrant the change. Today First Call, Zack's, I/B/E/S, Nelson's and S&P are but a few of the organizations that track consensus estimates. You can access these numbers on any major online service provider, like Prodigy, CompuServe and... yes, America Online, or you can subscribe to these services on the Web. These services allow the individual investor to know what analysts think a company is going to earn next quarter or next year, and consequently help that investor understand the changes in the stock price after the company actually posts its numbers.

[A version of this column originally appeared on the EETimes Web site.]

CONFERENCE CALLS

01/13/97 (Monday)
ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %>
replay after 7:30 p.m. EST
(402) 220-5185 (passcode: 5838)

01/14/96 (Tuesday)
SALLIE MAE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLM)") else Response.Write("(NYSE: SLM)") end if %>
1-800-844-8666 (passcode: 2559) -- replays @ 5:00 p.m. EST on 1/14, 11:00 a.m. EST on 1/15, and 11:00 a.m. on 1/16

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 in FoolMart. 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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