HEROES

NATIONSBANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %> gained $3 3/4 to $106 5/8 after yesterday's shining earnings report. In addition to the support that a strong bond market gives to financial stocks, investors are also looking at low loan-loss numbers and the overall quality of the bank's balance sheet. One key measure, the efficiency ratio, showed continued improvement. This measure, which shows non-interest expenses like salaries, depreciation, maintenance, and any sort of bricks-and-mortar spending, fell to 56% of what is basically the bank's revenues (net interest income + noninterest income + gains on sales of securities). Valuing bank stocks isn't done on earnings alone, but relies very much on looking at the balance sheet and relative measures, such as the efficiency ratio. Many investors relations representatives are readily willing to help Fools (like this one) on the road to understanding these sometimes vexing corporations.

BRE-X MINERALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BXMNF)") else Response.Write("(Nasdaq: BXMNF)") end if %> re-enters the Heroes column today, gaining $1 1/2 to $17 1/4. The embattled Candian mining concern that discovered a gold deposit rich enough to make Cortez and Raleigh roll over in their graves received an unsolicited offer to merge from PLACER DOME <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDG)") else Response.Write("(NYSE: PDG)") end if %>. Signaling that it would give the Indonesian government a chunk of the storied Busang deposit that makes Bre-X so attractive, Placer didn't make any other provision for the valuation of Bre-X. Placer plans to turn the Indonesian deposit into a producing property by 1999, with annual output averaging 3.5 million ounces a year. At current prices, that's annual revenue of about $1.3 billion. Bring that back to the present through the magic of discounting, assuming 10% cash flow off operations, and the valuation the market has put on Bre-X is that of a senior mining concern, which is great for Bre-X shareholders given its uncertain prospects.

QUICK TAKES: ST. MARY LAND & EXPLORATION CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MARY)") else Response.Write("(Nasdaq: MARY)") end if %> gained $2 3/4 to $29 after announcing that it increased proved reserves 58% last year... WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %> gained $3 to $75 on its strong earnings performance... TRISTAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSAR)") else Response.Write("(Nasdaq: TSAR)") end if %> rose $1 3/8 to $8 3/4 after the knock-off fragrances company reported a 300% increase in Q1 earnings per share (EPS)... Flexible circuit manufacturer PARLEX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRLX)") else Response.Write("(Nasdaq: PRLX)") end if %>, up $3 1/4 to $18 1/2, continues to ride last week's 517% increase in EPS... COGNOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %> gained $3 1/8 to $28 1/4 after Wheat First added the stock to its "Analyst Action List"... Pharmaceutical company SEPRACOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEPR)") else Response.Write("(Nasdaq: SEPR)") end if %> gained $2 1/4 to $19 1/8 after presenting data on its products at a Georgetown University conference... HMT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %> gained $1 1/16 to $19 1/16 after pre-announcing Q3 earnings of $0.30 per share, above estimates of $0.27... Helped by earnings at customer Western Digital, READ-RITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %> added $1 1/2 to $30 3/4... STUDENT LOAN MARKETING ASSOCIATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLM)") else Response.Write("(NYSE: SLM)") end if %> gained $5 3/4 to $100 1/4 after reporting EPS of $1.91 before a one-time gain... Making positive comments on January sales, Salomon's analyst upgraded COMPUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %>, sending the shares up $3 1/2 to $17 5/8... NEXTEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CALL)") else Response.Write("(Nasdaq: CALL)") end if %> gained $1 3/8 to $15 1/8 after the wireless telephony provider said there will be no roaming charges on its service... Insurance company CONSECO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNC)") else Response.Write("(NYSE: CNC)") end if %> ran up a $3 1/2 gain to $70 3/8 as computer-driven portfolios gathered in shares of the newest member of the S&P 500... ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> rose $3 1/2 to $32 1/2 on better-than-expected earnings and a large upward revision in earnings estimates from SoundView Financial... Drug company RHONE POULENC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RP)") else Response.Write("(NYSE: RP)") end if %> rose $1 5/8 to $32 3/4 after receiving clearance to market a respiratory drug in Germany and Ireland... SUPERIOR TELECOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SUT)") else Response.Write("(NYSE: SUT)") end if %> gained $2 3/8 to $25 after Jeff Vinik made the small-cap telecommunications equipment maker his latest stock pick... Introducing its latest large-scale storage system, EMC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EMC)") else Response.Write("(NYSE: EMC)") end if %> gained $3 5/8 to $39 3/8.

GOATS

VERITAS SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTS)") else Response.Write("(Nasdaq: VRTS)") end if %> lost $8 7/8 to $47 1/4 today after announcing it has agreed to merge with OPENVISION TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OPVN)") else Response.Write("(Nasdaq: OPVN)") end if %>, which gained $ 2 3/8 to $15 7/8. The storage management software companies concentrate on two different marketplaces -- Veritas in the more profitable OEM marketplace and OpenVision in the more disparate distribution marketplace. OpenVision's 1996 sales were about equal to Veritas' (annualizing sales), but Veritas achieves operating margins over 24% while OpenVision didn't make any money on operations. Both companies are forecast to grow earnings over 40% annually in the next five years, while the market for client-server management systems is expected to grow 22% per year through the end of the century, according to the Gartner Group.

WHOLE FOODS MARKETS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFMI)") else Response.Write("(Nasdaq: WFMI)") end if %> dropped $3 1/2 to $18 after Alex. Brown & Sons decreased its rating on the company to "buy" from "strong buy." Since raising the shares to "strong buy," nothing shocking has happened at the natural foods supermarket, which is the largest such enterprise in the country. The analyst's opinion is really the only thing to have fluctuated. Just before that earlier upgrade, the company had reported very fine Q4 earnings. Net income numbers, before charges for an acquisition and hurricane damage, came out this past year at a multiple to the low-single digits that normal supermarkets accomplish. That's on top of 24% topline growth and same-store sales growth in the mid-single digits. While it may be premature to say this company has a franchise, it certainly has loyal customers and unusual margins for its industry.

AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>, up $1 1/2 to $39 1/2, makes it into the Goat herd today because it has such a tough time serving its customers. Since stock price doesn't necessarily reflect the quality or intrinsic value of the actual underlying business, Fools use other factors (with a nod to Peter Lynch) to come up with a valuation. If users everywhere are freaking out about the failing of the service, how is one to value the company? The belief that America Online is the top dog because it has the most users and the "best" user interface leads some to remember the 1970s, when investors in U.S. Steel and the Big 3 automakers thought the same. Eventually, some company is going to focus on content and leave building a complicated network and software development to companies specializing in those areas. It's pretty hard to believe that ONE company could have a competitive advantage in all three. If AOL can, more power to them, but it's difficult to stay optimistic through the din of busy signals.

QUICK CUTS: Graphics controller company CHIPS & TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHPS)") else Response.Write("(Nasdaq: CHPS)") end if %> fell $5 1/8 to $16 1/2 as analysts grumbled about sales growth and margins going forward... APS HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSI)") else Response.Write("(Nasdaq: APSI)") end if %> was deflated $4 1/4 to $9 3/8 after announcing a Q4 loss due to after-market auto parts softness... Software concern FULCRUM TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FULCF)") else Response.Write("(Nasdaq: FULCF)") end if %> plunged $2 1/8 to $3 15/16 following the company's pre-announcement of a Q4 loss... NETSCAPE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSCP)") else Response.Write("(Nasdaq: NSCP)") end if %> dropped $4 1/2 to $42 1/4 as Merrill Lynch echoed the concerns put forth by DMG Technology Group last week... Natural foods purveyor WILD OATS MARKETS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OATS)") else Response.Write("(Nasdaq: OATS)") end if %> was mowed down $4 5/8 to $13 1/8 after its president announced his departure... MICROWARE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MWAR)") else Response.Write("(Nasdaq: MWAR)") end if %> fell $3 to $12 after the embedded systems company pre-announced a Q3 loss of $0.03-0.04 per share... Tape storage company EXABYTE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EXBT)") else Response.Write("(Nasdaq: EXBT)") end if %> was bitten for $3 3/4 to close at $9 1/2 after fessing up to a Q4 loss... TELETREND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLTN)") else Response.Write("(Nasdaq: TLTN)") end if %> lost $2 3/4 to $23 after the telecom gear maker said Q4 sales will fall... OXFORD HEALTH PLANS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OXHP)") else Response.Write("(Nasdaq: OXHP)") end if %> fell $2 3/4 to $52 5/8 as investors worry about Washington demagoguery on Medicare.. Modem maker BOCA RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOCI)") else Response.Write("(Nasdaq: BOCI)") end if %> fell $1 to $9 on pre-announcing quarterly EPS of $0.03... SCIENTIFIC GAMES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SG)") else Response.Write("(NYSE: SG)") end if %> dropped $3 to $23 3/8 even though it won $20 million contract from the state of Virginia... Airbag components maker BREED TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDT)") else Response.Write("(NYSE: BDT)") end if %> lost $1 1/2 to $25 3/4 after Prudential Securities removed the company from its "Select List"... SANMINA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANM)") else Response.Write("(Nasdaq: SANM)") end if %> fell $2 7/8 to $54 3/4 after the circuit board maker reported EPS right in-line with estimates.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Get to Know the Competition

So you have received an investor's information packet from a company, read through the annual report, press releases, 10-K, 10-Qs and any analyst reports included in the package. You have looked at the Statement of Earnings, Consolidated Balance Sheet and Statement of Cash Flows for the pertinent data, did a little math, and calculated the ratios. You have gone through the historical financials, seeing what kind of growth the company has delivered in profits and revenues over the past few years. You have come online with America Online and visited First Call or some other subscription estimate service on the World Wide Web like www.zacks.com and have calculated the company's valuation relative to the cash that analysts believe will flow through the company's bottom line. So you are all set to buy the stock now, right?

Of course not, or else this would not be the lead-in paragraph to this column. One of the key things that many investors fail to do is appropriately parse out the competitive environment. Almost every company on the planet competes with another company. Normally a company competes with a multitude of other companies, each trying to provide total solutions or occupying various niches in order to differentiate themselves. Before plunging headlong into an investment it is absolutely vital to get a sense of the competition, the competition's strategy, and the current valuation of the competition if they are publicly-traded. The reason that many investors do not do this is because it is a little more difficult than just getting an investor's packet and doing some reading -- you gotta do some digging.

Whenever I spot a company that appears to be undervalued, virtually from the beginning I try to figure out who its main competition is. Is there another publicly-traded company in that same business? The best place to start is to ask the people at Investor Relations when you call for your investor's packet who they believe they compete against. Almost all publicly-traded companies benchmark their stock against a self-selected peer group. You can darn well bet that the folks at COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> know to the fourth decimal point how well DELL COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> has done over the past three months... and GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GATE)") else Response.Write("(Nasdaq: GATE)") end if %>... and MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %>... and IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>... and ADVANCED LOGIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AALR)") else Response.Write("(Nasdaq: AALR)") end if %>, and a dozen other names.

Okay, so you have just talked to Investor Relations and have scribbled down the few names they have deigned to give you. Is your hard work over? No. You have to get information about those companies and see where they specifically compete with your company. Take my example above, Compaq. When analyzing how Compaq is priced relative to IBM, you have to take into account that IBM does a heck of a lot more than personal computers. You need to recognize that Dell, Gateway and Micron focus entirely on the direct channel, selling to the customer via the telephone, while Compaq uses the indirect channel and gets to the customer through retail computer stores.

These differences have many implications for valuation. For instance, because Dell, Gateway and Micron sell direct they can turn their inventory more quickly and generate more cash flow as less capital is tied up in inventory. It can be very enlightening who a company names as its competitors, as well as who it does not name. A great example is the fact that no networking company ever lists MADGE NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MADGF)") else Response.Write("(Nasdaq: MADGF)") end if %> as a competitor. Either Madge is completely overlooked because it should be, or it is unreasonably overlooked and might consequently be mispriced. If you dig a little deeper, you find out that it has a token ring business that is dying, a LAN switching business that is not what it expected, and an ATM to the desktop business that no other company in the industry thinks will work. And this knowledge about Madge can only come from look at the competitors.

Many times I will get the list of names from one Investor Relations department and call all of those names to ask them who its competition is, and then call each new name to get more company names. Depending on the industry, this can take two calls or twenty calls. After awhile, you are going to have a pretty solid core peer group to compare. Another excellent source of competitors names is Hoovers, which is available at www.hoovers.com for a monthly subscription. Hoover's lists the competition in their company reports, and often when I am writing on a company in the Evening News and do not have time to give Investor Relations a call, I will glance at the list of names Hoover's offers up and then start hitting EDGAR (www.sec.gov/edgarhp.htm).

You gotta love EDGAR. If you are an investor and you haven't visited EDGAR, shame on you. It is a two-year database of all of the federal filings from almost all public companies, except for a few malcontents like USA DETERGENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USAD)") else Response.Write("(Nasdaq: USAD)") end if %> that seem to have avoided the SEC's mandate to file electronically by May of 1996. I hop on the ol' information superhighway, tour the 10-Ks and 10-Qs of the competition that Hoover's lists, and look closely at the Management's Discussion of Operations, which can get pretty specific about the competitive environment and the specific company's strategy. Another great source of information is trade magazines and trade organizations that have website. For instance, SEMI, the semiconductor equipment organization, lists member companies on its Web page and offers up brief descriptions. You can find out if the industry has any major trade organization by asking the company when you call them to get those investment packets.

CONFERENCE CALLS

ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %>
(402) 220-5185 (passcode: 5838) -- replay

01/14/97 (Tuesday)
COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
(re: Alliance with NCR)
(888) 243-0816 -- replay

01/14/97 (Tuesday)
MEDICIS PHARMACEUTICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDRX)") else Response.Write("(Nasdaq: MDRX)") end if %>
1-800-633-8284 (reservation # 2373978) -- replay avail 1/15 from 3:30 to 5:30 p.m. EST only

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

FOOLISH FEATURES

Today's Lunchtime News features a look at semiconductor manufacturer ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %>. AMD stock was up sharply, as the company lost less last quarter than analysts anticipated, and the influential Soundview Financial substantially increased earnings estimates for AMD for 1997 and 1998.

Rogue features a look at Social Security today. Spirited debate on the subject continues all across the country, with many calling for some of the funds to be invested in the stock market. While that sounds good on the surface, the implications for the market could be quite serious. Rogue explores the possibilities.

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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