HEROES

Specialty healthcare company VALUE HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VH)") else Response.Write("(NYSE: VH)") end if %> gained $1 3/4 to $22 after announcing it will merge with hospital company COLUMBIA/HCA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %>. The deal values each share of Value Health at 0.58 shares of Columbia, putting the enterprise value for Value Health around $1.15 billion. The market cap is reduced by the hefty amount of cash on the books and negligible long-term liabilities. Using its stock as currency, Columbia/HCA picks up Value Health at 16.7 times annualized earnings when the company has an estimated annual growth rate of 18% for the next five years. Columbia/HCA, on the other hand, is valued at 18 times earnings with a 15% five-year estimated growth rate. Not a bad use of Columbia/HCA's capital stock, especially if Value Health continues its $100 million stock buyback and its plan to drop the less profitable pharmacy management business.

SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> gained $2 13/16 to $31 1/16 after reporting record quarterly revenues over $2 billion, while earnings per share (EPS) jumped 41% to $0.46. This brings the trailing 12 month EPS to $1.44, the P/E on that number to 21.4, and the enterprise value to earnings ratio to around 20. With an estimated annual growth rate of 18% over the coming five years, multiplying forward earnings estimates by that number would push the fair value to $35 or more. That doesn't even count in management quality, product pipeline, and consistency and quality of earnings. With all of these in place at Sun, blase ratings have been upgraded to "buys" at Salomon and Morgan Stanley. Throw in the extra juice of the potential of Java, and more analysts might find reasons to put this on their "buy" lists too.

Telecommunications equipment company NATURAL MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NMSS)") else Response.Write("(Nasdaq: NMSS)") end if %> rose $1 7/8 to $30 5/8 on reporting Q4 earnings of $0.20 per share on a 57% increase in revenues. Excluding a merger-related charge, the company achieved annual EPS of $0.60, beating estimates by $0.02. For a company with a market cap of $335 million, it has attracted a pretty wide following of eight analysts, indicating there's probably something to look at here. The company's Fusion product sends voice calls over the Internet, which can be much cheaper than on circuit switched networks. As Bill Gurley at DMG Technology Group has argued (in places such as Hotseat from Wired), telcos and internet service providers have great incentives to put voice on data networks when there's no local access charge to be paid on either end. Given the FCC's interest in maintaining that status quo, Natural Microsystems might be in the right place.

QUICK TAKES: SUMMA FOUR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUMA)") else Response.Write("(Nasdaq: SUMA)") end if %> gained $3 3/8 to $11 3/4 after reporting Q3 earnings of $0.08 per share after a charge, beating estimates of $0.04... Petroleum processing biotech ENERGY BIOSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENBC)") else Response.Write("(Nasdaq: ENBC)") end if %> rose $1 3/4 to $7 3/4 as the company announced progress at one of its facilities... XIRCOM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XIRC)") else Response.Write("(Nasdaq: XIRC)") end if %> jumped $4 5/8 to $24 1/4 after announcing that INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> has made a $52 million investment in the network access products company... VARI-L CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VARL)") else Response.Write("(Nasdaq: VARL)") end if %> rose $2 1/2 to $11 after the wireless telecom equipment company announced Q4 EPS of $0.15... Programmable chip maker XILINX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XLNX)") else Response.Write("(Nasdaq: XLNX)") end if %> gained $5 1/4 to $42 7/8 on reporting Q3 earnings of 0.33 per share... L.L. KNICKERBOCKER CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KNIC)") else Response.Write("(Nasdaq: KNIC)") end if %> rose $1 3/16 to $7 after suspending conversion of its subordinated bonds... Database software firm ARBOR SOFTWARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ARSW)") else Response.Write("(Nasdaq: ARSW)") end if %> rose $2 1/8 to $32 7/8 after reporting an 86% increase in EPS, which came in at $0.13... SPECTRAL DIAGNOSTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIAGF)") else Response.Write("(Nasdaq: DIAGF)") end if %> moved up $1 3/4 to $11 1/4 on announcing European distribution pacts for its cardiac diagnostic products... Telecom equipment firm COHERENT COMMUNICATIONS SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CCSC)") else Response.Write("(Nasdaq: CCSC)") end if %> rose $1 5/8 to $21 5/8 after announcing two contracts for its telecommunications equipment... PLEXUS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLXS)") else Response.Write("(Nasdaq: PLXS)") end if %> gained $2 9/16 to $27 9/16 after the electronics test equipment firm reported an increase in quarterly sales and earnings.

MORE TAKES: DIGITAL EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> gained $2 1/2 to $36 3/4 after reporting a quarterly profit and winning a slew of analysts' upgrades... Printing and industrial equipment firm KOLLMORGEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KOL)") else Response.Write("(NYSE: KOL)") end if %> rose $1 3/4 to $13 1/2 on announcing a plan to spin off a division... EASTMAN KODAK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EK)") else Response.Write("(NYSE: EK)") end if %> moved up $4 1/4 to $85 1/2 after reporting estimate-beating earnings of $1.19 per share and an increase in its dividend... Publisher PLAYBOY ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLA)") else Response.Write("(NYSE: PLA)") end if %> rose $1 to $10 5/8 after pre-announcing a doubling in Q2 earnings per share... TOMMY HILFIGER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOM)") else Response.Write("(NYSE: TOM)") end if %> gained $4 1/2 to $50 on announcing a European distribution agreement... Passing the 8 million member mark today, AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> rose $3 3/8 to $41 3/8... DANIELSON HOLDING <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: DHC)") else Response.Write("(AMEX: DHC)") end if %> gained $1 1/4 to $6 7/8 after PROGRESSIVE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PGR)") else Response.Write("(NYSE: PGR)") end if %> agreed to buy 11 million shares, or 42%, of the insurance company... Color printer server company SPLASH TECHNOLOGY HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLH)") else Response.Write("(Nasdaq: SPLH)") end if %> gained another $4 5/8 to $34 after yesterday's earnings report.

GOATS

Semiconductor test handling equipment company ASECO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASEC)") else Response.Write("(Nasdaq: ASEC)") end if %> fell $7/8 to $10 1/8 after reporting a 30% decrease in Q3 sales and EPS of $0.06, which still beat estimates of $0.05. Even with unit growth in the semiconductor industry (as measured in bits) not falling outside of the norm for the past decade, the company's profit level is super-sensitive to hesitant capital expansion plans for the chip makers. Although far above its 52-week low of $7, it has fallen 31% from its high, suggesting that investors are still quite nervous in this sector. Looking at the balance sheet, Aseco is keeping R&D up and has done a good job maintaining gross margin while reducing sales, general, and administrative costs. One wonders if other companies in this industry will also draw penalties on similar good earnings performances this quarter.

GREENFIELD INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GFII)") else Response.Write("(Nasdaq: GFII)") end if %> was sheared for a $8 1/4 loss to $25 on pre-announcing Q4 EPS of $0.32 to $0.34, falling short of estimates of $0.50. The company makes cutting tools for a number of different industrial and consumer applications and regularly does acquisitions to fuel growth. The problems this quarter came from manufacturing efficiency, which is the downside of such a growth strategy. When there are no pro-forma numbers available in an SEC-filed financial statement (there are different instances in which these are required according to each corporation's by-laws), it doesn't hurt to ask the company if it can provide them. With pro-forma numbers, an investor can compare current-period financials with prior-period financials, assuming the companies were operating as one during both periods.

QUICK CUTS: MAY & SPEH INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPEH)") else Response.Write("(Nasdaq: SPEH)") end if %> fell $4 to $8 1/2 after the data outsourcing company pre-announced Q1 earnings... Auto finance company NAL FINANCIAL GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NALF)") else Response.Write("(Nasdaq: NALF)") end if %> sold off $2 1/4 to $7 after the company sold 375,000 shares $1.75 below the market price as a follow-on to an earlier offering... PREMISYS COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRMS)") else Response.Write("(Nasdaq: PRMS)") end if %> fell $4 3/16 to $28 1/16 after the telecom access products company reported soft earnings... Networking products maker DIGI INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DGII)") else Response.Write("(Nasdaq: DGII)") end if %> fell $1 1/4 to $8 after pre-announcing flat Q1 revenues... CMAC INVESTMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMT)") else Response.Write("(NYSE: CMT)") end if %> lost $3 1/8 to finish at $32 5/8 as a Wall Street Journal article discussed possible problems facing mortgage insurance companies... PMI GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PMA)") else Response.Write("(NYSE: PMA)") end if %> lost $3 to $53 1/8 on the mortgage insurance article... Automated teller machine maker DIEBOLD INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DBD)") else Response.Write("(NYSE: DBD)") end if %> fell $3 7/8 to $60 5/8 after reporting record earnings -- investors may fear competition from the newly-independent NCR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NCR)") else Response.Write("(NYSE: NCR)") end if %>.

FOOL ON THE HILL
An Investment Opinion by MF Templar

My Bookshelf: Part Three of an Ongoing Series

The two best interview format investing books have been penned by John Train -- THE MONEY MASTERS and THE NEW MONEY MASTERS. These books are compilations of interviews with successful investors, including the famous, the infamous, and some that are relatively unknown except to a select few. The major difference between the two works is that they deal with entirely different crops of investors. The Money Masters deals with the Golden Age investors who, for the most part, attained their reputations prior to the crash of 1973 and 1974, while the second book deals with the group of investing champions that became household names in the 1980s.

Train's writing is crisp and entertaining, and his synopses of the lengthy interviews with investment luminaries contain many pearls of wisdom applicable to any investor's philosophy. That Train himself is an accomplished investor in his own right allows him to bring a level of insight and perspicacity to the effort that a traditional financial writer or business journalist might not have captured. The most fascinating aspect of the books for me is that they serve as an historical summation of the development of the philosophies behind investing, dealing with most of the major thinkers in chronological order and crystallizing their particular contributions to the Unified Theory of Equities.

The Money Masters covers the origins of the value and growth philosophies of investing that many managers practice variations of today. The sections on Ben Graham and Sir John Templeton both outline the development of the fundamental approach to valuation as well as its original application in stock markets throughout the world. Phil Fisher and T. Rowe Price represent the two most celebrated proponents of what has come to be known as the growth strategy, adding the additional rigor of another layer of criteria to the value-style approach. Warren Buffett stands as one of the first great synthesizers of the ideas of both Graham and Fisher, while other investors like Larry Tisch represent variations on one particular strand, in Tisch's case that being value-investing.

The New Money Masters launches into the crazy hey-day of the 1980s, covering some names that the term trader, rather than investor, might apply more readily. The biggest brand name interviewed here is Peter Lynch, an author in his own right who attained fame for his performance with Fidelity's flagship Magellan fund. Lynch pioneered a consumer approach to the investing process and invested using a hybrid of the growth and value style that has come to be known within the industry as GARP, standing for Growth At A Reasonable Price. Another mutual fund giant profiled in the book is John Neff, whose performance with Vanguard's flagship Windsor fund firmly illustrates that a counter-cyclical approach can actually consistently outperform the market. Neff is most famous for buying cyclical companies' stocks at their lows and then holding them for three to five years to make money.

The New Money Masters diverges from The Money Masters in that it discusses names like George Soros, Jimmy Rogers and Michael Steinhardt, some of the more famous traders of our age. Soros and Rogers are famous for beginning the market-smashing Quantum fund, a hedge fund limited to less than a 100 investors able to pay the million dollar-plus price to get in. Quantum did wonderful things like putting most of its assets short the English pound. Both Soros and Rogers have fairly interesting ideas about the nature of investing and the sentiment behind it, although I must confess a personal distaste for Sorosian philosophical leanings as they tend to exhibit everything about Continental philosophy since 1900 that I dislike. However, Soros and Rogers provide key insights into the factors that result in specific equities becoming mispriced, information that allows the individual investor to recognize the very regimented process of investing.

A nice overview of investing for beginning investors is STOCK PICKING by Richard Maturi. Maturi is one of the better professional investment writers, with a syndicated column and several books to his name -- Wall Street Words probably being the most well-known. Stock Picking looks at nine investment approaches revolving around specific types of companies, ranging from analyzing companies that generate tons of cash flow to picking small capitalization stocks. I found the two sections on stock-splits and spin-offs particularly interesting, as these both cited rather interesting academic data and grounded it with anecdotal reports from various money managers. Although Stock Picking is not a book that you can read and then expect to use to generate excess returns within days, it has some value as an introductory text to the mechanics of picking stocks using various fundamentally based approaches.

[These books are available in FoolMart.]

NO-PRIZE WINNERS

A complete blunder on the part of MF Templar has allowed four more perceptive readers to win the coveted No-Prize, the Fool award for canny readers who spot idiotic errors. With his copies of Stanley Toulmin's Cosmopolis and Charles Mackay's Popular Delusions and the Madness of Crowds in another state, Templar wrote in yesterday's Fool On the Hill column that tulipmania happened in 16th century Denmark. Whoa, somebody was confusing the home of Hamlet with the actual place where tulip bulbs once sold for outrageous prices. It was actually 17th century Holland, as pointed out by Donald Kramer ([email protected]), Michael Faas ([email protected]), George Acton ([email protected]), and Mark Kaprelian ([email protected]). Congrats, folks. The No-Prize is in the mail.

CONFERENCE CALLS

INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>
Replay available through Friday
(402) 220-1010

INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> and Case Technology (re: merger)
replay available through Friday at noon EST
(800) 633-8284 (reservation # 2370176)

SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>
1-800-633-8284 (reservation # 2274153) -- replay

APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>
1-800-633-8284 (reservation # 2280800) -- replay
(303) 446-5399 (reservation # 2280800) -- replay

COREL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COSSF)") else Response.Write("(Nasdaq: COSSF)") end if %>
(416) 626-4130 (passcode: 8720) -- replay

FEDERAL HOME LOAN MORTGAGE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRE)") else Response.Write("(NYSE: FRE)") end if %>
(703) 736-7291 -- replay avail from 8:00 a.m. on 1/16 thru 4:00 p.m. on 1/17

INTUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTU)") else Response.Write("(Nasdaq: INTU)") end if %> / MICROSOFT (Nasdaqw: MSFT) / CHECKFREE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CKFR)") else Response.Write("(Nasdaq: CKFR)") end if %>
(re: Deal to make Online Financial Service)
1-800-846-5152 (access code: 1234) -- replay

HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
(Re: Maintenance Warehouse acquisition)
replay through 1/20
(402) 220-5199

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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