HEROES

SIERRA SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SERA)") else Response.Write("(Nasdaq: SERA)") end if %> gained $2 5/8 to $16 1/2 after the producer of specialty semiconductors for local and wide area networks reported first quarter earnings of $0.29 per share. The company exited the analog modem chip business last quarter and is now concentrating on growing its business for design intensive applications such as ATM and fiberoptic networks. Gross margin on such chips this quarter was almost 75%, and overall gross margin climbed to 57% from 52% last quarter (before inventory write-offs in September). While the company's earnings per share (EPS) of $0.29 beat estimates of $0.19, the company's tax rate was only 9% due to past losses. In this case, looking at the sequential revenue growth and the company's gross efficiency is the best way to get a gauge on how its turnaround has progressed.

QUICK TAKES: Networking products company DSC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIGI)") else Response.Write("(Nasdaq: DIGI)") end if %> rose $2 1/8 to $23 after the company reported Q4 EPS of $0.15, above estimates of $0.13.... ADVANCED HEALTH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADVH)") else Response.Write("(Nasdaq: ADVH)") end if %> gained $1 1/8 to $12 1/8 after Business Week featured the healthcare information company in its "Inside Wall Street" column... VANTIVE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VNTV)") else Response.Write("(Nasdaq: VNTV)") end if %> moved up $1 3/4 to $32 1/4 on reporting a 141% increase in Q4 revenues and earnings of $0.12 per share, 25% above estimates of $0.09... Medical products company INCSTAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISTR)") else Response.Write("(Nasdaq: ISTR)") end if %> jumped $1 9/32 to $5 11/16 after agreeing to merge with AMERICAN STANDARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASD)") else Response.Write("(NYSE: ASD)") end if %> in a deal valued at $6.32 per share... PAIRGAIN TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAIR)") else Response.Write("(Nasdaq: PAIR)") end if %> gained $3 1/2 to $42 1/2 after reporting strong earnings last night... Internet access provider EARTHLINK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELNK)") else Response.Write("(Nasdaq: ELNK)") end if %> gained $3 5/8 to $17 as its initial public offering (IPO) and its connection with George Soros have attracted buying attention... NORTH FACE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNFI)") else Response.Write("(Nasdaq: TNFI)") end if %> climbed $1 3/8 to $21 3/4 after Q4 earnings of $0.12 per share beat estimates by 25%... Network software company WALL DATA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WALL)") else Response.Write("(Nasdaq: WALL)") end if %> gained $2 to $18 1/4 after reporting estimate-beating earnings... Semiconductor fabrication equipment company ONTRAK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONTK)") else Response.Write("(Nasdaq: ONTK)") end if %> gained $3 1/4 to $24 1/4 after reporting EPS of $0.10, in-line with estimates... KLM ROYAL DUTCH AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KLM)") else Response.Write("(NYSE: KLM)") end if %> added $1 7/8 to $29 5/8 after Merrill Lynch raised its rating on the air carrier to "near-term buy"... Semiconductor wafer stepper company ASM LITHOGRAPHY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %> stepped up $5 1/8 to $67 after reporting earnings and saying it sees increased demand in the second half of the year... MICRO LINEAR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MLIN)") else Response.Write("(Nasdaq: MLIN)") end if %> rose $1 3/8 to $11 7/8 after the specialty semiconductor company reported Q4 EPS of $0.11, winning a "buy" rating from Robertson Stephens... Wireless products company TELXON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLXN)") else Response.Write("(Nasdaq: TLXN)") end if %> gained $1 19/32 to $15 5/8 after reporting Q3 operating EPS of $0.06, better than estimates of $0.04 per share... TOKHEIM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOK)") else Response.Write("(NYSE: TOK)") end if %> rose $1 1/4 to $9 1/8 after the petroleum dispensing products maker reported better-than-expected Q4 earnings... Semiconductor wafer supplier MEMC ELECTRONIC MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WFR)") else Response.Write("(NYSE: WFR)") end if %> rose $2 to $27 1/2 on a J.P. Morgan upgrade to "buy."

GOATS

Construction and industrial supplies retailer FASTENAL CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FAST)") else Response.Write("(Nasdaq: FAST)") end if %> dropped $6 7/8 to $38 5/8 after reporting fourth quarter EPS of $0.21, falling short of estimates of $0.23. Though it sounds like a boring concept, the company's gross margins and operating margins are much larger than comparable retailers such as W.W. GRAINGER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GWW)") else Response.Write("(NYSE: GWW)") end if %>, which has sales more than ten times Fastenal's. Fastenal doesn't plan on being that small for long, though, as it has expanded its store base by about 25% annually over the last decade. In the last three years, the company has created shareholder returns of 32% annually, while Grainger has returned little better than 8% per year. At a price/sales ratio almost five times Grainger's, and a price/earnings ratio better than twice as large, the stock is open to hits from time to time when this finely-tuned growth machine hits a chink in the revenue/expense timing chain.

CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %> plunged $22 7/8 to $41 1/4 after reporting earnings last night. Although the company did well in all of its business sectors, growing quarterly revenues 139% year-over-year and EPS 140%, investors worried about slowing growth in its frame relay business and the "back-end loaded" quarter. The quarter's sales composition showed itself in the accounts receivable days sales outstanding (DSO), which stood at about 68 days at the end of the quarter. Normally, investors like to see this number at 45-50 days -- analysts worry that the company has to push hard to make its quarter. A company can't force customers to take deliveries of things they don't need, though. If the company is making price concessions or it's offering longer payment terms to make that inventory move, then the worries might be justified. U.S. ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %> exited its quarter with an 89 DSO and didn't get killed, due in part to a much lower valuation relative to its growth rate.

QUICK CUTS: MICROSEMI CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSCC)") else Response.Write("(Nasdaq: MSCC)") end if %> lost $2 5/8 to $12 3/8 even though the company reported a 27% increase in Q1 EPS on flat revenue growth... Management consultant THOMAS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TGIS)") else Response.Write("(Nasdaq: TGIS)") end if %> fell $1 1/2 to $7 3/4 after announcing it will take a loss for the fourth quarter and that revenues will fall more than 20%... Data storage and digital video equipment maker ODETICS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ODETA)") else Response.Write("(Nasdaq: ODETA)") end if %> lost $2 1/8 to $17 3/4 after reporting a 9% increase in Q3 EPS on 33% higher revenues... Ethernet switching firm NETVANTAGE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NETVA)") else Response.Write("(Nasdaq: NETVA)") end if %> slid $1 1/8 to $9 after the company's chief financial officer resigned... SINGER CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEW)") else Response.Write("(NYSE: SEW)") end if %> fell $5 to $16 3/4 after the sewing machine company and furniture manufacturer reported a net loss of $20 million in its fourth quarter... Video chip company ZORAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZRAN)") else Response.Write("(Nasdaq: ZRAN)") end if %> fell $4 1/4 to $23 1/4 on a Salomon Brothers downgrade... BBN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBN)") else Response.Write("(NYSE: BBN)") end if %> lost $1 5/8 to $24 1/2 after the Internet expert announced it will take a little longer than expected to get to break-even... Encryption software company SECURITY DYNAMICS TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SDTI)") else Response.Write("(Nasdaq: SDTI)") end if %> was buried for a $5 1/16 loss to $32 1/4 after Q4 EPS of $0.11 just met estimates... AVANT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %> ticked off a $5 3/8 loss to close at $34 1/2 after the semiconductor design software company reported Q4 EPS of $0.22, in-line with estimates... AIRGAS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARG)") else Response.Write("(NYSE: ARG)") end if %> fell $1 7/8 to $20 after the industrial gases company reported a 7% increase in Q3 EPS... Freight company CALIBER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBB)") else Response.Write("(NYSE: CBB)") end if %> lost $1 3/8 to $20 1/8 on reporting sharply lower quarterly earnings.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Pre-Announcement Mayhem

XLCONNECT SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XLCT)") else Response.Write("(Nasdaq: XLCT)") end if %> was rocked for a $14 3/4 loss to $8 3/4 today after the recent initial public offering (IPO) pre-announced an ugly quarter. The thing that makes the XLConnect Solutions story a little more interesting than the typical poor earnings pre-announcement is that the company was once a wholly-owned unit of INTELLIGENT ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INEL)") else Response.Write("(Nasdaq: INEL)") end if %>. Although 2.9 million shares of XLConnect were sold to the public in late October, Intelligent Electronics still holds more 80% of the company's shares, a fact that dragged it down $3 3/4 to $3 7/8 today.

The XLConnect-Intelligent Electronics situation has been perplexing investors for months, as the value of the publicly traded slug of XLConnect has not been reflected in the price of Intelligent Electronics. XLConnect integrates computing and communications equipment with the software needed to run local area networks (LANs), as well as enabling LANs to form wide-area networks (WANs) using the Internet. Because XLConnect's trendy consulting, service and software business was so focused on the ultra-hot networking arena, the stock doubled on its first day of trading. The company came public at $15 and traded as high as $29 3/4 on its first day out of the gate.

When XLConnect was trading around $30, the company was valued at $499.7 million. This valuation vindicated the management of Intelligent Electronics, who properly perceived that the value of their high margin networking service business was being buried under the capital-intensive computer, workstation and communications equipment businesses. In fact, Intelligent Electronics was worth about $10 at the time of the XLConnect initial public offering. With 35.6 million shares outstanding, this meant that Intelligent Electronics was only worth $356 million, even though the 83% of XLConnect it owned was worth $414.7 million, implying that investors were getting Intelligent Electronics for free.

Today's rapid slide of XLConnect helped to remove this valuation disparity, although to some degree it still exists. XLConnect reported today that it would only make $0.02 to $0.04 EPS in the fourth quarter on between $30 to $32 million in revenues, not nearly the $0.09 EPS analysts were expecting. At its high, XLConnect was being valued at more than 5.0 times trailing sales -- a valuation that involves a heck of a lot of risk. Now down at $8 3/4, the company has a market capitalization of $145 million. With revenues in the $30 to $32 million range, the quarterly run-rate for the company is $120 to $128 million. (A run-rate is one quarter's number multiplied by four to get an annualized number and assumes no seasonal fluctuations in the business.)

If you crunch though these numbers, the situation is a little startling. This move downward actually offers investors a company valued at 1.18 times sales with a slug of cash from the recent IPO at a price below the initial offering price. Why did the stock move so much? Well, with Intelligent Electronics holding 83% of the shares, the darn things were lucky that they could even trade at all. A 2.9 million share float is not all that much when you have institutions buying your stock because they are big on the networking services arena and are looking for any play possible. Even more interesting, after today's bloodbath Intelligent Electronics is valued at $138 million, close to a 52-week low, with XLConnect stock worth $120 million that it is thinking about spinning off to shareholders. This situation is certainly worth a little analysis over the weekend to determine whether or not something totally wacky is at work here.

CONFERENCE CALLS

HARLEY DAVIDSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HDI)") else Response.Write("(NYSE: HDI)") end if %>
(402) 222-9913 -- replay avail. after noon EST

TRIBUNE CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRB)") else Response.Write("(NYSE: TRB)") end if %>
1-800-633-8284 (reservation # 2351592) -- replay avail 1/24 & 1/27

SHIVA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %>
1/23 until 10:00 p.m. EST and 1/24 7AM to 7PM EST
(800) 696-1558 (access code: 52450)

ATLANTIC COAST AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACAI)") else Response.Write("(Nasdaq: ACAI)") end if %>
replay avail thru 4:30 PM EST on 1/29
(800) 633-8284 (reservation # 2257486)

CHRYSLER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: C)") else Response.Write("(NYSE: C)") end if %>
(402) 344-6802

U.S. ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>
(303) 267-1037 Code 164010

ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
replay available until 1/24
1-800-475-6701 (access code: 326346)

AVALON PROPERTIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVN)") else Response.Write("(NYSE: AVN)") end if %>
(402) 220-6017 -- replay avail through 1/28

COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
(888) 243-0816 (code: 8642) (note: # is toll free)
replay avail for 48 hrs after 7:30 PM EST on 1/21

NN BALL & ROLLER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NNBR)") else Response.Write("(Nasdaq: NNBR)") end if %>
1-800-696-1588 (passcode: 168654) -- replay

CONTROL DATA SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDAT)") else Response.Write("(Nasdaq: CDAT)") end if %>
(402) 220-1003 -- replay thru 2/6

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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