HEROES

COMPUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> added $1 3/8 to close at $19 3/4 after reporting Q3 earnings per share (EPS) of $0.25, which actually underperformed estimates by $0.01. This was close enough for investors, though, as the holiday season for PCs hit the low end of expectations across the retailing world. Excluding stores the company plans on shutting down, December same-store sales increased 1.5%. Contrasted with the Computer City segment of TANDY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TAN)") else Response.Write("(NYSE: TAN)") end if %>, which experienced a 12% decrease in December same-store sales, CompUSA's performance in handling inventory and overhead put them in a good position entering the third quarter. For the rest of the story, Fools should take advantage of listening to the conference call or checking out the work of MF Debit in her synopsis.

Dynamic random access memory makers MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>, up $2 1/4 to $35 1/4, and TEXAS INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TXN)") else Response.Write("(NYSE: TXN)") end if %>, up $4 3/4 to $74 1/2, benefited from the announcement of production cutbacks by Korean DRAM biggie Samsung. According to Dow Jones, Samsung joins other Korean conglomerates Hyundai and LG Electronics (Lucky Goldstar) in regulating production "until the prices rise to a reasonable level."

CHECK POINT SOFTWARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHKPF)") else Response.Write("(Nasdaq: CHKPF)") end if %> jumped $6 3/4 to $27 5/8 after reporting fourth quarter EPS of $0.15, blowing away the analysts' estimate of $0.11. The company makes firewalls that keep hackers out of networks or which give users different levels of access. Check Point says that it is still the leader in firewall software, citing its 40% market share attained in 1995. Its price/sales ratio of 21 (on annualized sales) is not totally out of line with the levels at which CASCADE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %>, ASCEND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> or any other of the huge-growth networking companies have traded. Check Point's operating margin of 48.6% fairly well beats the margins those companies accomplish, though. Without market statistics on hand, one can reverse-engineer the margins and come to the conclusion that the company has a ton of pricing power and that its products are pretty unique.

QUICK TAKES: Internet commerce application software company CONNECT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CNKT)") else Response.Write("(Nasdaq: CNKT)") end if %> gained $2 to $7 3/4 after reporting a 40% increase in fourth quarter revenues... FLAMEL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FLMLY)") else Response.Write("(Nasdaq: FLMLY)") end if %> rose $1 3/8 to $7 5/8 after reporting the commencement of Phase III trials of its herpes drug... Drug company PATHOGENESIS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PGNS)") else Response.Write("(Nasdaq: PGNS)") end if %> gained $4 to $25 before being halted for release of news on its cystic fibrosis drug... VIEWLOGIC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VIEW)") else Response.Write("(Nasdaq: VIEW)") end if %> gained $1 7/8 to $14 after the semiconductor design software firm reported Q4 EPS of $0.23 (before a gain), as well as the resignation of its chairman... French conglomerate ALCATEL ALSTHOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> gained $3 5/8 to $20 after pre-announcing stable yearly sales of $29 billion and operating profits of $450 million, compared to heavy losses last year... AMPCO-PITTSBURG CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AP)") else Response.Write("(NYSE: AP)") end if %> rose $1 1/2 to $12 7/8 after the heat exchange pump and machined parts maker reported a 27% increase in Q4 EPS... Home builder D.R. HORTON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DHI)") else Response.Write("(NYSE: DHI)") end if %> gained $1 1/4 to $12 1/8 after announcing the acquisition of the Atlanta-based Torrey Group... MAGELLAN HEALTH SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MGL)") else Response.Write("(NYSE: MGL)") end if %> rose $2 1/2 to $26 after announcing that CRESCENT REAL ESTATE EQUITIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CEI)") else Response.Write("(NYSE: CEI)") end if %> will acquire almost all of the company's real estate assets... A Morgan Stanley upgrade to "strong buy" sent the shares of cellular phone company AIRTOUCH COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> up $2 to $25 3/4... BAXTER INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAX)") else Response.Write("(NYSE: BAX)") end if %> gained $3 5/8 to $46 after reporting Q4 EPS of $0.58, beating estimates by $0.01... REEBOK <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RBK)") else Response.Write("(NYSE: RBK)") end if %> gained $3 1/2 to $49 in anticipation of earnings that came out after the bell and missed estimates by a penny... MAI SYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: NOW)") else Response.Write("(AMEX: NOW)") end if %> regained $1 1/8 to $7 3/4 after investors learned that investor Bennett LeBow was behind selling yesterday as he liquidated his stake in the company.

GOATS

Consumer lending firm JAYHAWK ACCEPTANCE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JACC)") else Response.Write("(Nasdaq: JACC)") end if %> tumbled $4 1/2 to $3 5/8 after reporting a fourth quarter loss of $0.33 per share, which dragged down the full year's result to break-even. Adding to the happenstance of its being in the same industry as the shamed  MERCURY FINANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MFN)") else Response.Write("(NYSE: MFN)") end if %>, the accounting irregularities of which are hurting the entire industry, Jayhawk revealed its own surprise charges today. Although the company warned last month that its earnings would be less than the expected $0.15 per share due to the start-up of its plastic surgery financing unit, there was no inkling that the company would reevaluate the recoverability of advances made to some of its dealers. The company now stands in non-compliance with financial covenants on certain loans and is being taken to the woodshed for having a similarly tenuous grip on its operations as Mercury Finance did.

HUGHES SUPPLY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUG)") else Response.Write("(NYSE: HUG)") end if %> fell $5 1/8 to $33 1/4 after the construction supplies distributor pre-announced fourth quarter earnings in the range of $0.60 to $0.65 per share. Although the company used the phrase "restatement of earnings," that restatement will be due to a pooling-of-interest transaction rather than an impropriety. While the company's projection means that it won't beat the analysts' mean estimate of $0.65 per share, it looks to meet that estimate or fall within the range of estimates from the four analysts surveyed. The shortfall is is reminiscent of the recent earnings release at FASTENAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FAST)") else Response.Write("(Nasdaq: FAST)") end if %>, which is also a construction materials distributor/retailer..

QUICK CUTS: Warehouse management software company CATALYST INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLYS)") else Response.Write("(Nasdaq: CLYS)") end if %> fell $1 3/8 to $2 7/8 after announcing a quarterly loss and a 42% decline in Q4 revenues... RUTHERFORD-MORAN OIL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMOC)") else Response.Write("(Nasdaq: RMOC)") end if %> was hit for a $6 loss to finish at $20 after analysts cut estimates on the company because of a delay in the development of a key oilfield... Auto finance companies across the board got caught in the Mercury Finance imbroglio -- WFS FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WFSI)") else Response.Write("(Nasdaq: WFSI)") end if %> was hit for a $3 9/16 loss to $14 3/4 after the company reported flat year-over-year earnings, while parent company WESTCORP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WES)") else Response.Write("(NYSE: WES)") end if %> fell $2 3/8 to $16 1/2; and UGLY DUCKLING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UGLY)") else Response.Write("(Nasdaq: UGLY)") end if %> lost $1 7/8 to $21 3/8 on the industry association... RESOUND CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RSND)") else Response.Write("(Nasdaq: RSND)") end if %> dropped $1 3/8 to $6 1/8 after the hearing aid maker reported a Q4 loss... Database software company VERSANT OBJECT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VSNT)") else Response.Write("(Nasdaq: VSNT)") end if %> ticked down $2 7/8 to $15 3/4 on reporting Q4 EPS of $0.07, in-line with estimates... CAPMAC HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KAP)") else Response.Write("(NYSE: KAP)") end if %> fell $2 to $33 on reporting Q4 EPS of $0.39, short of estimates of $0.41.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Centennial Correction

Contract manufacturers have replaced semiconductor manufacturers in the hearts of technology-enthused portfolio managers across America. Although many of the chip makers have enjoyed snappy recoveries since their panic lows in the summer, it is contract manufacturers that, as a group, have outperformed their peers in a close head-to-head race. With few exceptions, the companies have gained at least 50% since June and July. The most extreme instance is the incredible rise of JABIL CIRCUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBIL)") else Response.Write("(Nasdaq: JBIL)") end if %>, up four-fold in the past six months.

As with any group of companies that enjoys a monster rise over a short period of time, the air can get pretty thin as the companies reach high altitudes. Ultra-hot CENTENNIAL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTN)") else Response.Write("(NYSE: CTN)") end if %> is learning this painful lesson today as the stock is being smashed for $7 to $27 1/4 after posting earnings for its fiscal second quarter. If you are not familiar with the name Centennial Technologies, take a glance at the list of the top percentage gainers on the NYSE in 1996, and you will see that it held the number one spot. The company slaps together PC cards, those small credit-card-sized devices you plug into the side of your laptop computer. The company also gobbled up some contract manufacturers in the United States and England while ramping up production in order to maintain its breakneck growth.

Unfortunately for Centennial, contract manufacturing is a pretty rough and tumble low-margin business. Although the company hit its profit projections for its second quarter, gross margins plunged as the company began to recognize revenues from its new contract manufacturing business. For those new to this column, contract manufacturing is when one company assembles an electronic product for another company. Many times the contract manufacturer is also in the circuitboard manufacturing business and does the contract manufacturing as a value-added service, although the largest contract manufacturers are completely focused on that business alone. Because it is an outsourced assembly gig, the margins are pretty thin, and the company must maintain a high volume in order to make a significant amount of money.

Apparently Centennial investors were not prepared to see the margins shrink to the degree that they have. This is kind of short-sighted if you really think about it, because the big contract players like SCI SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCIS)") else Response.Write("(Nasdaq: SCIS)") end if %>, SOLECTRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %>, FLEXTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FLEXF)") else Response.Write("(Nasdaq: FLEXF)") end if %> and Jabil Circuit normally have gross margins in the 10% range and profit margins in the 3% to 6% range, far below the 11.75% that Centennial was getting with PC cards. Has Centennial fallen enough to reflect its new margins? With 18.47 million shares outstanding, the company has a $498.6 million market capitalization. Although it did not release its balance sheet with this quarter's results, last quarter it had $6 million in cash and negligible long-term debt.

Now, if you compare the $493 million enterprise value of Centennial to its trailing revenues, you get a really big number. To be fair, the company did book $31.7 million in sales this quarter, compared to $19.5 million the quarter before. If you take this $31.7 million and multiply it by four to get an annualized result -- as the company did add businesses that will continue to generate significant revenue -- you get a company that is trading at 3.88 times sales, still high for the group. To be unfair, backing out a one-time gain the company added $12 million in revenue, but only made $0.01 more per share compared to last quarter's results, evidence of those shrinking margins.

Not all of the contract manufacturing news lately has been bad. DII GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIIG)") else Response.Write("(Nasdaq: DIIG)") end if %> rose $4 3/16 to $25 1/16 today after reporting earnings that were higher than expected, even though they were well below last year's results. DII Group owns Dovatron, a pretty large contract manufacturer. The firm bought a semiconductor manufacturer last year and has been consolidating its business. As investors now see a turnaround coming sooner that they had previously thought, they rewarded the stock. It is interesting to note that even after today's rally the stock still trades at 9.9 times next year's earnings estimates... estimates that might be going up. A similar move came from ADFLEX SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFLX)") else Response.Write("(Nasdaq: AFLX)") end if %> last week as that specialized contract manufacturer turns its business around -- a business that, for the record, was recommended by Stephen Barnes (MF Yon) in Arizona Stock Analysis in the $8 to $9 range. Given all of the news and moves from the contractors, I am busily updating my spreadsheets and hope to have another article giving some more sophisticated comparative valuations for your perusal. Stay tuned.

CONFERENCE CALLS

FIRST DATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDC)") else Response.Write("(NYSE: FDC)") end if %>
1-800-925-0560 -- replay through 2/7

IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>
(800) 633-8284 (reservation #2219792) -- replay

3M <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %>
replay through 2/4
(800) 633-8284 (reservation # 2198620)

COMPUTER HORIZONS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRZ)") else Response.Write("(Nasdaq: CHRZ)") end if %>
replay available for 72 hrs. beginning at noon EST on 1/29
(800) 938-0931

PRIME HOSPITALITY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PDQ)") else Response.Write("(NYSE: PDQ)") end if %>
(800) 642-1687 (access code: 199532) -- replay through 2/5

ARVIN INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARV)") else Response.Write("(NYSE: ARV)") end if %>
(800) 633-8284 (reservation # 2331673) -- replay avail thru 2/5

CompUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %>
(800) 642-1687 -- replay from 12:30 p.m. EST on 1/29 through midnight on 1/30

COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
(Global Enterprise Mgmt Solution Announcement)
(888) 243-0816 -- replay avail 1/29 @ 2:30 PM EST thru 8:00 PM EST on 1/30

SEAGRAM LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VO)") else Response.Write("(NYSE: VO)") end if %>
(800) 394-6920 -- replay thru 9 PM EST on 1/31

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

FOOL FEATURES

Iomega reported earnings last night, and the Fool has a summary of the conference call in Earnings Central. We'll also be holding a discussion of this latest Iomega announcement in the AOL Chat Cafe at 9pm ET. Look for the button to the event on the Fool mainscreen.

Today's Lunchtime News looks at software concern Applix. It was mashed this morning for over $5, after they missed earnings expectations by a penny.

ANOTHER FOOLISH THING
The Weekly Fool

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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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