HEROES

SUPERIOR NATIONAL INSURANCE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SNTL)") else Response.Write("(Nasdaq: SNTL)") end if %> gained $1 7/8 to $14 after the company announced it has worked out a plan with the parent company of ZURICH REINSURANCE CENTRE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZRC)") else Response.Write("(NYSE: ZRC)") end if %> and a group including CHASE MANHATTAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> to take the troubled workers' compensation insurance company Golden Eagle Insurance off the hands of the California Department of Insurance. Superior will raise $65 million from holders of warrants and the above-mentioned groups to finance the integration of Golden Eagle into Superior. Superior earned $89.7 million in premiums through September 1996, while Golden Eagle wrote $700 million in premiums last year. Superior won't have any liabilities for Golden Eagle insurance written before March 1, 1997, and even after throwing out the junky business, Superior faces major business growth if the deal is done.

Retail brokerage PAINE WEBBER GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PWJ)") else Response.Write("(NYSE: PWJ)") end if %> forged ahead $3 1/8 to $38 7/8 as investors craft more than one thesis on what company might be interested in a merger or buyout. The most popular theory is a buyout by MORGAN STANLEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MS)") else Response.Write("(NYSE: MS)") end if %>, which would gain access to the huge assets under management in addition to the upscale clients that came in with Kidder, Peabody. Kidder was sold to Paine Webber by GENERAL ELECTRIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GE)") else Response.Write("(NYSE: GE)") end if %>, which wanted to rid itself of the unit following trading scandals and the 1994 bond market blowup. Does the prospect of critical mass offer enough incentive to Morgan Stanley to do a deal of this sort? If not, other theories have it that a super-regional or money center bank might figure out ways to make such an acquisition work.

QUICK TAKES: Enterprise software firm RETIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RETX)") else Response.Write("(Nasdaq: RETX)") end if %> rose $1 15/16 to $6 1/2 after forming a partnership with MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>... SUTTON RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STTZF)") else Response.Write("(Nasdaq: STTZF)") end if %> gained $2 1/2 to $16 after the exploration company announced it expects to add 1.4 million ounces of gold in its latest geological survey... Warranty fulfillment company WARRANTECH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WTEC)") else Response.Write("(Nasdaq: WTEC)") end if %> moved up $1 3/8 to $11 after Merrill Lynch initiated coverage with a "long-term buy" recommendation... MAID PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAIDY)") else Response.Write("(Nasdaq: MAIDY)") end if %> rebounded $1 1/4 to $11 1/4 as the information provider said subscriber growth continues apace with recent quarters... Ion beam systems maker MICRION CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MICN)") else Response.Write("(Nasdaq: MICN)") end if %> gained $1 1/2 to $21 in the face of a rating downgrade from First Albany, from "portfolio buy" to "sell on strength"... KUHLMAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KUH)") else Response.Write("(NYSE: KUH)") end if %> rose $1 3/4 to $20 after the electronics and industrial products firm reported a 21% increase in Q4 earnings per share (EPS)... Industrial equipment company CHART INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTI)") else Response.Write("(NYSE: CTI)") end if %> gained $1 7/8 to $22 1/8 on reporting Q4 EPS of $0.44, beating the lone estimate of $0.39... MCDERMOTT INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDR)") else Response.Write("(NYSE: MDR)") end if %> picked up $1 3/4 to $21 1/4 as investors in the power generation construction firm applaud changes in the executive ranks... Financial services company AMERICAN GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AGC)") else Response.Write("(NYSE: AGC)") end if %> gained $2 7/8 to $43 after reporting Q4 operating EPS of $0.74, missing estimates but pleasing investors with certain asset sales... BERG ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEI)") else Response.Write("(NYSE: BEI)") end if %> rose $2 1/8 to $31 3/8 after the electronics sub-assemblies manufacturer reported Q4 EPS of $0.44, beating estimates by a penny... ANDREA ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AND)") else Response.Write("(AMEX: AND)") end if %> gained $2 3/4 to $14 5/8 on reporting a 137% increase in Q4 revenues and EPS of $0.26... Real estate and recreation company TEJON RANCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TRC)") else Response.Write("(AMEX: TRC)") end if %> rose $2 to $16 after announcing it has hired J.P. Morgan to build shareholder value... U.S. BIOSCIENCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: UBS)") else Response.Write("(AMEX: UBS)") end if %> gained $1 1/8 to $15 3/8 on announcing that ALZA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AZA)") else Response.Write("(NYSE: AZA)") end if %> will make a $21.5 million investment in the company.

GOATS

WMX TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WMX)") else Response.Write("(NYSE: WMX)") end if %> fell $3 1/8 to $33 after announcing Q4 EPS from continuing operations of $0.45, up a penny from last year. The company also announced a comprehensive restructuring plan, for which it took a $680 million charge against earnings. WMX plans to return to the Waste Management, Inc. name and will discontinue its rust consulting, hazardous waste fuels, water, and scaffolding businesses. In addition, the company plans on cutting back on capital expenditures to $900 million in 1997 (cap. ex. was over $900 million through nine months of 1996), and will sell assets to bring in $1.5 billion over the next two years. WMX and its WHEELABRATOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WTI)") else Response.Write("(NYSE: WTI)") end if %> unit will also conduct Dutch auctions to repurchase $1.35 billion of the two companies' stock. Its largest competitor, BROWNING FERRIS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BFI)") else Response.Write("(NYSE: BFI)") end if %>, fell $1 1/4 to $31 on news.

Contract pharmaceutical R&D company APPLIED ANALYTICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAII)") else Response.Write("(NYSE: AAII)") end if %> was bloodied $3 1/4 to $22 1/4 after announcing in a conference call that $4 million of its $40 million+ cash and short-term investment hoard from its recent IPO is invested in the commercial paper of MERCURY FINANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MFN)") else Response.Write("(NYSE: MFN)") end if %>. Owing to that company's current situation (the re-statement of earnings and possible fraud), Applied Analytical isn't sure that Mercury will be able to satisfy those obligations. Mercury failed to honor debt obligations which came due last Friday, forcing a number of money market funds to take measures to preserve the value of the funds' shares. This week, Mercury will face maturities on $100 million of its short-term debt. As for Applied Analytical, it might think about finding a new manager for its liquid investments or tweaking its internal strategies a bit.

XYLAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XYLN)") else Response.Write("(Nasdaq: XYLN)") end if %> shrank $6 1/2 to $22 after reporting Q4 EPS of $0.11 last night, meeting the First Call estimate of $0.11 and falling short of the Zacks estimate of $0.12. Though the company generated sequential revenue growth of 17%, the price this morning couldn't support a price/trailing sales ratio above 10. While gross margin increased over last quarter, operating margins fell because sales and marketing expenses grew much faster than sales. R&D expense growth actually lagged sequential growth. The shares now trade closer to a price/sales ratio of 8 and a P/E ratio of 66, and at 29 times fiscal 1997 earnings estimates.

QUICK CUTS: Transportation logistics systems maker XATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XATA)") else Response.Write("(Nasdaq: XATA)") end if %> fell $1 1/2 to $5 after reporting an 86% decline in Q1 EPS... HARRY'S FARMERS MARKET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HARY)") else Response.Write("(Nasdaq: HARY)") end if %> lost $1 9/16 to $5 3/8 as Interstate Johnson & Lane hammered the stock with a "sell" rating, saying the deal with BOSTON CHICKEN <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BOST)") else Response.Write("(Nasdaq: BOST)") end if %> will be dilutive to earnings... Equipment and materials manufacturer FERROFLUIDICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FERO)") else Response.Write("(Nasdaq: FERO)") end if %> lost $1 11/16 to $9 1/8 after reporting Q2 EPS of $0.03, reflecting order push-outs in the semiconductor industry... 3-D GEOPHYSICAL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDGO)") else Response.Write("(Nasdaq: TDGO)") end if %> slid $1 7/8 to $8 1/4 after pre-announcing break-even Q4 results, below EPS estimates of $0.08... Manufacturing software company DATAWORKS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DWRX)") else Response.Write("(Nasdaq: DWRX)") end if %> fell $2 3/4 to $18 after reporting virtually flat Q4 operating results... SMARTFLEX SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFLX)") else Response.Write("(Nasdaq: SFLX)") end if %> fell $1 15/16 to $14 13/16 after the electronics contract manufacturer reported Q4 EPS of $0.30, flat from last year, but in-line with estimates... Application software company PURE ATRIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PASW)") else Response.Write("(Nasdaq: PASW)") end if %> lost $2 11/16 to $20 5/16 after announcing an acquisition... FIRST MERCHANTS ACCEPTANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FMAC)") else Response.Write("(Nasdaq: FMAC)") end if %> fell $1 3/4 to $13 3/8 after the auto and specialty finance company said write-offs will increase in the first half of 1997... Auto finance company OLYMPIC FINANCIAL LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %> fell $2 to $12 5/8 after Oppenheimer started coverage with a "sell" rating... Consumer products maker FIRST BRANDS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FBR)") else Response.Write("(NYSE: FBR)") end if %> lost $3 3/8 to $23 1/2 after reporting Q2 earnings and making cautious statements about third quarter prospects... BIRMINGHAM STEEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BIR)") else Response.Write("(NYSE: BIR)") end if %> fell $1 1/4 to $18 1/4 after Merrill Lynch reinstated coverage of the company with an "accumulate" rating.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Lock-Down

Invest in "technology" companies? "Technology" changes too fast. This oft-heard truism represents the fundamental justification that many portfolio managers hold for not investing in "technology" stocks. Setting aside the fact that referring to a group of companies as "technology" is a misleading and ignorant categorization, the presumption that standards for various types of products or services are dynamic and not static is as incorrect as it is widespread.

Economist Brian Arthur, one of the founders of the Sante Fe Institute, coined the term "lock-down" to describe mass adoption of technological standards after a certain critical inflection point had been met. One of Arthur's many fields of interest is the manner in which technological standards become "locked-down" and widely used, creating a situation where those who own the standard can earn increasing rates of return on invested capital. Instead of conforming to the tired old economic saw that says companies earn decreasing returns over time as new competition in profitable areas squeezes profit margins, Arthur sought a way to explain why companies like MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> and INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> can increase profit margins and aggregate dollars made over time.

As in any field of study, bits of conventional wisdom often get in the way of understanding complicated reality. If technological standards were truly subject to cataclysmic upheavals the way many money managers suggest when they explain why they eschew the technology stocks, there certainly would be no money to be made in computer hardware, software or a host of other industries. However, the experiential reality is that lock-down occurs -- often more quickly than anyone expects.

Take the example of the VHS versus Betamax conflict in the early '80s. VHS became the video cassette recorder standard over Betamax simply because consumers, retailers, movie producers and third-party manufacturers could not deal with the hassle of having two separate standards. VHS ensured a wider variety of offerings initially, causing many consumers to opt for VHS recorders when they made their first purchase decision. This behavior quickly decayed into an autocatalytic system, reinforcing itself. Retailers would stock more VHS movies, and consumers would buy more VHS tapes. In less than two years, Betamax was declared dead, and more than a decade and a half later the situation remains the same.

Certainly many digital video proponents will argue that this whole ecosystem is about to come unbalanced, arguing that digital video disk (DVD) players will be the standard in the next century. However, even if VHS is made obsolete, the core point is that the technology will have dominated consumer devices for two decades -- hardly a situation of constant and traumatic upheaval. What is true for VCRs is in many ways true for computer central processing units, operating systems or networking devices. Customers and manufacturers act in a self-reinforcing loop after an inflection point has been reached, eventually squeezing out alternative standards -- often in spite of their vaunted technological superiority.

Even the most famous anti-technology investors, Warren Buffet and Charles Munger of BERKSHIRE HATHAWAY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRK.A)") else Response.Write("(NYSE: BRK.A)") end if %>, have been buying once-feared "technology" names in recent years as it has become clear that some actually yield incredible benefits because of the widespread adoption of their proprietary standards. GENERAL DYNAMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GD)") else Response.Write("(NYSE: GD)") end if %> was a defense contractor specializing in high-tech military gear purchased by the duo in the early '90s. Last year, FLIGHTSAFETY INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FSI)") else Response.Write("(NYSE: FSI)") end if %> was gobbled up as well, in spite of the fact that it makes software and hardware systems to help train aircraft pilots. Both companies enjoy lock-down situations -- they hold incredible market share and enjoy widespread familiarity in their industries, which constitutes a significant barrier to entry for competitors. Even if a better flight training device were to be invented, that company would face the awesome task of convincing every flight training center in the world to dump their FlightSafety gear and trust them to fulfill that need -- no small task.

It is all not peaches and cream, though. The slide in U.S. ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %> over the last two weeks is a classic example where concern about competing standards is reasonable. ROCKWELL INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ROK)") else Response.Write("(NYSE: ROK)") end if %> will now come to market more quickly with its 56K modem technology than U.S. Robotics, causing many who had been betting on U.S. Robotics to win the standards war for the next generation of modems to dump the stock. Initially it was thought that U.S. Robotics would be first in the stores with its modem products, a clear advantage in locking-down the new standard. Rockwell will also be making reprogrammable chips, addressing another competitive advantage U.S. Robotics had previously held. However, these changes might actually erode Rockwell's margins or cause price increases for its cheaper chipsets.

Even worse for modem makers, new versions of the central processing unit will include many functions once reserved for the modem, forecasting potential obsolescence for the entire group. This is exactly the thing portfolio managers worry about when they talk about how technology is in constant upheaval. However, the generalization made from specific examples like this leads to bad decisions in other areas. Investors who understand lock-down and how it can occur will be poised to benefit substantially by buying before other investors are able.

CONFERENCE CALLS

GENZYME <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %>
(re: PharmaGenics acquisition & new oncology division)
(402) 220-6028 -- replay avail through 2/10

VISX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %>
(800) 633-8284 code# 2369770
Available Monday and Tuesday

US DIAGNOSTIC INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USDL)") else Response.Write("(Nasdaq: USDL)") end if %>
(re: current company events)
(402) 220-1025 (passcode: 309956)

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

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

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
A Foolish Library

For a change of pace, instead of using this space to plead with you to purchase some of our modest Foolish wares, allow us to shift the spotlight to some books not written by Fools. That's right -- if you're interested in reading some other perspectives on investing, but are just not sure where to begin, or which books might be too far from your Foolish center, head on over to FoolMart (at keyword: FoolMart on AOL or at our website at ). There you'll find a dozen titles which pass Foolish muster. They're books that are found on desks and shelves around Fool HQ. We've read 'em, we like 'em, and we recommend them to you, too. Included are titles by Peter Lynch, Mary Meeker, Michael O'Higgins, David Chilton, William J. O'Neill, and Chuck Carlson. The browsing is free, and the buying is easy!

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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