HEROES

Cigar company MAFCO CONSOLIDATED GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MFO)") else Response.Write("(NYSE: MFO)") end if %> moved up $4 3/4 to $42 after Mafco Holdings, its parent company, said it will purchase the part of the company it doesn't already own for $33.50 a share. Mafco is the largest cigar producer in the U.S., turning out such popular brands as Dutch Masters, El Producto, and Dunhill. Due to the cigar craze, the company's backlog has ballooned to 37 million premium cigars, up from less than one million as recently as 1992, according to Bloomberg News. The shares came public last year, and one year after that, the company sold a portion of its CONSOLIDATED CIGAR HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIG)") else Response.Write("(NYSE: CIG)") end if %> unit. Before Mafco Holdings takes its Consolidated Group private once more, shareholders will receive a $10 dividend. Ex-dividend, the shares are trading $1.50 below the buyout price.

ECHLIN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %> picked up $2 1/8 to $33 1/8 as the after-market auto parts company announced the retirement of CEO and Chair Frederick Mancheski, who had served in these capacities since 1969. Steering the company from annual sales of $39 million in 1969 to $3.3 billion this year, Mancheski was well respected in his industry. Certainly, a tenure that spans the last 30 years that has seen high inflation, the entrance of vigorous offshore producers, changing markets, and the capital-intensive nature of the auto parts industry, is a formidable one. Investors are probably looking forward to a new chief and new ideas, though, since they sent the shares higher. Salomon Brothers also raised its rating to "buy" from "hold."

INLAND STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IAD)") else Response.Write("(NYSE: IAD)") end if %> moved up $1 5/8 to $20 as investor Greenway Partners has vowed to lead shareholders in pressuring the company to spin off its Ryerson Tull steel service center subsidiary. Ryerson matches up steel producers with customers and modifies raw steel and metals products to fit the needs of those customers. Investors want the company to be spun off because virtually no large steel company has created substantial shareholder returns since the economy came out of recession between 1992 and 1994. In the last two or three years, though, steel service centers, such as RELIANCE STEEL & ALUMINUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RS)") else Response.Write("(NYSE: RS)") end if %> and GIBRALTAR STEEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROCK)") else Response.Write("(Nasdaq: ROCK)") end if %>, have done quite well. Ryerson Tull is the largest steel service company in the U.S.

QUICK TAKES: Customer service support software company CLARIFY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLFY)") else Response.Write("(Nasdaq: CLFY)") end if %> jumped $4 to $25 1/2 on no apparent news... CHIREX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRX)") else Response.Write("(Nasdaq: CHRX)") end if %> gained $1 3/8 to $11 7/8 after the pharmaceuticals contract manufacturer reported Q4 earnings per share (EPS) of $0.13, beating estimates of $0.11... Document imaging products maker CORNERSTONE IMAGING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRNR)") else Response.Write("(Nasdaq: CRNR)") end if %> rose $1 1/8 to $8 3/8 after announcing yesterday that it may buy up to $5 million of its shares... PLAY BY PLAY TOYS & NOVELTIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PBYP)") else Response.Write("(Nasdaq: PBYP)") end if %> rose $5/8 to $12 1/2 after the Looney Toons and Disney licensee said that it's "comfortable" with 1997 EPS estimates of $1.20... Energy exploration company COMSTOCK RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRK)") else Response.Write("(NYSE: CRK)") end if %> gained $1 1/8 to $9 7/8 on announcing a $30 million drilling and exploration budget.

GOATS

Healthcare services company PHYSICIAN CORP. OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCAM)") else Response.Write("(Nasdaq: PCAM)") end if %> fell $4 1/16 to $5 1/16 after saying that it will record an $80 million liability in its fourth quarter for policies written by its worker's compensation subsidiary. While the charge might reflect poor risk management operations, it also indicates that the worker's compensation insurance business is very competitive right now and rates are quite low. These are most likely the reasons why the company stopped writing worker's compensation policies in November 1996. Since the company is currently in violation of a loan covenant, it will have to concentrate on shoring up its current capital resources, which puts something of a cloud over its pending merger with SIERRA HEALTH SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SIE)") else Response.Write("(NYSE: SIE)") end if %>.

CREATIVE TECHNOLOGY LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CREAF)") else Response.Write("(Nasdaq: CREAF)") end if %> lost $1 15/16 to $12 1/4 after Schroeder Wertheim issued an "avoid" rating on the Singapore-based maker of Soundblaster sound and graphics accelerator cards for PCs. The reasoning behind the rating -- which is tantamount to burning one's bridges in the brokerage business -- is that MMX-type processors from INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> and CYRIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRX)") else Response.Write("(Nasdaq: CYRX)") end if %> obviate co-processing of multimedia data off the motherboard of a PC. Creative announced this morning that it is acquiring 19.5% of speaker maker CAMBRIDGE SOUNDWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HIFI)") else Response.Write("(Nasdaq: HIFI)") end if %>. If you can't compete with Intel, what better to do than get the heck away from its core competencies? Of course, Creative doesn't want to make too much smoke here too quickly, or some company like SONY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNE)") else Response.Write("(NYSE: SNE)") end if %> might notice what's going on in this area of the PC market. What's that one about the frying pan and the fire?

DEPARTMENT 56 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DFS)") else Response.Write("(NYSE: DFS)") end if %> was rocked for a $4 7/8 loss to $19 after the giftware and collectible products company reported Q4 EPS of $0.19, missing estimates of $0.21. The problem with this year's earnings is that sales growth stalled in the first two quarters of the year and then went violently negative in the third quarter as customers started to work off inventories and shipments from overseas suppliers were delayed. Some of those sales were supposed to be shifted into the fourth quarter, a seasonally weak period for the company, but this quarter's 27% sales decline turned out to be much worse than the Q3 decrease, which the company hoped was an aberration. In light these results, Goldman Sachs removed the company from its "recommended list."

QUICK CUTS: SCHOLASTIC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCHL)") else Response.Write("(Nasdaq: SCHL)") end if %> was demoted $24 3/4 to $36 3/4 after the publisher said it will take a quarterly loss of $0.70 to $0.80 per share, after a charge of $0.50 per share, missing estimates by a wide margin... CAD/CAM software firm 3D SYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDSC)") else Response.Write("(Nasdaq: TDSC)") end if %> fell $4 1/2 to $10 1/8 after reporting Q4 EPS of $0.14 on a 18% increase in revenues of $22.1 million... PUMA TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PUMA)") else Response.Write("(Nasdaq: PUMA)") end if %> fell $2 1/8 to $14 1/8 after the networking software company reported Q2 EPS of $0.04, beating estimates of $0.03... Trade uniform rental company UNITOG CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UTOG)") else Response.Write("(Nasdaq: UTOG)") end if %> was shredded $2 7/8 to $21 1/8 after reporting fourth quarter financials and warning investors that Q1 earnings will fall below expectations... DESWELL INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSWLF)") else Response.Write("(Nasdaq: DSWLF)") end if %> shed $2 1/2 to $17 after electronics contract manufacturer NAM TAI ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTAIF)") else Response.Write("(Nasdaq: NTAIF)") end if %> filed to sell nearly 500,000 Deswell shares... KOREA MOBILE TELECOMM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKM)") else Response.Write("(NYSE: SKM)") end if %> lost $1 1/8 to $12 3/4 after announcing a 4% cut in access fees... Electronics contract manufacturer CMC INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMCI)") else Response.Write("(Nasdaq: CMCI)") end if %> fell $2 1/8 to $9 1/2 on announcing Q2 revenues of $56.3 million and EPS of $0.13, beating estimates of $0.11... Computer hardware and software wholesaler INGRAM MICRO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IM)") else Response.Write("(NYSE: IM)") end if %> fell $1 7/8 to $21 7/8 after SoundView made a negative call on the profit margins in the industry... COMPAQ COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> absorbed some of that call, losing $2 7/8 to $79 3/4, while INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> fell $3 1/2 to $146 3/8.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Private Prisons Overview

Privately managed correctional facilities are relatively new in the scheme of things, with the first few appearing in the early 1980s. Increased fiscal constraints and an inherent inability to manage large institutions have driven local, state and federal governments to begin to allow private companies to build and manage prisons. Unlike similar attempts to privatize public education systems, the creation and maintenance of prison facilities met with little societal resistance. While entrenched organizations like the National Education Association (NEA) and various teacher's unions could protest against privately-run education and claim that maintaining the current system was to the benefit of children, opponents of privately run prisons lacked the same level of persistence.

Beds under management by private companies has grown from a mere 350 in 1983 to around 87,072 as of 1996, compound annual growth of 48%. With many analysts looking for approximately 350,000 to 400,000 beds by 2006, the industry is looking at overall annual growth of 15% to 16% over the next decade, with the lion's share going to today's dominant players. The rapid growth of the state and federal prison populations due to mandatory sentencing has driven a secular increase in the number of prisons per 100,000 citizens. In 1983 when there were only 350 privately run beds, there were 212 prisoners per 100,000 citizens. In 1995 this number had climbed to 600 prisoners per 100,000 citizens, meaning that one out of every 167 people is behind bars. Society is also clamoring for even tougher sentencing and longer prison stays via truth-in-sentencing legislation, something that will cause the inmate population to continue to grow by increasing the length of sentences.

With such a rapid growth in the prison inmate population, it is difficult for government institutions to keep pace with the growth. The first and most significant problem is a simple cost disadvantage. Government employees get generous pay and benefits packages relative to their non-government peers. Just by being able to replace full-time employees earning overtime pay with part-time employees alone generates cost savings. Add in profit-sharing instead of long-term benefits, a reduced number of paid days off, and a lower number of managers and you can cut somewhere between 10% to 15% right off the top of what it costs the government to do the same thing. Consider as well that privately designed prisons have the architecture optimized for the highest level of efficiency and you can add up to 5% more in savings.

The best known privately run prison company is CORRECTIONS CORP. OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CXC)") else Response.Write("(NYSE: CXC)") end if %>, which trades well below the momentum-driven 52-week high of $45 it hit last Spring. Despite the fact that the stock has dropped nearly 40%, the valuation remains somewhat extreme. With $0.33 per share in trailing earnings and $261.1 million in trailing revenues, the company has a trailing P/E of 86 and a price/sales ratio of 8.1. This valuation obviously takes into account Corrections Corp.'s number one market share and its better-than-average operating margin of 18%. With $0.68 EPS expected this year, the company may be able to grow into its current valuation in a reasonable period of time. The company's growth will more than likely be enhanced by the fact that governments tend to go with established providers rather than comparison shopping when acquiring high-profile services like prison management.

The three other pure-plays in the privately run prison space are WACKENHUT CORRECTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHC)") else Response.Write("(NYSE: WHC)") end if %>, CORNELL CORRECTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CRN)") else Response.Write("(AMEX: CRN)") end if %> and CORRECTIONAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCQ)") else Response.Write("(Nasdaq: CSCQ)") end if %>, formerly known as Esmor Corrections. Of the group, Cornell appears the statistically cheapest, partially because the stock only recently came public last October. Cornell trades at around $10 with $0.43 EPS expected for this fiscal year, putting the company at only 23 times forward estimates -- very low for the group. The obvious risks though are its short operating history, small float and reliance on a few key contracts for growth. Investors in YOUTH SERVICES INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YSII)") else Response.Write("(Nasdaq: YSII)") end if %> and AMERICAN SERVICE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASGR)") else Response.Write("(Nasdaq: ASGR)") end if %> will recall the havoc those shares saw when a major governmental customer completely backed out of a contract.

Three companies in the corrections industry focus on juvenile detention facilities, which serve one of the fastest-growing segments of the prison population. Youth Services is obviously the giant here, with 2,300 residential beds and 1,700 non-residential beds. CHILDREN'S COMPREHENSIVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KIDS)") else Response.Write("(Nasdaq: KIDS)") end if %> deals specifically with at-risk and troubled youths in a preventive fashion, although it does not manage a prison population. RES-CARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RSCR)") else Response.Write("(Nasdaq: RSCR)") end if %> operates juvenile facilities as well as providing residential care to individuals with mental retardation and other developmental disabilities, another business that governments are trying to pass on to private companies. Although many of these valuations are high, with the opportunity and stability of the basic business it would seem that premiums may be warranted and investors should definitely explore the business.

CONFERENCE CALLS

HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(303) 446-5399 (reservation # 2348408) -- replay avail thru 2/25

AT&T Capital
Through midnight, February 25.
(800) 475-6701 code: 331034

CCB FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CCB)") else Response.Write("(NYSE: CCB)") end if %> and
AMERICAN FEDERAL BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMBK)") else Response.Write("(Nasdaq: AMBK)") end if %>
To discuss merger agreement
(800) 839-4281, confirmation code # 313939

GENZYME CORP-TISSUE REPAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZL)") else Response.Write("(Nasdaq: GENZL)") end if %>
(402) 220-6030 -- replay through 5PM on 2/25

WASHINGTON HOMES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHI)") else Response.Write("(NYSE: WHI)") end if %>
(800) 696-1588 (passcode: 174613) -- replay

SMARTALK TELESERVICES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMTK)") else Response.Write("(Nasdaq: SMTK)") end if %>
(800) 846-4265 -- until Saturday at noon

RG BARRY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RGB)") else Response.Write("(NYSE: RGB)") end if %>
(402) 222-9904 -- replay avail for 24 hours

COMPUSERVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSRV)") else Response.Write("(Nasdaq: CSRV)") end if %>
(303) 267-1036 (code: 172231)

MORROW SNOWBOARDS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRRW)") else Response.Write("(Nasdaq: MRRW)") end if %>
(201) 628-6885 replay until 2/28

SAFESKIN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFSK)") else Response.Write("(Nasdaq: SFSK)") end if %>
(800) 642-1687 code # 262152

CHIREX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHRX)") else Response.Write("(Nasdaq: CHRX)") end if %>
(800) 839-4281

ANOTHER FOOLISH THING
Some Handy Foolish Tips

Here are some nifty little tips which will help you make the most of your time in Fooldom.

FOOL SEARCH: Follow the "Search" link on the right column of our main screen and you can search through most of what the Fool has written about any company or subject.
A FOOLISH  INDEX: Try the "Foolish Index" link, also on our main screen, and you'll find a list of 10 Daily Steps to Fooldom. It's a convenient way to find what you're looking for and to discover what you didn't expect.
THE FOOL'S SCHOOL: If you're new to Fooldom, you really must spend some time at our "Fool's School," where we'll help you become a confident do-it-yourself investor, step by step. (The Fool's School button is on our main screen.)
THE INFO DESK: Take all your questions to our "Questions" link, found just below FoolMart on our main screen.
FOOL CATALOG: Want to see all the products we offer listed in one convenient document? head over to FoolMart and shop by Category. It's a good way to see everything at once, and you can even print it out for reference.

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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