The Evening News - Tuesday, March 4, 1997

HEROES

UAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UAL)") else Response.Write("(NYSE: UAL)") end if %>, the parent of United Airlines, gained $4 to $63 7/8 after announcing that Q1 earnings per share (EPS) will exceed the high end of estimates, which now stands at $1.30. The company also said that its February load factor climbed, no doubt due in part to price cuts that came about in the jetwash of the on-hold pilot strike at AMR CORP.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMR)") else Response.Write("(NYSE: AMR)") end if %> American Airlines. The company also announced that it has reached a tentative labor agreement with its pilots and machinists -- those employees will receive a 5% pay increase this year and another 5% boost in 1998. Because of declining oil prices and more certainty on the wage front, the airline's employee/owners are also getting a raise in the price of their UAL shares. (MF Wings' weekly airline industry update is available free of charge to anyone who would like to sign up. Just send an email to [email protected] with "Fool Air Subscribe" in the subject field.)

AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %> surged $3 1/8 to $43 1/8 on announcing another deal to leverage its pre-existing strength of lots of eyeballs. The company will now sell advertising space in its chat rooms, which generate a heck of a lot of traffic. 70% of customers use chat rooms, many of whom are "underdelivered by TV," according to a Nielsen study. With advertising space available to generate 360 million impressions per month, at a low-end rate of $5 per thousand impressions, that adds up to very low-cost inventory of $22 million per year just for the chat rooms. Assuming a normal tax rate and operating margins of 80% on these ads, the total inventory is worth about $0.11 in yearly EPS for each $5 per thousand increment. At this point, investors looking at America Online might find it helpful to look at a business model more like the ABC component of DISNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> than that of an Internet service provider.

The Cellular Telecommunications Industry Association conference, Wireless '97, has the untethered telephony world hopping out in San Francisco this week. Among today's winners, DIGITAL MICROWAVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DMIC)") else Response.Write("(Nasdaq: DMIC)") end if %> gained $3 3/8 to $26 7/8 after announcing yesterday its Spectrum II digital radio platform for wireless telecom applications. The radio, which can be configured anywhere from 7 to 38 Gigahertz, is essentially a wireless bundle of 29 T-1 lines or one T-3 line. These can be used for telecom links or for campus connectivity, as well as for xDSL connectivity. Other companies in this sector, which are probably at the show, include ANDREW <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANDW)") else Response.Write("(Nasdaq: ANDW)") end if %>, ERICSSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERICY)") else Response.Write("(Nasdaq: ERICY)") end if %> and P-COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCMS)") else Response.Write("(Nasdaq: PCMS)") end if %>. All of these companies are turning out products of interest to telecom carriers of all stripes.

Oil service companies and drillers rebounded sharply today as oil staged a 5% comeback. ENSCO INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ESV)") else Response.Write("(NYSE: ESV)") end if %> surged $5 to $46 1/2; GLOBAL MARINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLM)") else Response.Write("(NYSE: GLM)") end if %> drove ahead $2 1/4 to $20; DIAMOND OFFSHORE DRILLING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DO)") else Response.Write("(NYSE: DO)") end if %> gained $5 3/4 to $61 1/8; ROWAN COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDC)") else Response.Write("(NYSE: RDC)") end if %> moved $1 3/4 higher to $21 1/8; BJ SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BJS)") else Response.Write("(NYSE: BJS)") end if %> rose $2 5/8 to $42; SMITH INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SII)") else Response.Write("(NYSE: SII)") end if %> added $3 1/2 to $43 1/2; TRANSOCEAN OFFSHORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RIG)") else Response.Write("(NYSE: RIG)") end if %> rose $4 to $58 1/4; READING & BATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RB)") else Response.Write("(NYSE: RB)") end if %> ticked up $1 7/8 to $25; NOBLE DRILLING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NE)") else Response.Write("(NYSE: NE)") end if %> moved up $1 1/2 to $18 5/8; WEATHERFORD ENTERRA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WII)") else Response.Write("(NYSE: WII)") end if %> jumped $2 1/8 to $30 7/8; and FALCON DRILLING CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> gained $2 5/8 to $34 1/4. All of this activity counted for most of the big gains on the NYSE today.

QUICK TAKES: Voice/transaction processing software company PERIPHONICS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PERI)") else Response.Write("(Nasdaq: PERI)") end if %> squirted $5 higher to $16 1/2 on revising its third quarter EPS outlook to $0.20-0.22, reversing its earlier guidance... GENZYME CORP.-TISSUE REPAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZL)") else Response.Write("(Nasdaq: GENZL)") end if %> jumped $1 7/8 to $13 3/8 as the company will present an application to the FDA on Thursday to market its Carticel knee cartilage infusion therapy... Oil and gas contract driller PATTERSON ENERGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PTEN)") else Response.Write("(Nasdaq: PTEN)") end if %> moved up $2 1/2 to $25 on reporting Q4 EPS of $0.42, smashing estimates of $0.21... LIVING CENTERS OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCA)") else Response.Write("(NYSE: LCA)") end if %> gained $2 1/4 to $34 3/8 after the geriatric care provider announced that it is exploring strategic alternatives... Following yesterday's PaineWebber downgrade, INSURANCE AUTO AUCTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IAAI)") else Response.Write("(Nasdaq: IAAI)") end if %> gained back $1 to close at $7 7/8... GUMTECH INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GUMM)") else Response.Write("(Nasdaq: GUMM)") end if %> jumped $1 3/8 to $10 7/8 after the "neutriceuticals" company said it will introduce a line of chewing gum with Zinc, echinacea, and vitamin C... Following the long-awaited release of its X-Metals sunglasses line, OAKLEY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OO)") else Response.Write("(NYSE: OO)") end if %> gained $1 to $10 1/4... FIBREBOARD CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: FBD)") else Response.Write("(AMEX: FBD)") end if %> rose $2 to $35 1/8 after the building products company announced that it will acquire manufactured housing exterior components supplier Fabwel, Inc., for $120 million... New car dealership group CROSS-CONTINENT AUTO RETAILERS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XC)") else Response.Write("(NYSE: XC)") end if %> rose $1 3/4 to $18 1/4 after announcing the acquisition of a Las Vegas Nissan dealership... DOMINICK'S SUPERMARKETS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DFF)") else Response.Write("(NYSE: DFF)") end if %> gained $1 1/2 to $19 7/8 after reporting better-than-expected Q1 EPS of 0.23 and strong cash flow at 6% of sales... New York Tri-State drug superstores GENOVESE DRUG STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: GDX.A)") else Response.Write("(AMEX: GDX.A)") end if %> gained $1 1/2 to $13 1/2 after reporting Q4 EPS of $0.40, up 60% from a year ago.

GOATS

Software utilities company SYSTEMSOFT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SYSF)") else Response.Write("(Nasdaq: SYSF)") end if %> was creamed today, losing $5 13/16 to close at $11 13/16 as the company reported Q4 EPS of $0.08, meeting analyst expectations, and Hambrecht & Quist downgraded the shares to "buy" from "strong buy." H&Q analyst Todd Bakar put the earnings at $0.07 per share, exercising a necessary prerogative of a financial analyst to look critically at financial statements, noting that this would have been the earnings number on a fully-taxed basis (the company took a number of adjustments for its Radish acquisition). The shares are down from a 12-month high of $35 1/2.

The auto loan industry crisis continues, day 34. RELIANCE ACCEPTANCE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RACC)") else Response.Write("(Nasdaq: RACC)") end if %>, formerly part of Cole Taylor Financial, was flattened $2 7/8 to $12 3/8 after yesterday's earnings report. As expected, the sub-prime auto lender reported a large loss for the quarter, but seems to have avoided the accounting pitfalls which felled prime auto lender OLYMPIC FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLM)") else Response.Write("(NYSE: OLM)") end if %> yesterday. Reliance reported a loss from continuing operations of $0.55 per share, compared with EPS of $0.17 in the year-ago quarter. The company took a large reserve to reflect a change in the way it disposes of repossessed cars, and it did not record a gain when it refinanced its asset-backed loans -- both of which are reasons why analysts bummed out on Olympic yesterday.

QUICK CUTS: K-TEL INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KTEL)") else Response.Write("(Nasdaq: KTEL)") end if %> dropped $2 1/4 to $7 1/2 after announcing the sale of its worldwide music business, minus its European operations, for $35 million... Auto parts distributor APS HOLDING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSI)") else Response.Write("(Nasdaq: APSI)") end if %> lost $1 3/4 to $6 7/8 on forecasting a loss per share of $0.30-0.35 in its fourth quarter; the company also announced the resignation of its CEO... Australian Internet service provider OZEMAIL LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OZEMY)") else Response.Write("(Nasdaq: OZEMY)") end if %> slid $2 1/8 to $9 3/8 on reporting a loss of $0.04 per share in its fourth quarter... Software tools company VERITY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VRTY)") else Response.Write("(Nasdaq: VRTY)") end if %> lost $1 3/8 to $8 3/8 despite announcing relationships with KNIGHT RIDDER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KRI)") else Response.Write("(NYSE: KRI)") end if %> and NORTHERN TELECOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NT)") else Response.Write("(NYSE: NT)") end if %>... GTS DURATEK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRTK)") else Response.Write("(Nasdaq: DRTK)") end if %> lost $1 5/8 to $10 7/8 after the nuclear waste remediation company reported Q4 EPS of $0.02, below estimates of $0.03... TUPPERWARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TUP)") else Response.Write("(NYSE: TUP)") end if %> belly flopped $8 1/4 to $35 7/8 after saying Q1 results will come in below expectations of $0.51 per share and year-ago results of $0.46 (before charges)... APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %> fell $2 7/8 to $40 1/4 as READ-RITE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %> kicked in its poison pill... Casino operator CIRCUS CIRCUS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CIR)") else Response.Write("(NYSE: CIR)") end if %> shed $1 5/8 to $29 7/8 after Salomon Brothers lowered its rating on the company to "hold" from "buy"... PAUL HARRIS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PAUH)") else Response.Write("(Nasdaq: PAUH)") end if %> lost $1 1/4 to $15 3/4 even though the women's apparel maker reported record quarterly EPS of $0.62, up 48% from a year ago.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Access is Power

Shares of SIGMATRON INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SGMA)") else Response.Write("(Nasdaq: SGMA)") end if %> recuperated today, rising $3 1/4 to $17 3/4 after yesterday's nasty $8 3/4 crash to $14 1/2 on absolutely no news. A call to the Elk Grove, Illinois-based manufacturer of electronic components, printed circuit board assemblies and electronic products confirmed that not only has the company not issued any press releases, but it has not talked to any analysts nor appeared at any investment conferences over the past 48 hours.

So why did the company drop a heart stopping 38.5% yesterday? National Securities Corp. analyst Steven Kornfeld wrote in a note today that SigmaTron was mashed by "momentum traders [who] pummeled the stock." While to some degree this may be true, unexplained price weakness in the days leading up to an earnings announcement is always something that scares even the longest of long-term investors. With SigmaTron scheduled to post earnings for its fiscal third quarter on March 10th, it seems clear that many investors believed that yesterday's price drop was telegraphing some kind of disappointment.

SigmaTron has stated emphatically that it has talked to no one, but the problem of companies communicating what would normally be classified as "inside information" to outside investors is a real one. One of the structural problems with ensuring a fair and open marketplace for stocks is the fact that by the very nature of their size and resources, institutional interests often have an advantage over the little guy. When you own a significant chunk of stock, your calls to corporate executives are normally answered. In building a relationship with a company, the sell-side analysts who promote the stock to the public and the buy-side analysts who follow the company for institutional portfolios frequently gain a degree of access that is impossible for an individual investor.

Although the unfortunately understaffed Securities & Exchange Commission (SEC) cannot investigate every purported instance, when information is communicated to a select group of people who then trade on it prior to substantial news being released, it is at the very least unfair, if not outright illegal. ATC COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATCT)") else Response.Write("(Nasdaq: ATCT)") end if %> slid from its $13 perch in early April to fall around $10 in the days leading up to the company's February 6th earnings release. Did some of the investors selling those shares have some kind of advance knowledge that the earnings would fall 60% below expectations? It seems very likely.

While more rigorous examination of price movements prior to company announcements might aid the overall enforcement effort, the unfortunate reality is that this is one of the areas where the small investor is at a disadvantage to larger interests. Frankly, an unexplained falling stock price portending negative information that is leaking out of the company is one of the few explanations I have developed for why technical analysis could conceivably work, reflecting actual unknown fundamentals and not the more esoteric "investor's psychology." The problem is that sometimes these price falls might just feed on themselves.

Assume for a moment that SigmaTron is going to have a fine quarter and that some investors just panicked when they saw the price start to fall, exacerbating the decrease until the stock was down 38.5%. With the 30-day average trading volume on the stock only 88,000 shares, 2.78 million shares outstanding and a mere 1.3 million shares in the "float" (i.e. available to trade), you can clearly see where just a little bit of fear could have caused a serious price drop.

SigmaTron is currently slated to earn $0.30 per share this quarter and $1.22 per share this year. Although the earnings increases in the second half are going to be weak, the company should still grow earnings for the entire year by 41%, and looks capable of growing earnings next year by 20%. With a price/sales ratio of 0.55, a trailing P/E of 15.5, and a P/E on forward earnings of 14.5, if this price drop did not forecast some kind of disappointment, SigmaTron is the cheapest printed circuit board manufacturer in the group. With names like HADCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDCO)") else Response.Write("(Nasdaq: HDCO)") end if %>, SANMINA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SANM)") else Response.Write("(Nasdaq: SANM)") end if %>, MERIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MERX)") else Response.Write("(Nasdaq: MERX)") end if %> and ALTRON <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALRN)") else Response.Write("(Nasdaq: ALRN)") end if %> all in acquisition mode, it is not inconceivable that SigmaTron could attain a higher valuation if it does not blow this quarter's earnings. In the end, it seems to come down to a question of who to believe, the company or the stock.

CONFERENCE CALLS

AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %>
To Discuss 1997 Initiatives
(800) 475-6701 code # 333536
(320) 365-3844 code # 333536 outside the U.S.
Until midnight on Wednesday, March 5

ZITEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZITL)") else Response.Write("(Nasdaq: ZITL)") end if %>
Emerald Research Conference Call
(706) 645-9291 code 292069.

DAYTON HUDSON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
(800) 633-8284 (reservation # 2471412) -- replay avail until 5PM EST

DEPUY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DPU)") else Response.Write("(NYSE: DPU)") end if %> & Landanger-Camus
Regarding merger
(800) 964-4428 - replay through 3/5
(402) 280-9277 (outside US)

3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> -US ROBOTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USRX)") else Response.Write("(Nasdaq: USRX)") end if %>
To Discuss Merger Proposal
(800) 633-8284 (code 2531747) -- replay

ORTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORTL)") else Response.Write("(Nasdaq: ORTL)") end if %>
(402) 220-5186 -- replay through 3/7

ECHLIN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
(re: recent changes at the company)
(800) 683-1535 (password: New company) -- replay thru 3/7

03/05/97 (Wednesday)
GENZYME <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZ)") else Response.Write("(Nasdaq: GENZ)") end if %>, GENZYME TRANSGENICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GZTC)") else Response.Write("(Nasdaq: GZTC)") end if %>
(402) 220-4884 -- replay available through 3/12

03/05/97 (Wednesday)
DOLLAR GENERAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DG)") else Response.Write("(NYSE: DG)") end if %>
(402) 220-1032 (code: 971032) -- replay through 3/7 @ 6:00 PM EST

ANOTHER FOOLISH THING
Arizona Stock Analysis

Why Arizona? Because, like Delaware, many companies are chartered there, taking advantage of the beneficial business environment. Small, under-followed emerging Arizona growth companies were a terrific place to invest over the past few years and MF Yon, the Editor of "Arizona Stock Analysis," believes this will continue in the future. His strategy of identifying winners before the Street catches on has been most profitable, with his average selection up an annualized 236% through February. Obviously, there can be no assurance that future selections will enjoy the same returns, but Yon believes there is considerable merit to picking up the winners before the Street's analysts pile on. Yon began sharing his views online last fall in the "Folly in Arizona" folder (part of the 50 states boards) and his analysis has led to the publication of the Arizona Stock Analysis, a monthly newsletter available by e-mail or fax. If this piques your interest, check it out at keyword: FoolMart or at our or e-mail [email protected].

MORE FOOLISHNESS
The Weekly Fool

Are you a Fool with a life? Do you find that although you *want* to explore every nook and cranny of Fooldom each day, that you just don't have the time for it? If so, then you might want to subscribe to The Weekly Fool. The Weekly Fool is a handy compilation of the week's most interesting, amusing, and important posts and articles in Fooldom. If you're a Fool on the run yet want to stay in the loop, sign up! Download a sample copy at The Electronic Fool (on AOL, keyword: ELF) and order a subscription from FoolMart on either AOL or this site. We even offer a snail-mailed paper version, for those without e-mail. For information and pricing on the snail-mail version, contact [email protected]. This is a perfect gift, too -- turn your friends into Fools!

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

THE DAILY NEWS CAN BE DELIVERED DIRECTLY TO ANY INTERNET E-MAIL BOX.