HEROES

Insurance company SUNAMERICA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SAI)") else Response.Write("(NYSE: SAI)") end if %> gained $2 1/2 to $46 3/4 after Merrill Lynch raised its 1998 earnings estimate to $3.15 per share and its rating to "near-term buy" from "accumulate." SunAmerica is an annuity company that offers traditional single premium annuities where a customer hands over a sum of money expecting to be paid back with interest over a set time. If the customer dies in two years, the company wins; if the customer is a mutant and lives for 120 years, the company loses. It also offers deferred annuities, which are higher-cost investment vehicles where taxes are deferred and principle is often guaranteed upon death. Because of the company's focus on these savings vehicles, as well as on things like 401(k) plans, Merrill Lynch's analyst added, "SunAmerica has shown an ability to maneuver well in a variety of interest-rate environments."

Though the company's February same-store sales weren't particularly stunning, BED BATH & BEYOND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BBBY)") else Response.Write("(Nasdaq: BBBY)") end if %> gained $1 11/16 to $24 11/16 on an upgrade to "buy" from PaineWebber and an initiation of coverage with a "buy" rating from Prudential. Same-store sales for the month rose 6/10 of a percent, but total sales grew 26.4% due to heavy expansion to 108 stores. The company isn't stopping there, however, as it has an expansion schedule of 30 more stores for 1997. PaineWebber said it sees more robust earnings ahead and raised its earnings growth outlook to 25-30% annually.

ITRON INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITRI)") else Response.Write("(Nasdaq: ITRI)") end if %> jumped $2 15/16 to $22 1/4 after announcing this morning that it has signed an agreement with Pacific Gas & Electric, the parent company of which is PG&E CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PCG)") else Response.Write("(NYSE: PCG)") end if %>. Although there is no definitive sales agreement, the maker of automatic meter reading equipment will be able to bid on contracts for one of the largest utilities in the country. Earlier this week, Itron sealed a 470,000-unit sale with Missouri Gas Energy.

QUICK TAKES: Pollution control products company THERMATRIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMXI)") else Response.Write("(Nasdaq: TMXI)") end if %> moved $1 higher to $6 after HSBC Washington Analysis reiterated a "buy" rating following disappointing results posted earlier this week... MINNTECH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MNTX)") else Response.Write("(Nasdaq: MNTX)") end if %> gained $1 3/8 to $11 1/8 after the company received marketing approval for its Biocor oxygenator, which replaces lung functions during open heart surgery... Managed health company HUMANA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUM)") else Response.Write("(NYSE: HUM)") end if %> added $1 3/4 to $22 5/8 after Business Week promulgated takeover rumors in its "Inside Wall Street" column, mentioning a price target of $28 to $30... COLONIAL BANCGROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNB)") else Response.Write("(NYSE: CNB)") end if %> rose $1 1/4 to $24 after announcing this morning the acquisition of GREAT SOUTHERN BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSBC)") else Response.Write("(Nasdaq: GSBC)") end if %> in a $22.6 million transaction.

GOATS

MARVEL COMICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRV)") else Response.Write("(NYSE: MRV)") end if %> licensee TOY BIZ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TBZ)") else Response.Write("(NYSE: TBZ)") end if %> fell $3 5/8 to $14 after Ron Perelman's Andrews Group said it will not purchase shares of Marvel in a proposed recapitalization of the bankrupt company, which delighted Marvel shareholders who sent that stock up $3/8 to $2 3/4, or 16%. The junk bond financier proposed the issuance of 410 million shares, which would severely dilute both public holders of the Marvel (the assets of which include the Spiderman and X-Men trademarks) as well as bondholders, who have claim on almost 80% of the company's equity. The company's bondholders will now go ahead and propose their own reorganization of Marvel, which would raise enough cash to pay down debt. The longer-term implications for Toy Biz are: 1) the probable owners of Marvel have an intense dislike for Perelman, a majority owner of Toy Biz; and 2) Toy Biz isn't going to own the valuable assets of Marvel.

ATMEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATML)") else Response.Write("(Nasdaq: ATML)") end if %> slid $4 3/4 to $26 3/4 after the multi-line semiconductor company said Q1 revenues will fall up to 10% sequentially from Q4 revenues of $281 million due to slow delivery of new products. The company also blamed the pricing environment for the revenue shortfall. Industry analysts at INFRASTRUCTURE said in their Daily Notes today, "We continue to believe that nonvolatile memory prices will be under pressure throughout 1997 as will prices for EPROM and EEPROM.... pressure in Atmel's primary markets has been growing steadily as many of the large semiconductor manufacturers pursue their diversification programs." The company said earnings will be hurt, but didn't quantify that statement. Estimates for the quarter and year currently stand at $0.54 per share and $2.40 per share, respectively.

QUICK CUTS: Video processing equipment company MEDIA 100 <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDEA)") else Response.Write("(Nasdaq: MDEA)") end if %> lost $1 13/16 to $5 9/16 after forecasting quarterly sales of about $11.6 million and a break even first quarter... CENTRAL RESERVE LIFE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRLC)") else Response.Write("(Nasdaq: CRLC)") end if %> lost $1 5/8 to $5 1/2 after the insurance company reported a loss of $0.37 peer share for the quarter due to higher claims and the company taking larger reserves for future claims... Specialty semiconductor company MICROCHIP TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCHP)") else Response.Write("(Nasdaq: MCHP)") end if %> dropped $6 5/16 to $29 1/4 on Atmel's weakness today... DIANA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> fell $1 1/8 to $5 as one of the infamous stocks of the 1996 bull market gets set to trade on the OTC Bulletin Board on Monday... Networker CABLETRON SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %> slid $1 7/8 to $30 on sector weakness... SELFCARE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLF)") else Response.Write("(NYSE: SLF)") end if %> lost $1 5/8 to $9 7/8 after the diagnostic products company announced a 1.8 million share offering at $10 per share.

FOOL ON THE HILL
An Investment Opinion by MF Templar

The Year is 1994

The year is 1994. The networking equipment industry has enjoyed roughly $10 billion in revenues. The three primary product segments that have driven tremendous growth were adapter cards, shared media hubs, and routers. The two largest vendors of networking equipment are 3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> and CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>. 3Com concentrates on the adapter cards and fights it out with smaller names like Grand Junction, Synoptics and Wellfleet for the shared media hubs. Cisco Systems dominates the router market with profit margins that are the envy of of its competition. Windows NT has not yet been invented, and NOVELL'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVL)") else Response.Write("(Nasdaq: NOVL)") end if %> NetWare is the software that allows many networks to function.

What did the major networking products in 1994 do? Adapter cards, otherwise known as network interface cards (NICs), are devices that are installed into one of the communication (COM) ports of a computer. Shared media hubs are used in Ethernet-based local area networks (LANs). The server and all of the personal computers (PCs) connected to the network link into the hub. The server communicates to the various PCs on the LAN through the hub. A router is a device that moves information between networks, often connecting networks that use different operating protocols. These are the things of which networks are made. The Internet was not that big of a deal in 1994, and proprietary online services overall had less than six million people.

Flash forward to 1996. The networking industry is driven by three entirely new products: LAN switches, LAN and wide area network (WAN) asynchronous transfer mode (ATM) and Frame Relay switches, and remote access devices. The networks of the past have literally been rebuilt over the two years between 1994 and 1996 to incorporate these technologies because the way that networks are used has changed. The market had doubled in size to roughly $20 billion, or 41.4% annualized growth, driven by the rush to deploy this new technology in networks. It is not just big companies deploying them, either. Small and medium companies built networks. These networks were not just for internal company consumption anymore. The rush to build a viable commercial Internet infrastructure has also driven a lot of sales.

LAN switching has become the dominant way of networking individual computers because it increases bandwidth, or the amount of data that you can put through the system in a given time. Switches created dedicated circuits between a sender and a receiver, taking the need for an intermediary like a hub or a router out of the system and creating a much more flexible network. Network backbones have been rebuilt to incorporate Frame Relay and ATM, technologies that allow large-scale networking solutions to be deployed over multiple geographic sites. Both technologies are ideal for creating the "backbone," or the portion of the network that moves most of the traffic, because they guarantee a certain amount of bandwidth to the user that does not fluctuate as more connections are made.

Remote access has also become a major issue as more and more users need to get on the networks while they are away from the office. As the Internet has exploded in the popular consciousness, easy to use graphic-user interfaces are available to anyone. With more and more vital information being kept on the network, it has become important to allow more employees to be able to dial into the networks from remote locations, driving the remote access business. Adapter cards, shared media hubs and routers are still used, but the maturing product lines are undergoing significant price competition and will become less and less profitable in the future.

For many companies, the networks have been rebuilt. This means that in the markets with a lot of networks, like the United States, the increase in data traffic will replace the need to upgrade to a new architecture as a primary driver of growth. This means much less consistent growth quarter-to-quarter as the overall economic climate and limited capital spending budgets begin to take their toll. The overall growth should remain in the 30% to 50% range over longer periods, but as visibility decreases the ability of networking companies to consistently outperform their earnings estimates has been reduced substantially. Additionally, new product categories like IP switching are emerging that may replace the current growth drivers, creating a whole new level of uncertainty.

When a company like FORE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORE)") else Response.Write("(Nasdaq: FORE)") end if %> tumbles $5 3/8 to $25 3/4 today, there is more at work than just some comments from analysts about potential weakness in Japan. As the actual drivers to growth change, investors are finding it increasingly necessary to price more uncertainty into the valuations of the networking companies. So while the actual news today is FORE Chief Executive Eric Cooper saying that the quarter will be more "back-end loaded" than normal, the key variable is visibility, not an actual fear that the overall growth rate is slowing. "Back-end loaded" means that the company will book a lot of its revenues at the end of the quarter, implying that it will not know if it made its targets until the last few days. This is the risk theme that is being priced into all of the networking stocks currently, and the reason why the group as a whole has been totaled over the last few weeks.

Cisco Systems, down $3 1/4 to $51 3/8 today, is another example of risk being discounted into the current price of the stock. With Cisco heading towards a major product introduction with the Big Fast Router (BFR) and tag switching, uncertainty has started to creep in. Will Ipsilon's cheap IP switching set-ups replace routers and undo Cisco's BFR business? Will ASCEND'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %> GRF router begin to take market share from Cisco? Will the company's exposure to LAN switching cause margins to decrease if there are pricing pressures there from other LAN switch sellers like BAY NETWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAY)") else Response.Write("(NYSE: BAY)") end if %> or FORE Systems? Even given the 33% operating margins, Cisco's 6.0 times sales valuation last week marked dangerous territory.

The only irony is that the investors who have complained that networking stocks were too expensive over the last two years have yet to get in and start buying, as they have been scared off by the same uncertainty that is driving the momentum folks away. In some cases, it seems that the shares are on sale, rather than just being knocked down. Those investors might want to reconsider their fear and start to establish prices where they might want to pick up a few shares of this company or that company -- or they risk missing the first sustained buying opportunity in networking stocks since 1994.

CONFERENCE CALLS

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

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

03/07/97 (Friday)
GENZYME TISSUE REPAIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GENZL)") else Response.Write("(Nasdaq: GENZL)") end if %>
Re: Carticel
(402) 220-4882 -- replay available through 3/14

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
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 here on our website. There you'll find a host of titles which pass Foolish muster. Many were recommended by our own MF Templar and 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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