HEROES

Electronics contract manufacturing giant SOLECTRON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> gained $3 to $51 3/4 after reporting Q2 earnings per share (EPS) of $0.65, below the mean estimate of $0.70 and even below the low estimate of $0.66, according to First Call. The company did report a 6.4% sequential increase in sales, which reached $859 million this quarter, while operating margin stayed level in the 6.5% area and annualized return on average invested capital moved up slightly (still in the 12% range). The reason why this so-called "tech stock" wouldn't get hammered in missing estimates is because of the stability of its results. Investors can place more confidence in Solectron's ability to hit its yearly numbers than they might place in other contract manufacturers.

SEPRACOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEPR)") else Response.Write("(Nasdaq: SEPR)") end if %> gained $1 to $23 3/4 after announcing favorable Phase III results for its levalbuterol bronchodilator drug for asthma treatment, which is intended to improve upon products currently available from GLAXO WELLCOME <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %> and SCHERING-PLOUGH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %>. The company is basically a generic drug maker that formulates "Improved Chemical Entities" based on drugs made by other companies. The company's $650 million market cap is very much based on this major effort to tap the asthma inhalant market, as well as efforts to develop other inhalant-delivered drugs for treating allergies.

QUICK TAKES: Scrap metal company METAL MANAGEMENT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTLM)") else Response.Write("(Nasdaq: MTLM)") end if %> gained $1 to $8 7/8 after agreeing to merge with fellow Chicago scrap dealer Cozzi Iron & Metal... INTERMEDIA COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICIX)") else Response.Write("(Nasdaq: ICIX)") end if %> rose $1 7/8 to $17 after the local and long-distance company entered into an agreement to allow British telecom company CABLE & WIRELESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %> resell services in three Florida markets... ZENITH ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ZE)") else Response.Write("(NYSE: ZE)") end if %> surged $2 3/8 to $11 7/8 after receiving an order from TIME WARNER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TWX)") else Response.Write("(NYSE: TWX)") end if %> for its cable TV set-top boxes... Shipper and shipping logistics company CALIBER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CBB)") else Response.Write("(NYSE: CBB)") end if %> gained $2 to $24 3/8 after Morgan Stanley upgraded the shares to "outperform" from "neutral"... ALCATEL ALSTHOM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALA)") else Response.Write("(NYSE: ALA)") end if %> moved $1 3/4 higher to $23 3/8 on reporting 1996 earnings of $477 million -- beating the company's forecast of $442 million -- and saying it can improve gross margins by two percentage points in 1997 and 1998... SAFEGUARD SCIENTIFICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFE)") else Response.Write("(NYSE: SFE)") end if %>, which has been hurt recently due to decreases in the value of subsidiaries trading on the Nasdaq, gained $1 3/8 to $19 1/4 after announcing that its Board has authorized the repurchase of up to $20 million of its common stock... CANADIAN OCCIDENTAL PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CXY)") else Response.Write("(AMEX: CXY)") end if %> gained $1 1/2 to $18 5/8 after the company announced that it has bid to take over energy company Wascana, which would greatly enhance the company's reserves position... Physician practice management company FPA MEDICAL MANAGEMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> rose $1 3/8 to $20 1/4 after the company completed its acquisition of AHI Healthcare Systems... Ahead of tomorrow's earnings report, education company APOLLO GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APOL)") else Response.Write("(Nasdaq: APOL)") end if %> climbed $2 3/16 to $27 9/16... ETEC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ETEC)") else Response.Write("(Nasdaq: ETEC)") end if %> added $2 3/8 to $32 7/8 as Robertson Stephens reiterated its "buy" rating on the company saying "...Etec's business remains strong on all fronts."

GOATS

MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> lost $4 1/2 to $39 5/8 after the company reported Q2 operating earnings of $0.18 per share, ahead of estimates of $0.15, but below the more bullish estimates from the likes of Merrill Lynch. The company reported in its conference call that it is phasing out its 4 Megabit parts and will be running on the 16 Megabit part as its "workhorse" through calendar 1998, which might explain some of today's softness. If investors were expecting to hear that Micron is planning on taking the offensive in speeding up its leading-edge chip development, yesterday's call was disappointing. Many analysts believe that industry leaders will have already made the transition to 64 Megabit parts as their main workhorse within this timeframe. In the meantime, Micron will be increasing its bit output by 15-20% this quarter following a 55% upward move last quarter.

Audio equipment company HARMAN INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAR)") else Response.Write("(NYSE: HAR)") end if %> was blasted for a $11 3/4 loss to $34 1/4 after forecasting Q3 EPS of $0.50 to $0.55, below estimates of $0.96. The maker of Harman-Kardon, JBL, and Infinity speakers and components said earnings will be impacted by a number of factors, with the major hit coming from the strength of the dollar hurting the conversion value of sales already made and the competitiveness of its components compared with foreign (particularly Japanese) goods. Another set of customers hit earnings by delaying shipments on some contracts, and finally, the company said consumer demand around the world is weaker than expected.

Credit card issuer ADVANTA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADVN.A)") else Response.Write("(Nasdaq: ADVN.A)") end if %> lost another $1 1/8 to $30 3/4 after Goldman Sachs lowered its rating on the shares to "market underperform" from "market perform" in the wake of yesterday's announcement of problems at the company. First Call estimates have already started to reflect the adjusted analyst views on the earnings outlook for the company, but the Goldman analyst might be thinking that the price of the company still doesn't reflect a proper valuation based on earnings guidance of $1.50 per share for 1997. Competitor CAPITOL ONE FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COF)") else Response.Write("(NYSE: COF)") end if %> is valued at 13.3 times 1997 estimates, and FIRST USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FUS)") else Response.Write("(NYSE: FUS)") end if %>, which is locked up in a valuation range with acquirer BANC ONE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %>, is trading at 20.5 times 1997 estimates. Advanta is valued at 20.4 times the earnings guidance numbers, even while unanswered questions remain about the sudden departure of the company's Chief Operating Officer and the adequacy of credit loss reserves.

QUICK CUTS: Newly-public energy company TITAN EXPLORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TEXP)") else Response.Write("(Nasdaq: TEXP)") end if %> lost $3 1/8 to $8 3/4 before reporting earnings that included details on the company replacing 500% of production with new reserves... RASTER GRAPHICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RGFX)") else Response.Write("(Nasdaq: RGFX)") end if %> fell $1 3/8 to $6 1/8 after Hambrecht & Quist reduced its Q1 earnings forecast for the wide-format inkjet printer company because of product introduction expenses... Make-up company BEAUTICONTROL COSMETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BUTI)") else Response.Write("(Nasdaq: BUTI)") end if %> was smudged for a $2 3/8 loss to $11 on reporting Q1 EPS of $0.16, below estimates of $0.17... Shoe superstore franchisor JUST FOR FEET INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FEET)") else Response.Write("(Nasdaq: FEET)") end if %> lost $3 to $18 3/4 after the company restated earnings downward for several quarters due to a change in accounting... DOCUMENTUM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DCTM)") else Response.Write("(Nasdaq: DCTM)") end if %> fell $2 1/8 to $15 5/8 after the imaging company announced it has entered into an alliance with securities trading software concern INFINITY FINANCIAL TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INFN)") else Response.Write("(Nasdaq: INFN)") end if %>... Copper and copper alloy tube maker WOLVERINE TUBE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLV)") else Response.Write("(NYSE: WLV)") end if %> was rolled for a $7 7/8 loss to $26 1/8 after the company said that it expects to report Q1 earnings of about $8.75 million, or $0.62 per share (below estimates of $0.88), due to lower OEM demand for its products... Sub-prime lender AAMES FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AAM)") else Response.Write("(NYSE: AAM)") end if %> lost $2 to $24 3/8 despite selling $215 million in new debt securities at favorable premiums to Treasury debt... MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> lost $1 7/16 to $19 1/16 after reporting Q2 EPS of $0.30, beating estimates of $0.27, on a 21% sequential increase in revenues.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Dear Dad

Dear Dad,

We have gone back and forth a lot about whether or not you should be invested in mutual funds. I wanted to outline for you the reasons why I believe that investing in individual stocks instead of mutual funds can enable to you to have higher returns without requiring any more time -- the classic no additional pain, significant additional gain scenario that management consultants love to drone on about, using hackneyed phrases like "win-win."

I got interested in individual stocks only after amassing as much knowledge as I could about mutual funds, a process that you watched. The paeans of the mutual fund industry are the ones that you cite to this day as the reason you prefer funds over stocks: professional management, easy diversification across investment vehicles and weekly maintenance of your strategy. Initially, that was what attracted me as well.

In my mutual fund days, I relentlessly pored over the collected wisdom of personal finance writers in books, magazines, journals and marketing pamphlets. I was specifically looking for what characteristics of a mutual fund I could use to determine whether or not it was likely to perform well. In short, I wanted to isolate the predictive factors of a fund. Whether or not most mutual fund investors realize it, they are constantly searching for better ways to isolate and interpret predictive factors. Who wants to buy a fund that is about to take a tumble, right?

Initially, I spent a lot of time looking at past performance. This is the most widely used predictor of future performance. Experience quickly showed that this was not necessarily the best strategy. Later exploration of the statistical performance of various funds backed this up. Past performance is often a downright lousy indicator of future fund performance. The fund that killed the market last year often did so with a fairly risky strategy that simply happened to go well that year.

Mutual fund performance statistics over multi-year periods are often skewed by incredible years, a statistical phenomenon you understand well as an outlier. Twentieth Century Ultra will continue to have a dazzling five and ten year record for quite some time, as the fund is still riding high on a powerful 1993. The fund's performance in 1993 will do little to help investors today; investors who might not be careful enough to analyze the year-by-year performance and discover much of the market-beating returns are in the distant past.

Pushing out the performance beyond the one-year or three-year threshold often narrows the list of attractive funds. Very few funds perform well over time. With only six stock mutual funds outperforming the S&P 500 over the past five years, it is difficult to justify investing in mutual funds on the premise that professional management can outperform the market average. Certainly, the managers of the few funds that do succeed and continue to succeed over long periods of time are quite good. But unless you happen to know the fund manager and his strategy, it is difficult to determine whether or not it is a fluke.

When I came to this realization, I knew I had to read up enough to understand the manager's strategy. My approach to picking stock funds became one of dissecting the manager and any public comments. "I invest in stocks with P/Es lower than their growth rate," boasted Roger Honour of Montgomery Growth. Made sense to me. In the process of looking at management, I found out two things. The first was management often does a terrible job of explaining its strategy in a way that anyone can understand. "I buy cheap stocks," doesn't exactly shed the light of Truth on what is going on in the heads of fund managers. The number of fund managers who actually write about their strategy in a compelling enough way that you could actually learn from it is very small, although there are a few out there. (Legg Mason's letters to shareholders immediately jump to mind, as do the occasional interviews that Gary Pilgrim of PBHG gives.)

The second thing I discovered is that fund managers tend to change quite a bit. Unless the same fund manager is still there, in place, you cannot be sure the strategy is being executed. So rather than buying funds and forgetting about them, you need to try to keep up with what is going on over at the mutual fund headquarters. Semiannual reports do not cut it -- Fidelity investors relying on fund mailings still may not know that Jeff Vinik is no longer managing Magellan.

To successfully invest in funds at this point, we have to follow the fund closely, understand management's strategy, and keep an eye out in the press, magazines and through fund family publications about whether or not there are any changes at the top. The only other thing that I found beyond this that helped to crystallize management's strategy and help determine how the fund might perform is to look at the actual stocks in the fund. Whether it was the list of top ten holdings published monthly or the whole guts of the fund spilled out in the semi-annual reports, I began to examine whether or not the stocks in the fund matched the strategy and might be undervalued.

At this point, it became clear to me that in my attempt to be a successful mutual fund investor, I was doing two things: identifying investment strategies I believed had sound grounding and determining whether the stocks I looked at in the fund fit that investment strategy. I was putting as much into analyzing the fund as I might put into analyzing a company, with substantially less visibility on how the fund might perform. If it had only been one fund, it might have been fine. Once I worked my way up to five, I began to consider whether or not investing directly into stocks and bypassing the intermediary vehicle of the fund altogether might make more sense.

When I began to look at actual companies, the predictive elements I had been searching for with a fund began to appear. Management had a strategy in a certain business. There were independent documents about that business that I could use to determine whether or not the strategy might work. Past growth in the niche was actually often fairly predictive of future growth, particularly for larger companies. There were ample documents available about the goings on at the company, at the very least put out four times a year. Most of all though, I could identify the risk inherent in the stock based on the valuation.

The one key predictive element you cannot get in a fund is the valuation. Although all kinds of cockamamie schemes exist to quantify risk, none are more useful than the price you are paying for the assets relative to their underlying, or intrinsic, value as determined by the investment strategy. Simply put, if you buy something cheap, you take a heck of a lot of risk out of it, no matter whether it is a house or a new-fangled derivative like an inverse floater. The thing is, you can't price a mutual fund. Averages of various measures like price/earnings ratios are available, but given issues like weighting and the timeliness of the information, it is hard to say that those are solutions.

It is my opinion from both watching and experience is that successful fund investing requires just as much time as investing in stocks, often without greater reward. The only exceptions to this that I have found include buying an S&P Index fund or discovering management so good at communicating strategy and explaining it to shareholders that you feel that you cannot be blindsided. The funds that do this well are few and far between, and the funds that can do this and adapt their strategies over time to reflect changing reality are even fewer. Finally, in individual stocks you maintain control over issues like taxes, something you totally give up when you hand the money over to someone else.

I know that you do have one stock in your portfolio, Disney. A stock in which you have experienced appreciation so substantial that at one point it risked taking over your whole portfolio. The strategy in buying Disney that you articulated is the same strategy that a good investor uses to buy any company. You identified a great brand or franchise trading below intrinsic value with the possibility of generating increasing returns over time. Disney benefits from the fact that all of its intellectual copyrights are free, and it continues to milk them for all they are worth. I urge you to consider duplicating this success with occasional investments in other companies over time, one or two a year, enough that you can still follow them and reap the rewards that follow the intelligent application of capital. Given that stocks are as just as much work with a much higher reward, it seems irrational to do anything else.

Your son,

Randy

CONFERENCE CALLS

MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>
and MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> (45 min. each)
(402) 351-9984 -- replay from 9PM EST on 3/17 through midnight on 3/18

TRO LEARNING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TUTR)") else Response.Write("(Nasdaq: TUTR)") end if %>
(402) 220-2139 (code: 3137) -- replay until 3/19

03/18/97 (Tuesday)
ROSS STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
(402) 222-9948 -- replay available through 3/25

SEPRACOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEPR)") else Response.Write("(Nasdaq: SEPR)") end if %>
To Discuss Results of levalbuterol Phase III results
Available until 8 PM on Wednesday, March 18
(402) 220-1011

ANOTHER FOOLISH THING
Write a Fribble!

The beauty of Foolishness is that it's a two-way street. You learn from us, and we learn from you. One fun way to let your voice be heard in Fooldom (by thousands of Foolish readers!) is to pen a Fribble. Our Fribble area offers a marvelous collection of short essays on life and/or investing. Click on the Fool in the upper left corner of the Fool main screen and check it out -- read the "What's a Fribble?" guidelines and then try writing one yourself! We welcome submissions from all Foolish followers -- e-mail your 400-600 word Fribble to [email protected].

MORE FOOLISHNESS
Road to the Final Fool!

Road to the Final Fool: It's time for the Fool Dome's annual contest, which follows the men's NCAA tournament, round by round. The first round features 64 questions, one on each team in the tournament. The fun is fast and Foolish, and if you are Foolish enough to be the Final Fool, you will win a free golf vacation in Phoenix, AZ, courtesy of the folks at Preview Travel. You game?

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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