HEROES

Data networking equipment maker MRV COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MRVC)") else Response.Write("(Nasdaq: MRVC)") end if %> gained $2 1/4 to $21 1/4 after it refuted "technology confusion" claims made by 3Com recently. It said this morning that it is looking at robust growth across all of its product lines and that it expects to report Q1 revenue growth "in excess of 100%" over Q1 1996's revenues of $15.5 million. It is possible, though, that the company might not report a scorchingly great sequential growth comparison, since last quarter's revenues were $31 million. The maker of fast ethernet switches and optoelectronic equipment, which is also developing gigabit ethernet equipment, said Japan and Europe are not hurting business, contrary to what Cisco Systems has recently said.

Prepared food maker and pizza pepperoni king FOODBRANDS AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDB)") else Response.Write("(NYSE: FDB)") end if %> jumped $7 3/8 to $23 1/8 after $12 billion meat packer IBP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBP)") else Response.Write("(NYSE: IBP)") end if %> bid $23.40 per share in cash for the company. IBP is more of a commodity producer and wants to build brand equity by branching out into "new platforms." A company vice-president told Reuters today, "I would expect that by the year 2000, somewhere between 8 and 12 percent of IBP's sales and revenues would be accounted for by these value-added products." Foodbrands generated $835 million in revenues and $48.5 million in operating income in 1996.

Possibly owing to its agreement to merge with FIRST BANK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FBS)") else Response.Write("(NYSE: FBS)") end if %>, U.S. BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: USBC)") else Response.Write("(Nasdaq: USBC)") end if %> reversed its decision to terminate a deal to acquire BUSINESS & PROFESSIONAL BANK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BPFB)") else Response.Write("(Nasdaq: BPFB)") end if %>. That sent commercial banker B&P $2 1/4 higher to $17 3/8, as the $18 per share acquisition price is still on the table. For $35 million, U.S. Bancorp will gain $214 million in assets through four bank branches in central California. U.S. Bancorp will probably combine branch locations due to the physical proximity of branches. If the company can close down those branches for a charge equal to one year's operating expenses for those bricks and mortar, a purchase price of 16% of total bank assets is a cheap price to pay for quality commercial relationships.

QUICK TAKES: VITESSE SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VTSS)") else Response.Write("(Nasdaq: VTSS)") end if %> gained $4 5/8 to $30 1/8 after Montgomery Securities yesterday initiated coverage of the communication chip company with a "buy" rating... Freight hauler and handler U.S. XPRESS ENTERPRISES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XPRSA)") else Response.Write("(Nasdaq: XPRSA)") end if %> rose $2 1/4 to $16 after the company announced the acquisition of a company in the floor covering logistics business that will add about $25 million to its revenues... HEALTHDYNE TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDTC)") else Response.Write("(Nasdaq: HDTC)") end if %> gained $1 3/4 to $13 3/8 after the Georgia legislature failed to pass an anti-takeover measure that would shield the medical device company from a $13 per share cash tender offer from INVACARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVCR)") else Response.Write("(Nasdaq: IVCR)") end if %>... Physician practice management company PHYSICIANS RESOURCES GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRG)") else Response.Write("(NYSE: PRG)") end if %> gained $2 1/8 to $13 1/4 after reporting Q4 earnings per share (EPS) of $0.24, beating estimates of $0.22... ECC INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECC)") else Response.Write("(NYSE: ECC)") end if %> rose $1 1/4 to $6 1/4 after the crew training simulator company and vending machine assembler said it has adopted a shareholders' rights plan... NOBLE DRILLING CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NE)") else Response.Write("(NYSE: NE)") end if %> gained $1 7/8 to $19 1/8 and CLIFFS DRILLING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLDR)") else Response.Write("(Nasdaq: CLDR)") end if %> gained $6 to $64 as oil drillers and service companies moved higher today... Nasdaq bigshot INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> rose $7 3/8 to $140 5/8; CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> tacked on $4 1/2 to $52 3/8 on large volume; and MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> gained $3 15/16 to $94 1/4... 360 (DEGREES) COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XO)") else Response.Write("(NYSE: XO)") end if %> added $1 3/4 to $19 1/8 after Smith Barney rated the wireless telecom company a "buy"... AMERICA WEST HOLDINGS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AWA)") else Response.Write("(NYSE: AWA)") end if %> took a "Focus One" rating from Merrill Lynch, ran with it, and gained $1 1/2 to $16 3/4... LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LRCX)") else Response.Write("(Nasdaq: LRCX)") end if %> moved up $2 1/4 to $35 3/4 after yesterday's agreement to merge with chemical mechanical planarization company ON TRAK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONTK)") else Response.Write("(Nasdaq: ONTK)") end if %>... Property and casualty insurance company AMERICAN STATES FINANCIAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASX)") else Response.Write("(NYSE: ASX)") end if %> gained $2 3/4 to $35 after the company and its parent LINCOLN NATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LNC)") else Response.Write("(NYSE: LNC)") end if %> said that they are exploring a possible sale or other value-realization move for the company... BARR LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BRL)") else Response.Write("(AMEX: BRL)") end if %> jumped $4 5/8 to $36 1/2 after the drug maker announced a generic version of DuPont-Merck's anti-coagulant Coumadin, one of the most-prescribed drugs in the world.

GOATS

Remember when we wrote that the chief geologist at BRE-X MINERALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BXMNF)") else Response.Write("(Nasdaq: BXMNF)") end if %> had jumped out of a helicopter as potential gold mining partner FREEPORT MCMORAN COPPER AND GOLD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FCX)") else Response.Write("(NYSE: FCX)") end if %> was performing its due diligence on Bre-X's huge Busang gold deposit in Indonesia? There is now a strong possibility that the stock price of Bre-X will mirror that fall, as Freeport McMoRan released preliminary results of its due diligence today: "To date, analyses of these cores, which remain incomplete, indicate insignificant amounts of gold." Bre-X stock remained held today at a market capitalization of $2.5 billion. Freeport lost $2 1/4 to $29 5/8 on the news.

YOUNG BROADCASTING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YBTVA)") else Response.Write("(Nasdaq: YBTVA)") end if %> lost $5 to $22 1/4 after Merrill Lynch lowered its rating on the television broadcaster to a "near-term neutral" from "near-term accumulate," while maintaining its long-term rating of "buy." The company recently acquired KCAL-TV station, a Los Angeles independent VHF station that DISNEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %> had to sell as a condition of its merger with Cap Cities/ABC. Young Broadcasting carries a long-term debt load of just under $400 million, which includes capitalized lease obligations. Equity value in the company is only about $330 million, which gets you a very valuable TV-broadcast license in one of the top-four media markets in the country. The company's 10 network affiliates come for "free," with their annualized free cash flow of better than $30 million.

QUICK CUTS: Biopharmaceutical company NABI INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NABI)") else Response.Write("(Nasdaq: NABI)") end if %> lost $1 1/2 to $7 5/8 after announcing that it will discontinue Phase III trials of its HIV-IG therapy... SAFETY 1ST <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SAFT)") else Response.Write("(Nasdaq: SAFT)") end if %> fell $1 1/8 to $5 3/4 after the child safety products company said that it has restated its third quarter results and full-year 1996 results, which include a massive per-share restructuring charge... PHAMIS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHAM)") else Response.Write("(Nasdaq: PHAM)") end if %> lost $2 1/4 to $20, while IDX SYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDXC)") else Response.Write("(Nasdaq: IDXC)") end if %> slid $3 3/4 to $28 after the two healthcare information companies announced a merger last night... VIACOM INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: VIA)") else Response.Write("(AMEX: VIA)") end if %> was knocked down $3 3/8 to $32 1/2 after Merrill Lynch lowered its rating on the company to "near-term neutral" from "accumulate"... Semiconductor capital equipment company FSI INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FSII)") else Response.Write("(Nasdaq: FSII)") end if %> fell $1 3/16 to $11 7/8 on reporting Q1 earnings of $0.08 per share, just below the mean estimate of $0.09.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Don't Dread the Fed

The Federal Reserve raised the federal funds rate by 0.25% to 5.5% yesterday, awakening the spectre of rising interest rates in the minds of many investors. This is the rate charged by commercial banks when they lend one another money overnight. Changes in the federal funds rate are used to try to control inflationary pressures in the economy from the top down. Investors tend to become very nervous when the Fed starts to adjust rates upward. The cliche is that no bull market has ever died a natural death -- they have all been killed by the Fed. Should investors be worried about this increase in rates?

Although the federal funds rate does not directly affect decisions made by consumers, shifts in the rate are de facto changes in the so-called prime rate, the short-term interest rate that commercial banks give to their best customers. As the prime rate affects many large-ticket purchases like automobiles and homes, changes here can affect the behavior of consumers. The purchase of large ticket items often drives further economic activity, particularly in the case of a house, so the general theory that the Fed can use the federal funds rate to control inflation holds together.

In the complicated dance of market activity, the Federal Reserve and bond investors engage in a tug-of-war over interest rates that drives the value of stocks as a whole. If bond investors are worried about interest rates, they send interest rates soaring because they are selling bonds. If bond investors are confident that inflation will not destroy the value of their securities, they will purchase more and drive interest rates down, making stocks more attractive relative to bonds because of the higher returns that are possible.

When it alters the federal funds rate, the Federal Reserve is trying to control inflation -- the tendency of prices for goods and services to rise over time. Because inflation over time destroys the value of all fixed financial assets like dollars and bonds, the bugaboo of inflation is particularly nettlesome for a federal government that finances itself through frequent and regular bond offerings. Protecting the value of bond investments means keeping the cost of financing the government low, one of the reasons why the Fed is politically encouraged to keep inflation low.

Unfortunately, many others like to encourage the Fed to keep rates artificially low, as cheap money spurs financial growth. If interest rates are too low, consumers and companies are encouraged to spend where they otherwise might not, potentially putting inflationary pressures on the overall economy. In many ways, the Federal Reserve is in a difficult, delicate position, forced to broker between many powerful interests in an attempt to keep growth moderate and inflation low. Yesterday's increase in the federal funds rate is an attempt by the group to keep the "low inflation" part of their mandate.

Although the Byzantine structure of interest rate wranglings tends to get a lot of ink in the daily business papers, the real impact of changes like this on individual investors is often lost. As interest rates rise ever so slightly, the relative value of stocks is decreased. In particular, many investors erroneously believe financial companies are hurt by rising rates. With banks and other lending institutions passing on these cost increases to customers on a regular basis, almost all of the academic research into this question has concluded that rising rates rarely affect long-term profitability at financial companies. In fact, rising rates can often create great long-term buying opportunities for savvy investors. It was the rising rates in 1994 that have made financial stocks such great performers over the past three years.

Certainly, rising rates should not be taken lightly. However, if the increase in rates is part of the ongoing control of inflation in an effort to attain a moderate growth, low inflation scenario, individual investors should not lose too much sleep. Companies that generate strong earnings growth will be prized in this environment, and these are the very companies that small investors have an advantage in finding because many times these companies are too small for institutions to purchase efficiently. Investors who missed the last three-year run in financial companies might want to pay extra-special attention if a market panic creates some long-term opportunities in these companies. Otherwise, for those holding stocks with a three to five year time horizon, it is business as usual.

CONFERENCE CALLS

ECHLIN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
(800) 683-1535 (password: New Leader) -- replay thru 3/28

03/26/97 (Wednesday)
COREL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COSFF)") else Response.Write("(Nasdaq: COSFF)") end if %>
(416) 626-4153 (code: 1204) -- replay avail. for 24 hours

THIS WEEK'S CONFERENCE CALL SYNOPSES

ADOBE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %> Q1 Conference Call
APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> Restructuring Announcement

ANOTHER FOOLISH THING
Rogue In-Depth Insights

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MORE FOOLISHNESS
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Randy Befumo (MF Templar), a Fool
Fool On the Hill

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Heroes & Goats

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Editing

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