HEROES

MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> gained $1 1/8 to $23 1/2 after Reuters said today that PC Week Online has reported that the company has been approached by a possible acquirer. Although that story wasn't available through a search of the PC Week Online website, it has reported extensively on the desire of COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> to get into the direct channel. Compaq Chairman Eckhard Pfeiffer may have gotten some of that old DELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> religion. Micron Electronics is currently priced around 20 times 1997 earnings estimates, and if majority owner MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> can sell its PC and electronics contract manufacturing arm at a further premium, it will have turned a good deal. Direct PC seller GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GATE)") else Response.Write("(Nasdaq: GATE)") end if %> current sells at 14 times 1997 earnings estimates.

TAMBRANDS INC. (NYS: TMB) jumped $2 1/8 to $48 1/4 after consumer products mothership PROCTER & GAMBLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> announced a deal to acquire the number one tampon company for $50 per share in cash and assumption of around $81 million in debt. The combination of P&G's Always brand with the Tampax brand has created some antitrust concerns, especially in light of the market definitions the FTC has applied to recent proposed software and office products industry mergers and acquisitions, but the 4% premium that is still left in the stock of Tambrands doesn't indicate serious doubts that the acquisition will go through. Over the last three years, Tambrands has underperformed the market, but not embarrassingly so, especially with its big dividend. P&G should be able to help Tampax grow in the international arena, where its progress hasn't met its market strength domestically.

Electronics power conversion equipment maker ZYTEC CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZTEC)") else Response.Write("(Nasdaq: ZTEC)") end if %> surged $2 to $13 1/2 after the company said it will easily beat, by about 30%, the first quarter mean earnings estimate of $0.19 per share. The company's products do for the equipment of OEMs such as CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> essentially what the products of AMERICAN POWER CONVERSION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APCC)") else Response.Write("(Nasdaq: APCC)") end if %> do for PCs, which is protecting them from power surges and conditioning the AC or DC power going into those units into a nice, predictable current. At an enterprise value of about 0.68 of sales and a trailing 12-month price/earnings ratio less than 13 times, investors who are looking for value in growth markets may want to devote a little research time to this company.

QUICK TAKES: DONNA KARAN INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DK)") else Response.Write("(NYSE: DK)") end if %> glided $1 7/8 higher to $11 3/4 after a money manager talked about why he likes the stock on CNBC this morning... Auto parts manufacturer STANT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STNT)") else Response.Write("(Nasdaq: STNT)") end if %> gained $4 7/8 to $21 1/2 on agreeing to be acquired by U.K. conglomerate TOMKINS PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TKS)") else Response.Write("(NYSE: TKS)") end if %> for $21.50 per share in cash... SPEIZMAN INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPZN)") else Response.Write("(Nasdaq: SPZN)") end if %> rose $1 1/8 to $5 3/8 after the knitting machines company said it will acquire laundry equipment firm Wind Davis Equipment Company... Urological treatment company VIDAMED INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VIDA)") else Response.Write("(Nasdaq: VIDA)") end if %> moved up $1 5/8 to $8 5/8 after pre-announcing a 576% increase in Q1 revenues... VIVUS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %> rose $3 1/4 to $44 5/8 on announcing Q1 earnings per share (EPS) of $0.51, pounding estimates of $0.20... Retail automation systems company RADIANT SYSTEMS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RADS)") else Response.Write("(Nasdaq: RADS)") end if %> climbed $1 1/4 to $8 5/8 on a Deutsche Morgan Grenfell rating upgrade to "buy" from "accumulate"... NETCOM ON-LINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NETC)") else Response.Write("(Nasdaq: NETC)") end if %> cruised $1 1/2 upward to $9 15/16 after Salomon Brothers upgraded the shares to "buy" from "hold," saying there's little downside in the Internet service provider's share price... "Soil to soul" natural juice company ODWALLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ODWA)") else Response.Write("(Nasdaq: ODWA)") end if %> gained $1 3/8 to $1 1/2 after announcing Q2 sales of $11.3 million, apparently relieving those who thought the company's results would be worse after last year's E Coli scare... FLORES & RUCKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNR)") else Response.Write("(NYSE: FNR)") end if %> added $4 1/8 to $43 7/8 after announcing that it is in talks to build a deepwater drilling venture with a major oil company... BEST BUY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> gained $1 to $13 after reporting Q4 EPS of $0.20, beating estimates... Consumer and industrial products company DYNAMICS CORP. OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DYA)") else Response.Write("(NYSE: DYA)") end if %> tacked on another $3 3/4 to $43 7/8 after steel company WHX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHX)") else Response.Write("(NYSE: WHX)") end if %> raised its unsolicited cash takeover bid from the $40, offered 10 days ago, to $45 per share... SPORTS AUTHORITY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSA)") else Response.Write("(NYSE: TSA)") end if %> moved up $1 3/8 to $19 3/8 on a rating upgrade from Goldman Sachs... Investment management company PIMCO ADVISORS LP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PA)") else Response.Write("(NYSE: PA)") end if %> reeled in a $1 1/8 gain to $22 3/8 after Smith Barney restarted coverage of the company with a "buy" rating... CANADIAN OCCIDENTAL PETROLEUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: CXY)") else Response.Write("(AMEX: CXY)") end if %> burbled up $1 3/8 to $19 3/8 after Talisman Energy said it would not challenge Canadian Oxy's bid for Wascana Energy Inc.

GOATS

MERCK & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> fell $3 3/4 to $81 1/2 as Merrill Lynch said the company's elevated cholesterol product, Zocor, is facing tough competition from WARNER-LAMBERT's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> Lipitor cholesterol fighter. Last year, Zocor set a new Merck product sales record and was an important part of the Merck lineup as the company's cholesterol-busting products took 40% of the worldwide market. In all, though, the product accounted for a little over 5% of 1996 sales, but the company was looking forward to leadership from the product in its 1997 growth plans. Merrill raised its earnings estimates for Warner-Lambert and trimmed its 1998 estimate for Merck. Morgan Stanley and Alex. Brown also lowered their ratings on Merck today.

Wireless telephone handset wholesaler CELLSTAR CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CLST)") else Response.Write("(Nasdaq: CLST)") end if %> decayed $3 1/8 to $21 11/16 after reporting first quarter EPS of $0.30, which actually crunched the First Call mean estimate of $0.20 per share. The two analysts in the First Call survey had widely varying estimates -- one projected EPS of $0.30 while the other had $0.10. The company's transition away from retail has hurt margins, as gross margin before activation and residual income dropped to about 13% this quarter from above 16.5% last quarter. However, the company also reported a provision for income taxes as compared to a credit last quarter, making the sequential falloff in earnings less meaningful for comparison unless adjusted for a similar tax rate. Operating income for the quarter was up a healthy 35% from the December quarter, illustrating well the concept that a company banks dollars and not margins.

QUICK CUTS: UNIX server operating systems software company SANTA CRUZ OPERATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCOC)") else Response.Write("(Nasdaq: SCOC)") end if %> lost $1 3/8 to $4 1/2 after the company said it will report Q2 EPS of $0.02 to $0.05, disappointing Hambrecht & Quist, who downgraded the company to "hold" from "buy"... FIRST MERCHANTS ACCEPTANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FMAC)") else Response.Write("(Nasdaq: FMAC)") end if %> lost $1 1/2 to $6 3/8 on rumors that the used car financing company will report lower-than-expected results this quarter... Drug development company ANESTA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NSTA)") else Response.Write("(Nasdaq: NSTA)") end if %> fell $3 to $15 5/8 after a Volpe Brown analyst said in a research note today that the company's lead product introduction may be pushed back... AMERICAN HOME PATIENT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AHOM)") else Response.Write("(Nasdaq: AHOM)") end if %> slid $2 7/8 to $19 1/8 and ROTECH MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROTC)") else Response.Write("(Nasdaq: ROTC)") end if %> lost $16 3/8 to $16 3/8 on fears that Medicare reimbursement changes will hurt the home healthcare companies... Temporary staffing and leased staffing company BARRETT BUSINESS SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BBSI)") else Response.Write("(Nasdaq: BBSI)") end if %> was pinched for a $1 7/16 loss to $12 1/16 after the State of Oregon revoked its license for farm and forest labor... PLAYTEX PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PYX)") else Response.Write("(NYSE: PYX)") end if %> fell $1 3/8 to $9 1/4 on the Procter & Gamble acquisition of rival Tambrands... Disk drive colossus SEAGATE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> ticked down $2 5/8 to $49 3/8 after recording Q3 EPS of $1.01, beating estimates of $0.88.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Retreat or a Treat?

The two-year advance in the shares of credit card and check processing companies was reversed by the recent Federal Reserve-initiated flight from financially related stocks. Bellwethers FIRST DATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDC)") else Response.Write("(NYSE: FDC)") end if %> and NATIONAL DATA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NDC)") else Response.Write("(NYSE: NDC)") end if %> are both well off of their respective three-year highs, falling at an accelerating pace since Greenspan & Co. saw fit to hike the Federal Funds rate to 5.5%, a 0.25% increase. The risk of further interest rate increases has cooled the ardor of investors for these companies, many of whom incorrectly perceive these transaction processors as potential casualties of higher interest rates.

The Street's appetite for companies in the electronic fund transaction business has diminished from its previous excess in early 1996, when these stocks were perceived as the no-brainer way to make money off of the Internet. More than a year later it has become clear that the advent of the Internet has done nothing in the near-term to accelerate the growth that these companies are enjoying, causing many investors to revisit overly generous assumptions. Now that interest rates are rising, any companies related to the interest rate business are being sharply discounted under the assumption that profit growth will become more difficult.

Although this could conceivably be true for companies that actually make the loans, the companies that merely process the transactions have absolutely no interest rate risk unless they hold some of the loans as well. Given that the only major transaction provider that also holds some of the debt is SPS TRANSACTION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAY)") else Response.Write("(NYSE: PAY)") end if %>, this may mean that Federal Data, National Data, FIRST USA PAYMENTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PTI)") else Response.Write("(NYSE: PTI)") end if %> and BA MERCHANT SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BPI)") else Response.Write("(NYSE: BPI)") end if %> may have been unfairly discounted. Even smaller names like NOVA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NIS)") else Response.Write("(NYSE: NIS)") end if %> and TOTAL SYSTEM SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSS)") else Response.Write("(NYSE: TSS)") end if %> could be unfairly marked down as well, although looking at the numbers alone these two names are more questionable.

Every single time you use your credit card, some entity has to carry the financial information from the point of sale to the bank that holds your credit card. Merchants contract with specific credit card transaction providers to give them an entry into this system, paying a fixed percentage of each transaction. As a result, changes in interest rates affect these companies only in as much as they discourage people from using their credit cards. With most of America still using plastic that charges double-digit interest rates, it is unlikely a 0.25% change is going to staunch their buying habits. Electronic transactions are also growing at steady, double-digit rates as consumers dump checks and cash in favor of credit cards, the panacea for the empty bank account.

Although these companies are not cheap if you look at them from a Graham & Dodd absolute value point-of-view, the valuations are compelling if you look at the margins these companies enjoy. Take First USA Paymentech, spun-off from FIRST USA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FUS)") else Response.Write("(NYSE: FUS)") end if %> on March 25th, 1996 at roughly $30 a share. The company quickly traded up as high as $47 on strong earnings growth, and first fell below its initial public offering price in late February. The company began to sell off almost immediately after reporting second quarter earnings on January 22nd, falling dramatically in the two days leading up to the release. Although the company did recover, you can now buy the shares for less than two bucks more than their 52-week low, about five dollars below where it came public.

So why could 34 times trailing earnings and 4.91 times sales be a compelling price for First USA, especially when you can have industry giants Federal Data and National Data for less? In spite of the dilution from the issuance of new shares, the company is still growing earnings in the 50% range with operating margins of 30.4%, almost double National Data's 15.2% and Federal Data's 20.9%. The only company in the industry with higher operating margins is BA Merchant Services, another recent initial public offering. BA Merchant has operating margins of 33.6%, partially because of its privileged relationship with former parent BANKAMERICA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %>. BA Merchant Services also only sells for 22 times trailing earnings.

Although many investors are scouring through the traditional financial companies for bargains, looking over banks, brokerages, insurance companies, mortgage companies and the like, it would seem that the credit card processing companies present an interesting investment opportunity here. Almost completely immune from the direct negative affects of interest rate changes, they still allow an investor to participate directly in the growth of financial services throughout the world and online. As the look here has been cursory at best, investors are urged to take the time to do their homework before acting, as each of these companies tends to be a little "unique" in the way that it handles some of the accounting issues, raising the level of risk slightly. Getting the public documents, getting familiar with the basic business model, and crunching through the numbers is, as always, as must.

CONFERENCE CALLS

04/10/97 (Thursday)
CASCADE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCC)") else Response.Write("(Nasdaq: CSCC)") end if %>
(800) 936-0941 (code: 319193) -- replay through midnight 4/15

04/10/97 (Thursday)
ASCEND COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASND)") else Response.Write("(Nasdaq: ASND)") end if %>
(800) 475-6701 (code: 336995) -- replay through 4/18 (North America)
(320) 365-3844 (code: 336995) -- replay through 4/18 (International)

04/10/97 (Thursday)
TENET HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: THC)") else Response.Write("(Nasdaq: THC)") end if %>
(402) 220-1007 -- replay from 3:00 PM EDT on 4/10

04/10/97 (Thursday)
COGNOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %>
11:15 a.m. EDT
(800) 997-6906 -- replay available until midnight 4/11

SALLIE MAE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLM)") else Response.Write("(NYSE: SLM)") end if %>
(800) 844-8633 (passcode 2334)
Replays at 5:00 PM ET on 4/10, 11:00 AM ET on 4/11,
and 11:00 AM ET on 4/14

THIS WEEK'S CONFERENCE CALL SYNOPSES

CUTTER & BUCK <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBUK)") else Response.Write("(Nasdaq: CBUK)") end if %> Q3 Conference Call
WILLIAMS-SONOMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WSGC)") else Response.Write("(Nasdaq: WSGC)") end if %> Q4 Conference Call
ST. JOHN KNITS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %> Q1 Conference Call

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