The Motley Fool, 04/17/97: The Evening News

HEROES

Israeli semiconductor foundry TOWER SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TSEMF)") else Response.Write("(Nasdaq: TSEMF)") end if %> gained $3 to $14 7/8 after reporting Q1 revenues of $29.1 million, up 34% sequentially, and earnings per share (EPS) of $0.33, which beat the mean estimate of $0.16 per share. As an Israeli company, the income statement for Tower looks somewhat different than that of an American company. One big difference is the company's position in a favored industry under Israeli fiscal policy -- this quarter, the Tower only paid 16% of its pre-tax income in income taxes. Investors are less concerned with that than they are with the sudden pickup in sales and the state of the company's relationships with its customers.

Other semiconductor companies also reported well-received earnings today. Communications chip company TRIQUINT SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TQNT)") else Response.Write("(Nasdaq: TQNT)") end if %> gained $3 to $25 7/8 on reporting Q1 revenues of $16.8 million and EPS of $0.20, in line with estimates. Cowen & Co. raised its rating on the company to "strong buy" from "buy." SIERRA SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SERA)") else Response.Write("(Nasdaq: SERA)") end if %> gained $1 7/16 to $17 after reporting Q1 revenues of $33.6 million and EPS of $0.27, beating estimates of $0.19 per share. While revenues were down sequentially, its networking chip business grew 19% from last quarter -- exactly what Sierra investors wanted to see.

CYRIX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYRX)") else Response.Write("(Nasdaq: CYRX)") end if %> jumped $3 7/8 to $21 5/8 after the semiconductor company reported Q1 revenues of $75.6 million and EPS of $0.33, stomping estimates of $0.09 per share. The company says its 6x86 CPU did well in the quarter and that it's ready to take on INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> in the MMX arena in the second quarter. Based on 1998 earnings estimates, Intel, Cyrix, and ADVANCED MICRO DEVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> are all selling in the 11 to 13 times earnings range.

QUICK TAKES: GENERAL SCANNING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSCN)") else Response.Write("(Nasdaq: GSCN)") end if %> jumped $2 3/8 to $9 3/8 after the laser systems company reported Q1 EPS of $0.15, meeting estimates... Long-distance reseller IDT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IDTC)") else Response.Write("(Nasdaq: IDTC)") end if %> rose $1 to $5 3/8 after signing an reciprocal routing agreement with CABLE & WIRELESS PLC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CWP)") else Response.Write("(NYSE: CWP)") end if %>... SBS TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBSE)") else Response.Write("(Nasdaq: SBSE)") end if %> picked up $2 3/8 to $13 1/4 after the computer components company said it will report Q3 earnings on Monday, April 21, ahead of schedule... AVANT! CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %> gained $1 9/16 to $11 3/8 after the semiconductor design software company reported Q1 EPS of $0.25 on revenues of $31 million... Computer systems integrator BDM INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BDMI)") else Response.Write("(Nasdaq: BDMI)") end if %> rose $2 3/4 to $11 3/4 after reporting Q1 EPS of $0.23, up 21% year-over-year and a penny per share above estimates.... NETWORK EQUIPMENT TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWK)") else Response.Write("(NYSE: NWK)") end if %> climbed $1 3/8 to $13 1/8 after the wide area network equipment company reported Q4 revenues of $86 million and operating EPS of $0.33, just under the mean estimate of $0.34... Clothing designer MOSSIMO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MGX)") else Response.Write("(NYSE: MGX)") end if %> gained $1 1/8 to $11 on the strength of a deal signed earlier this week with Warner Brothers Studio Stores... PROGRESSIVE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PGR)") else Response.Write("(NYSE: PGR)") end if %> gained $6 3/8 to $71 3/8 after the property and casualty insurer reported Q1 operating EPS of $1.05, in line with estimates... COOPER TIRE & RUBBER CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CTB)") else Response.Write("(NYSE: CTB)") end if %> rose $1 3/4 to $20 1/4 on better-than-expected earnings... Prison company CORRECTIONS CORP. OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CXC)") else Response.Write("(NYSE: CXC)") end if %> gained $2 1/8 to $29 1/8 after Wasserstein Perella initiated coverage of the company with a "strong buy" rating... DIGITAL EQUIPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> moved $1 1/2 higher to $27 1/2 reporting Q3 revenues of $3.3 billion and EPS of $0.27, which was better than expected. Apparently, dollar strength didn't hurt the company's results this quarter.

GOATS

Used-car finance company FIRST MERCHANTS ACCEPTANCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FMAC)") else Response.Write("(Nasdaq: FMAC)") end if %> tumbled $3 3/8 to $3 1/4 after the company announced that it has discovered that its Chief Executive Officer and other officers were cooking the company's books. The company said it will restate downward its 1996 earnings from $1.56 per share to a figure of at least a dollar per share. If that's not enough to get a bottom-fishing investor salivating, the company also said it will take a $1.60 to $2.00 per share loss in its first quarter to properly account for credit losses, which will increase the company's reserves for credit losses by about 70%. Duff & Phelps downgraded two classes of the company's debt on the news.

Institutional investor favorite ANDREW CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ANDW)") else Response.Write("(Nasdaq: ANDW)") end if %> dropped $12 1/8 to $23 1/2 after the wireless infrastructure company reported Q2 revenues of $208 million and EPS of $0.28, which met the First Call consensus estimate. Analysts weren't too thrilled with the company's performance this quarter because revenue growth of 14% was not nearly as robust as expected. Much of this spending slowdown has been telegraphed in the results of companies such as MOTOROLA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOT)") else Response.Write("(NYSE: MOT)") end if %>, which ten days ago reported a year-over-year decline for its cellular infrastructure group. More directly, spending declines can be seen right in the cash flow statements of important customers, where AIRTOUCH COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ATI)") else Response.Write("(NYSE: ATI)") end if %> cut back capital spending 62% and BELL ATLANTIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEL)") else Response.Write("(NYSE: BEL)") end if %> cut its capital expenditures almost 23% year-over-year.

FOOTSTAR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTS)") else Response.Write("(NYSE: FTS)") end if %> was trampled $6 1/2 to $18 5/8 after the shoe retailer reported Q1 EPS of $0.16, beating the mean estimate of $0.09 and meeting the high estimate of one alert analyst. Pro-forma revenues grew a modest 11.9%, with its Footaction athletic shoe stores representing the company's most healthy growth, showing a year-over-year revenue gain of 25%. Footstar's CEO Mickey Robinson doesn't think the company can keep up the revenue growth: "Following Footaction's extremely strong performance last year, its recent sales trends and the athletic sector in general have shown signs of slowing." That forecast also brought NIKE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> down $4 1/8 to $53 7/8, JUST FOR FEET <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FEET)") else Response.Write("(Nasdaq: FEET)") end if %> down $1 5/8 to $14 1/2, and FINISH LINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FINL)") else Response.Write("(Nasdaq: FINL)") end if %> off $3 to $12 5/8.

QUICK CUTS: DIGITAL LIGHTWAVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DIGL)") else Response.Write("(Nasdaq: DIGL)") end if %> lost $3 5/16 to $4 3/16 after the telecom equipment company reported Q1 revenues of $1.5 million and a larger-than-expected loss of $0.05 per share... Storage systems company ZITEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZITL)") else Response.Write("(Nasdaq: ZITL)") end if %> plunged $9 to $16 after a former Microsoft executive vacated his position as operating chief at Matradigm, a company in which Zitel has a 33% investment. The former officer said Matradigm's ''packed binary'' solution is not meeting with success... ESS TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESST)") else Response.Write("(Nasdaq: ESST)") end if %> fell $7 15/16 to $14 1/8 after the video chip company reported record earnings and said it sees margin pressure ahead... Digital signal processor maker DSP COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DSPC)") else Response.Write("(Nasdaq: DSPC)") end if %> was sliced $3 1/2 to $7 1/4 after reporting Q1 EPS of $0.13, below estimates of $0.14 per share... LEGATO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LGTO)") else Response.Write("(Nasdaq: LGTO)") end if %> fell $4 5/8 to $12 after reporting Q1 revenues of $16.6 million and EPS of $0.17, just missing estimates of $0.18 per share... Programmable integrated circuit company XICOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XICO)") else Response.Write("(Nasdaq: XICO)") end if %> slipped $1 3/16 to $5 3/4 after reporting lower-than-expected Q1 results due to higher R&D expenses... COASTCAST CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PAR)") else Response.Write("(NYSE: PAR)") end if %> fell $2 1/4 to $11 5/8 after the titanium foundry and golf clubhead maker reported flat Q1 revenues and a 66% decline in EPS, to $0.13 per share... Electronics manufacturing company RAYCHEM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RYC)") else Response.Write("(NYSE: RYC)") end if %> fell $12 1/2 to $68 7/8 after reporting Q3 EPS of $1.49, which beat estimates, but investors weren't happy about margins and the strength of the dollar... ST. JUDE MEDICAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STJ)") else Response.Write("(NYSE: STJ)") end if %> dropped $2 1/4 to $31 after reporting Q1 EPS of $0.34, which missed estimates of $0.36... Foot Locker owner WOOLWORTH CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %> fell $1 1/2 to $19 3/4 on Footstar's forecast today.

FOOL ON THE HILL
An Investment Opinion by MF Templar

Full-Price or Discount?

The image securely fixed in the collective consciousness of Americans when they imagine a broker is the full-price broker -- better known within the financial industry as the "full-service" broker. These are the well-coifed, college-educated, financially savvy folks you envision when you picture the people who work for the brokerages you know best -- Merrill Lynch, Goldman Sachs and PaineWebber. Astute in the ways of investing and business, the broker is a parental figure of stability and calm, helping you to chart your course through the treacherous financial waters of the dreaded market.

The way the financial industry tells it, you are hard pressed to do very well without a full-price broker by your side, giving you tidbits of information while he executes your many trades. It is as if there are two doors for the individual investor to pass through. The first is a golden gateway to the nirvana of financial security and 10% annual returns without risk, the light from the other side shining through in an irritatingly bright manner. The second is a battered wooden wreck with a skull and crossbones painted on the front. Dangling from the arch is a sign, "Abandon All Hope, Ye Without a Broker."

Yeah, right.

The Truth About Full-Price Brokers

Brokers are individuals employed by investment banks to take orders. No, these guys are not asking you if you want fries with that burger. A broker takes orders that involve investments -- maybe even yours. They are the voices on the phone that greet you whenever you want to buy or sell a security, get updated information on your stocks, or when you are trolling for a new idea to stick in your investment portfolio. Brokers are salaried by investment banks to deal with individual investors day in and day out, assisting them in making trades, purchasing insurance or other financial products the brokerage peddles, and sometimes even managing their accounts for them. Call them the philosophical equivalent of a parent in the financial world.

So why are these kind, benevolent individuals supported by philanthropic institutions like brokerages? Well, as you might have guessed, it helps their bottom lines -- although maybe in a way you never imagined. You see, the untold story of the investment banking industry is that the retail arm of the business -- the brokerage -- routinely loses money. We are talking ass over teakettle. Year after year, retail brokers as a whole run into the red, bleeding precious cash from the coffers of fine financial institutions across the country. It doesn't help that somewhere between 20% to 50% of every brokerage commission a broker racks up goes into her own pocket, depending on her seniority. Even excepting this, however, many would still lose money.

So why does the bank put up with 'em? Does this sliver of information further cement the notion that the investment banking houses are doing something good for you? Don't believe it for a minute. The reason an investment banking house is willing to fund the retail brokerage business can be summed up in four words: trading and investment banking. These are the two profit centers of the average, ordinary investment bank. The trading desk is where the brokerage skims a few pennies off of every share traded, whether they be from large institutions or individual investors. The investment bankers are the fellows putting together public offerings of stock and debt, including the much-ballyhooed initial public offerings (IPOs). These guys, along with the accounting department, thrive off of the accounts of individual investors.

Some brokers tend to trade individual investors' accounts a little too frequently due the their slice of the commission dollar. This keeps the trading desk fat and happy. Individual investors also represent a guaranteed source of buyers when professionally managed funds don't want to buy the latest IPO -- the brokers can just sell it to the individuals instead, securing those fat investment banking profits. The brokers also move individual investors into margin accounts (accounts that allow the investor to borrow money to buy stocks) so the trading desk can make money from lending the shares to short-sellers. Meanwhile, the investor is tempted to dip into that margin, paying interest on the money that he is borrowing. Finally, any cash that happens to be sitting in the account is swept into a money market fund at the end of the day to be the stuff of ultra-short term overnight loans to banking institutions in need of a little liquidity.

So Why Might You Want a Full-Price Broker?

Let's face it. Some people just aren't cracked up to manage their own money. If critical thinking, hard work, patience and a few hours of free time a week are traits you do not have, a full-price broker might be right for you. In spite of the entrenched conflicts of interest and the nasty tendency to trade your account too frequently (called "churning" in the industry parlance), some brokers manage to overcome these deficits and prove to be quite trustworthy fiduciary custodians. If you find a broker who is interested in investing the way you believe money should be managed and who will only take a minimal bite out of your investment dollars, then using a full-price broker might be worthwhile.

At one time, the most valuable service a broker provided was information. In the days before the "information superhighway," intra-day stock quotes were a luxury afforded to the few with Bloomberg machines. More often than not, the individual investor was limited to newspaper stock tables and three-week-old company mailings. Getting the latest in news, quotes and research from a broker was a major help to many investors. With the advent of the Internet, intra-day quotes, stock-specific news and updated Securities and Exchange Commission filings are available any time of day or night, so the average investor's need for a broker has greatly diminished. Even the research reports brokers provide, subject to the whims of investment committees and business concerns, don't seem all that relevant anymore.

What Is the Alternative to Full-Price?

You don't use a discount doctor or a discount dentist -- why should you use a discount broker? Well, skimping on your health or your dental hygiene is one thing, but frankly, when it comes to executing a stock trade, why pay full-price when you can have the same service for less? Just as category-killers like Home Depot have laid waste to over-priced competition all over the country, the deregulation of brokerage commissions in the early 1970s has done the same to the Houses of Lehman, Salomon and Merrill.

Unlike the propaganda suggests, discount brokers can execute your orders just as fast, if not faster, than a full-price broker can. The propaganda of an industry staring into the abyss aside, many discount brokerages have their orders executed by the same clearance desks that route trades for their full-price brethren. The best-known example of this is PCFN, a discount brokerage owned and operated by the full-price firm known as Donaldson, Lufkin and Jenrette (DLJ). Brokers at PCFN plug their orders into the same system used by the folks at DLJ to fill multi-million dollar orders from institutions. Who says you can't have more for less?

The variety of discount brokerages is great, so you can rest assured that one will fit your needs. Somewhere in the price per trade and the freebies offered as enticements to park your assets, you can find a "value," i.e., a brokerage that provides everything you want without nickel and diming you so bad you want to go back to the full-price place you just left. If you make your own investment decisions, discount brokers are the way to go.

CONFERENCE CALLS

MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>
(800) 456-5304 (passcode: 1017) -- replay through 4/21
NetShow Live Call and Replay: http://www.microsoft.com/msft/

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)

INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>
(402) 280-9021 -- replay through 4/18

360 COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XO)") else Response.Write("(NYSE: XO)") end if %>
(402) 220-3014 -- replay through 4/22

SUN MICROSYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %>
(800) 633-8284 (reservation # 2584848) -- replay avail through 4/22

APPLIED DIGITAL ACCESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADAX)") else Response.Write("(Nasdaq: ADAX)") end if %>
(402) 220-6032 -- replay through 4/22

FREDDIE MAC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRE)") else Response.Write("(NYSE: FRE)") end if %>
(800) 938-0928 -- replay from 8:00 AM EDT on 4/16 through 4:00 PM EDT on 4/18

FORD MOTOR CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %>
(703) 736-7228 -- replay at 2:00 PM EDT on 4/17

APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %>
(816) 650-0613 (password: Apple Conference Call) -- Replays on 4/16 at 7:00 PM EDT and 9:00 PM EDT, and 4/17 at 7:30 AM EDT and 12:00 noon EDT

FREDDIE MAC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRE)") else Response.Write("(NYSE: FRE)") end if %>
(402) 220-0381 -- replay from 8:00 AM EDT on 4/16 through 4:00 PM EDT on 4/18

04/17/97 (Thursday)
IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IOM)") else Response.Write("(NYSE: IOM)") end if %>
(800) 633-8284 (reservation # 2593689)
Replay from 6:30 PM ET through 4/23

04/17/97 (Thursday)
MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>
(800) 456-5304 (passcode: 1017) -- replay through 4/21

04/17/97 (Thursday)
SHIVA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHVA)") else Response.Write("(Nasdaq: SHVA)") end if %>
After 6:00 PM EDT
(800) 458-7879 (code: 679903) -- replay

THIS WEEK'S CONFERENCE CALL SYNOPSES

NIKE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NKE)") else Response.Write("(NYSE: NKE)") end if %> Q3 Conference Call
GREEN TREE FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNT)") else Response.Write("(NYSE: GNT)") end if %> Q1 Conference Call

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ANOTHER FOOLISH THING
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