HEROES

US AIRWAYS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: U)") else Response.Write("(NYSE: U)") end if %> moved up $2 3/4 to $34 1/2 after the company announced the furlough of 103 pilots, as well as flight attendants and ground personnel. The airline also said that it will cut jet service to nine cities, including Albuquerque and Austin, that it will retire some costly older aircraft, and that it may cut down on capital expenditures for up to 400 Airbus jets. US Airways is attempting to create a ''competitive cost structure'' to remain viable in a cutthroat industry and to be prepared for any sort of competitive environment -- otherwise, it will be relegated to the status of a regional airline, according to company executives.

PREMIER LASER SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLSIA)") else Response.Write("(Nasdaq: PLSIA)") end if %> gained $2 5/8 to $11 after the dental laser company yesterday received FDA marketing approval for its system intended to replace traditional drilling. Since the customer is king, and since many dentists' customers don't really like drilling procedures, Premier believes the market for this device will grow to $1 billion within short order. Speaking with Dow Jones yesterday, company Chair Dr. Colette Cozean said she believes 77% of all dentists will buy a Premier system by the second year of marketing. Dr. Cozean estimated first year sales of $45 million and implied a potential second-year sales volume of $777 million, which would put the company's price-to-sales ratio on first year sales at less than 2 and 0.11 on second-year sales.

Offshore reinsurance company GCR HOLDINGS LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GCREF)") else Response.Write("(Nasdaq: GCREF)") end if %> jumped $4 7/8 to $27 1/4 after agreeing to be acquired by Bermuda-based liability insurer and reinsurer EXEL LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XL)") else Response.Write("(NYSE: XL)") end if %> for $27 per share in cash, or $637 million for the 95% of GCR that Exel doesn't already own. One Fool on the Insurance Companies message board offered the following assessment of the Bermuda reinsurers: "By my calculation, GCR went out at close to 1.6x book value which is a pretty good price for a pure, open-market CAT reinsurer. I think that it being taken out should put a solid floor on the valuation of the other public Bermuda specialty reinsurers." Other such companies include MID OCEAN LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MOC)") else Response.Write("(NYSE: MOC)") end if %>, PARTNER RE LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRE)") else Response.Write("(NYSE: PRE)") end if %>, and ACE LTD. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ACL)") else Response.Write("(NYSE: ACL)") end if %>.

QUICK TAKES: Personal care products company GARDEN BOTANIKA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GBOT)") else Response.Write("(Nasdaq: GBOT)") end if %> gained $1 1/2 to $5 7/8 after reporting an 11% increase in April same-store sales... METRO ONE TELECOMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTON)") else Response.Write("(Nasdaq: MTON)") end if %> jumped $1 11/16 to $7 7/16 after the enhanced directory assistance company signed a multi-year agreement with AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> under which AT&T's wireless unit may contract to use Metro One's services... Restaurant company DAKA INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DKAI)") else Response.Write("(Nasdaq: DKAI)") end if %> moved up $1 1/2 to $10 1/8 after announcing a third quarter loss of $0.11 per share, below estimates, but said that it will be releasing details soon on its "strategic alternatives" process... Generic pharmaceuticals company FAULDING INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FAUL)") else Response.Write("(Nasdaq: FAUL)") end if %> vaulted $1 5/8 higher to $11 1/8 on the strength of a Gruntal & Co. upgrade to "strong buy" issued yesterday... GRANCARE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GC)") else Response.Write("(NYSE: GC)") end if %> gained $1 to $8 3/4 after the eldercare company agreed to merge with LIVING CENTERS OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCA)") else Response.Write("(NYSE: LCA)") end if %> in a deal valuing Grancare at $10 per share... Teleservices company SITEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWW)") else Response.Write("(NYSE: SWW)") end if %> rang up $1 1/8 to $15 1/8 upon announcing its acquisition of Support Systems Developers, Inc., which provides technical help services to the computer and electronics industries... SCPIE HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SKP)") else Response.Write("(NYSE: SKP)") end if %> gained $2 1/8 to $22 3/8 after the medical malpractice insurer reported Q1 operating income of $0.63, beating estimates of $0.50... CABLE DESIGN TECHNOLOGIES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDT)") else Response.Write("(NYSE: CDT)") end if %> rose $1 3/8 to $20 1/8 on announcing a $30 million share buyback authorization... Furniture retailer HEILIG MEYERS CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HMY)") else Response.Write("(NYSE: HMY)") end if %> added $1 1/8 to $16 1/4 on positive April same-store sales gains.

GOATS

Pet superstore PETSMART INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PETM)") else Response.Write("(Nasdaq: PETM)") end if %> fell $13/16 to $10 13/16, six days after its last tumble, as the company warned that it will miss Q1 estimates in posting EPS of $0.05, down 16% from last quarter and last year's Q1. The company said it is working down inventories and that pet owners have changed preferences for flea and tick control products, where flea collars and sprays are being replaced by more effective pills cause infertility in fleas that infest one's pets. There was no word from the company on progress in the catalog operations, European expansion, its new super-premium pet food, or its veterinary centers, all of which must be frustrating to investors who are wondering why their stock has dropped about 66% from its 52-week high. PETCO ANIMAL SUPPLIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PETC)") else Response.Write("(Nasdaq: PETC)") end if %>, PETsMART's chief competitor, dropped $1/2 to $21 3/8 on the news.

GYMBOREE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GYMB)") else Response.Write("(Nasdaq: GYMB)") end if %> lost $2 3/4 to $24 13/16 after the children's clothing retailer announced a 7% decline in April same-store sales. For the quarter, company-wide sales rose 23% to $85.2 million, while same-store sales for the quarter only rose 2%. That doesn't necessarily mean, though, that the company can't deliver on the earnings. Gymboree reported soft growth in last year's first quarter, when net sales increased 24% and same-store sales fell 3%, but EPS grew 36%. Analysts are estimating EPS growth of 12% this year. Should Gymboree be able to deliver the same leverage in earnings growth over sales growth that it showed last year -- i.e., delivering EPS growth equal to 1.44 times its net sales growth -- it should be able to beat estimate for the quarter with EPS around $0.45 per share.

QUICK CUTS: Enterprise software company GSE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GSES)") else Response.Write("(Nasdaq: GSES)") end if %> melted $2 to $4 3/8 after reporting a Q1 loss of $0.39 per share, missing estimates of $0.14, due to a "shrinkage of the nuclear simulation [software] market"... Industrial remediation and waste disposal company PHILIP ENVIRONMENTAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEV)") else Response.Write("(NYSE: PEV)") end if %> fell $2 5/8 to $12 7/8, bringing down merger partner ALLWASTE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ALW)") else Response.Write("(NYSE: ALW)") end if %> $1 3/8 to $7 5/8, after reporting Q1 EPS of $0.16, in line with estimates, on $270 million in revenues... Heating and cooling, plumbing, and electrician company AMERICAN RESIDENTIAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ARS)") else Response.Write("(NYSE: ARS)") end if %> lost $ 2 1/2 to $21 1/2 after reporting Q1 EPS of $0.05, above estimates but flat compared with Q1 1996 pro-forma EPS... OLSTEN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OLS)") else Response.Write("(NYSE: OLS)") end if %> lost $1 to $17 5/8 after the staffing and home health care services company said it is being investigated by the New Mexico Health Care Anti-Fraud Task Force for improper billing and fraud... Healthcare services company VENCOR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VC)") else Response.Write("(NYSE: VC)") end if %> lost $2 1/8 to $37 3/4 after filing a complaint against TRANSITIONAL HOSPITALS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THY)") else Response.Write("(NYSE: THY)") end if %>, for which it has launched a hostile $16 per share takeover offer.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Why the Dow Dividend Approach Works

The Dow Dividend Approach is one of the hallmarks of Foolish investing. Simply choosing a small subset of the thirty stocks on the Dow Jones Industrial Average based on high yield and low price has allowed investors to outperform the "market" for a substantial period of time. Many investors who are exposed to the Dow Dividend Approach are immediately skeptical about whether or not the kinds of returns that it has been generating over the last few years are sustainable. Those who believe that the Approach is doomed to obsolescence might not fully appreciate how the Dow Approach marries the pursuit of income and stock price appreciation.

When you are buying stocks using the Dow Dividend Approach, two things happen. The first is that you purchase stocks with a higher than average yield. The second is that you end up buying a basket of securities that will probably have one or two members that have been the victims of Wall Street's tendency to overreact to bad news.

You need both dividend yield and capital appreciation to have a solid total return. Any company that pays out the majority of its income in the form of dividends will probably see no capital appreciation in the foreseeable future -- like an electric power utility. However, yield is important to overall returns as well. More than three percent of the 10.6% average annual return of the S&P since 1926 has come from dividends, that is almost 30%. However tax-disadvantaged receiving dividends may be, you leave a big chunk of the market return on the table if you choose to ignore them.

When you buy a group of stocks with an above average yield, you increase your chances of beating the market significantly. Even assuming that stocks are priced efficiently at all times (as many economics professors think) and even if the stocks only go up an average amount, the higher than average yield virtually guarantees that you outperform the market. Over long periods of time, if the stocks go up as much as the market, then you will beat the market on a total return basis because you have a higher than average dividend yield. This approach forces investors to create a portfolio that is focused on total return, not simply dividend income or price appreciation. Instead of sacrificing dividend yield or price appreciation to create a growth or income portfolio, Dow investors get the best of both worlds.

Yield may also be a superior way of identifying companies that have been mispriced by the market. Unlike valuations that look at price momentum, earnings momentum, or current valuation based on sales or earnings, a yield-based price screen is almost immune from tampering or cyclical fluctuations. Whereas earnings and sales over time are subject to accounting concerns and are rather volatile, particularly when you are looking at a cyclical industry, yield is yield. There aren't many ways to fake an investor into thinking he got more dividends than were actually paid. Because yield is logically related to price, any yield-based strategy will automatically kick out stocks that have significant price momentum, as no company raises its dividend payout more than once or twice a year. Additionally, yield is real money in someone's pocket -- it is not some abstract number that in the end merely serves as a guide to valuation.

Unlike almost any other index, a stock on the Dow with a high yield almost assuredly is a growing company that has been knocked down in price recently due to some news event. Given that more than 43% of all stock is owned by institutional investors who are looking to beat the market over the next six to twelve months, when a company is mashed due to recent news, very few institutions want to deal with it. Often, this becomes an overreaction because institutional investors get graded every quarter -- Why would they want to put money in a stock they know won't move over the next twelve months?

Although the Dow Approach hardly captures all Dow stocks that are mispriced because of short-term concerns, even getting one out of every four or five Dow stocks bought can add a couple of points to the long-term returns. At the very least, your high-yielding portfolio will not contain the stocks that have their prices crash in the last few months, as a high-yielder on the Dow almost always has already come under selling pressure. By mixing potential mispricing with a higher than average yield, Dow investors have done spankingly well over the last 37 years, netting a compound annual growth rate of between 15% to 18%. The combination of these two tendencies forms the heart and soul of the Dow Approach's systematic tendency to outperform the market average and may also help to explain why other screens developed by only looking at absolute returns tend to be more erratic.

CONFERENCE CALLS

CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>
Replay available through 5/16
(800) 633-8284 (code: 2624093)

AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AOL)") else Response.Write("(NYSE: AOL)") end if %>
(800) 633-8284 (code 2604899)

PEPSICO INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %>
(800) 577-6980 (code: 03160)

THE MONEY STORE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MONE)") else Response.Write("(Nasdaq: MONE)") end if %>
(800) 964-4236

INFORMIX <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFMX)") else Response.Write("(Nasdaq: IFMX)") end if %>
Available until 5/16
(800) 839-8790 -- replay

GENZYME (regarding purchase of Seprafilm from Cleveland Clinic)
(402) 220-9054 -- replay through 5/9 at 5:00 PM EDT

AMERICAN RADIO SYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFM)") else Response.Write("(NYSE: AFM)") end if %>
(800) 475-6701 (code: 340629) -- replay from 1:00 PM ET through 5/10

COMPUTER ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %>
(800) 759-8892 -- replay from 4:00 PM EDT through 8:00 PM EDT on 5/9
(402) 222-8538 -- replay (International callers)

PIER ONE IMPORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PIR)") else Response.Write("(NYSE: PIR)") end if %>
(April sales results)
(888) 243-0810 -- replay available after 2:00 p.m. EDT

FEDERAL REALTY INVESTMENT TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FRT)") else Response.Write("(NYSE: FRT)") end if %>
(402) 222-9905 -- replay

I-STAT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STAT)") else Response.Write("(Nasdaq: STAT)") end if %>
(800) 475-6701 (code 341693)

THIS WEEK'S CONFERENCE CALL SYNOPSES

TIDEWATER INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDW)") else Response.Write("(NYSE: TDW)") end if %> Q4 Conference Call
ATC COMMUNICATIONS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATCT)") else Response.Write("(Nasdaq: ATCT)") end if %> Q3 Conference Call
JAMES RIVER CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JR)") else Response.Write("(NYSE: JR)") end if %>, FORT HOWARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FORT)") else Response.Write("(Nasdaq: FORT)") end if %> Merger Conference Call

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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 Stephen Barnes, 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 189% through March. 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 in the fall of 1995 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 FoolMart, or e-mail [email protected].

Randy Befumo (TMF Templr), a Fool
Fool Plate Special

Dale Wettlaufer (TMF Ralegh), another Fool
Ups & Downs

Brian Bauer (TMF Hoops), yet another Fool
Editing

Julia Wilson (TMF Delete), and still another Fool
Editing