HEROES

FREMONT GENERAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FMT)") else Response.Write("(NYSE: FMT)") end if %> gained $2 3/4 to $31 3/8 after the insurance and financial services company announced the acquisition of worker's compensation insurance and risk management company Industrial Indemnity Holdings, Inc., a subsidiary of XEROX <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: XRX)") else Response.Write("(NYSE: XRX)") end if %>, for an effective price $444 million. The acquisition, priced at about 32% of invested assets of Industrial Indemnity, doubles Fremont's premiums written in the worker's comp area and is expected to add to earnings in 1998. With steadily rising expenses in its worker's comp unit over the last few years (although the unit has run a profit 2 of the last 3 years), spreading expenses over a much larger volume of business may help drive profitability over the next couple of years.

HARTE-HANKS COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HHS)") else Response.Write("(NYSE: HHS)") end if %> rose $1 1/8 to $30 1/8 after announcing that it has signed an agreement to sell its San Antonio CBS-TV affiliate and its newspaper operations to E.W. SCRIPPS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SSP)") else Response.Write("(NYSE: SSP)") end if %> in exchange for debt assumption and up to $605 million in Scripps stock. If federal budget exigencies change laws that govern the tax-free nature of Morris Trust transactions, the form this deal is planned to take, Harte-Hanks has the option to take $775 million in cash and record a taxable gain on the sale of these units. In light of the deal, Bear Stearns upgraded Harte-Hanks to "buy" from "attractive." The company has not said whether it intends eventually to buy back stock with the proceeds or whether it will reinvest in its direct marketing and advertising operations.

CASTLE ENERGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CECX)") else Response.Write("(Nasdaq: CECX)") end if %> moved $1 3/8 higher to $13 after the company announced this morning that it will sell its Rusk County, Texas oil and gas properties and pipeline to UNION PACIFIC RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UPR)") else Response.Write("(NYSE: UPR)") end if %> for $54 million. The company says that it will use some of the cash to pay down debt, which is quite minimal relative to the company's market cap and is equal to less than 10% of the gross proceeds of the sale. Investors bid up the value of Castle today, but the assets being sold represent the bulk of the company's revenues under the "natural gas and transmission" category on its balance sheet. The company did have substantial gas reserves of nearly 70 million cubic feet at its year-end. Operationally, the company may look different, but considering the enterprise value to assets, the Ben Graham-type investor might want to take a closer look.

QUICK TAKES: GLOBAL VILLAGE COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GVIL)") else Response.Write("(Nasdaq: GVIL)") end if %> surged $1 5/16 to $4 after the beaten-down modem manufacturer announced it is shipping 56 Kbps modems for both PCs and Macs, with chipsets from both camps of the 56K standards war... Bathroom products and maid services company SWISHER INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SWSH)") else Response.Write("(Nasdaq: SWSH)") end if %> gained $1 5/8 to $9 7/8 on announcing its acquisition of Carolina Pest Control Co. for $1.2 million with the intention of franchising the pest control business... ADVANCED ENERGY SYSTEMS INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AEIS)") else Response.Write("(Nasdaq: AEIS)") end if %> moved up $1 1/2 to $10 7/8 after announcing Friday its acquisition of MIK Physics, Inc., a development-stage company in the power supply business... Storage company ZITEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZITL)") else Response.Write("(Nasdaq: ZITL)") end if %> gained $2 1/2 to $22 5/8 before its MatriDigm subsidiary introduced version 2.1 of its Year 2000 software... NEOTHERAPEUTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NEOT)") else Response.Write("(Nasdaq: NEOT)") end if %> added $1 5/8 to $10 1/2 after the Alzheimer's drug discovery company reported Q1 results on Friday... Florida bank CAPITAL BANCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBCP)") else Response.Write("(Nasdaq: CBCP)") end if %> jumped $4 to $38 3/8 after a judge issued a ruling against three family members requesting control of Capital Bancorp's holding, Capital Bank, by virtue of their controlling interest in the bank holding company.

GOATS

Supply chain software company i2 TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ITWO)") else Response.Write("(Nasdaq: ITWO)") end if %> fell $2 1/8 to $37 5/8 after announcing the acquisition of two companies: Think Systems Corp., a demand chain management software firm, and Optimax Systems Corp., a supply chain scheduling and planning software company. The two acquisitions will account for the issuance of 5.23 million i2 shares, increasing the share count by about 19%. The acquisition strategy of a company like i2 is aimed at bringing new functionality into its software packages as well as adding customers and industries to the suite of i2 products. Optimax is bringing along customers such as GM and Deere, while the larger acquisition, Think Systems, counts Philip Morris, Compaq, Nikon, IBM, and Motorola among its customers.

Energy exploration systems manufacturer INPUT/OUTPUT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IO)") else Response.Write("(NYSE: IO)") end if %> dropped $1 5/8 to $15 7/8 after announcing the resignation of its CEO on Friday. In March the company announced unsavory earnings for the third quarter. The worst part of the Q3 income statement was a 16% drop in revenues, and the 48% decline in EPS of $0.14 wasn't all that thrilling either. As the company is the leader in its industry and sells to the leading customers in the industry it serves (including Schlumberger and Western Atlas), one has to wonder, what is going on with capital expenditures for seismic equipment in the energy industry? Since Input/Output hasn't grown revenues during a powerful cycle in the oil and gas industry over the last nine months, it could be company-specific, but then again, it may mean that the current energy boomlet is not nearly as vigorous as "the Street" believes it to be.

QUICK CUTS: ACTIVE APPAREL GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAGP)") else Response.Write("(Nasdaq: AAGP)") end if %> dropped $6 1/4 to $8 1/2 -- the company was agape and said it knows of no reason for the slide... Utility software company CYBERMEDIA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYBR)") else Response.Write("(Nasdaq: CYBR)") end if %> lost $2 to $13 after Federal Filings reported today that the company filed suit in April against MCAFEE ASSOCIATES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MCAF)") else Response.Write("(Nasdaq: MCAF)") end if %> for false advertising and trade dress infringement... INFORMIX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IFMX)") else Response.Write("(Nasdaq: IFMX)") end if %> shed $1 1/8 to $8 15/16 after the Wall Street Journal today repeated a well-circulated story about cash needs at the software company, while the New York Times ran a piece explaining why "analysts are backing away" from the company... Consumer products company CARTER-WALLACE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAR)") else Response.Write("(NYSE: CAR)") end if %> lost $2 1/8 to $16 after saying that takeover rumors passed along by Business Week (who in turn received those from an unnamed investment banker) were untrue... Eyewear company SOLA INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SOL)") else Response.Write("(NYSE: SOL)") end if %> lost another $1 3/4 to $27 3/8 after posting disappointing Q4 results last week... WELLS FARGO & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WFC)") else Response.Write("(NYSE: WFC)") end if %> slid $14 1/8 to $265 1/2 after Brown Brothers Harriman lowered its 1997 earnings estimate on the bank and financial services company 9.4%, to $14.50 per share.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Disk Drive Inventories Increasing?

Will history repeat itself? Investors selling shares of the disk drive companies today seem to think so. Although much of today's action can be traced to a research report on QUANTUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> published today, a broader anxiety is clearly present between the trades. Uncertainty about what will happen to the price of hard drives once they come off allocation this summer haunts the valuations of these shares. Even as Quantum Corp. fell $4 7/16 to $40 3/4 due to company-specific information released in an analyst report today, many took this as an opportunity to take some profits in the other drive stocks.

Quantum's problems began this morning when Deutsche Morgan Grenfell analyst Joel Pitt published a research note that called the quarter "back-end loaded." Pitt stated that Quantum officials told him last week that much of the sales in the quarter would happen towards the end because of a number of key product transitions. Pitt maintained his "buy" rating on the stock and stated that this information is in line with what Quantum has previously said, but as the quarter rolls on, investors will become increasingly anxious about what the next number might be.

Pitt's report also cited "unconfirmed reports of high drive inventories in the channel," reinforcing rumors last week that SEAGATE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEG)") else Response.Write("(NYSE: SEG)") end if %> had said some of its higher end drives were coming off allocation. Due to an abnormally tight supply of drives and components, personal computer manufacturers have only been getting partial allotments of what they ordered since mid-September of 1996. If there are high drive inventories in the channel, the end of this relatively peaceful period of allocation might come sooner than planned.

The allocation in the drive industry has its roots in the capacity constraint among the component makers. It was difficult to ramp up production because of shortages of magnetoresistive (MR) heads from merchant head manufacturers like READ-RITE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RDRT)") else Response.Write("(Nasdaq: RDRT)") end if %> and APPLIED MAGNETICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: APM)") else Response.Write("(NYSE: APM)") end if %> this fall. There was also a shortage of MR media from companies such as KOMAG <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KMAG)") else Response.Write("(Nasdaq: KMAG)") end if %>, STORMEDIA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STMD)") else Response.Write("(Nasdaq: STMD)") end if %> and HMT TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMTT)") else Response.Write("(Nasdaq: HMTT)") end if %>. Suspension assembly manufacturer HUTCHINSON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HTCH)") else Response.Write("(Nasdaq: HTCH)") end if %> was also producing as fast as it could at the same time. Known in the industry for its excellent execution in giving customers what they need, even Hutchinson's capacity was strained. As a consequence, allocation began and the stock prices of the entire group ascended in unison.

Many investors believe that this period of rational pricing by Seagate, WESTERN DIGITAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WDC)") else Response.Write("(NYSE: WDC)") end if %>, and Quantum over the last few months is merely a mirage. Because allocation gave the manufacturers pricing power and there was no excess capacity. There was no reason to cut prices to get market share -- everyone was selling as much as they could make. As mentioned in previous articles, both Western Digital and Seagate are committed to high margins, rational pricing, and solid cash flow, but Quantum has remained the potential rogue elephant. With the drive industry rife with previous instances of bust after periods of boom where investors said, "This time it is different," it is not completely inconceivable that some might be nervous.

Is there a chance some price-cutting might occur? With the drive industry consolidated to the point where four companies sell more than 80% of the PC hard drives, and higher-end enterprise storage is actually even more concentrated, it is possible but not probable. The urge to gain another one percent of market share is just different when you have 20% share than when you have 5% share. With Western Digital, for instance, the risk of pricing irrationality must be balanced against the reward of roughly $7.88 EPS in fiscal 1998 if prices maintain some degree of stability, only 7.8 times forward earnings. Has the valuation discounted the risk in the drive manufacturers? It seems entirely possible.

CONFERENCE CALLS

HEWLETT PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(303) 446-5399 (reservation # 2554014) -- replay through 5/22

APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>
(800) 642-1687 (code: 353749) -- replay

INTERNATIONAL RECTIFIER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IRF)") else Response.Write("(NYSE: IRF)") end if %>
(Re: Restructuring)
(800) 633-8284 (reservation # 2765732) -- replay

EDGE PETROLEUM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EPEX)") else Response.Write("(Nasdaq: EPEX)") end if %>
(402) 220-4831 -- replay available through 5/20

05/20/97 (Tuesday)
HOME DEPOT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HD)") else Response.Write("(NYSE: HD)") end if %>
(402) 220-3005 -- replay after 12:00 noon until 5/23

05/20/97 (Tuesday)
DAYTON HUDSON CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %>
(800) 633-8284 (reservation # 2703946) -- replay from 12:30-5:00 p.m. EDT

05/20/97 (Tuesday)
ROSS STORES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROST)") else Response.Write("(Nasdaq: ROST)") end if %>
(402) 220-1007 -- replay available from 5:00 p.m. EDT through 5/27 @ 8:00 p.m. EDT

THIS WEEK'S CONFERENCE CALL SYNOPSES

HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> Q2 Call
STAPLES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SPLS)") else Response.Write("(Nasdaq: SPLS)") end if %> Q1 Call
HADCO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDCO)") else Response.Write("(Nasdaq: HDCO)") end if %> Q2 Call
PAPA JOHN'S INT'L <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PZZA)") else Response.Write("(Nasdaq: PZZA)") end if %> Q1 Call
APPLEBEE'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APPB)") else Response.Write("(Nasdaq: APPB)") end if %> Q1 Call

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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