HEROES

MERCANTILE STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MST)") else Response.Write("(NYSE: MST)") end if %> jumped $6 3/8 to $63 1/8 on speculation in Business Week that the company may be bought out for between $75 and $100 per share. At that price, the enterprise value to trailing earnings of this "high-quality gem" would be between 22x and 29x (without a charge included). That would put the company in the same league as diversified retailer DAYTON HUDSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DH)") else Response.Write("(NYSE: DH)") end if %> at the low end, and at a premium of more than 25% at the high end. The thesis is that there is a catalyst -- a family that wants to sell out -- and cost cutting to be done. Arguments against that thesis include the fact that the company has already been cutting costs, having expanded operating margins by about 40 basis points (2/5 of 1 percentage point) last year, and that this company has been the subject of takeover speculation for years.

Mutual fund company PILGRIM AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PACC)") else Response.Write("(Nasdaq: PACC)") end if %> gained $1 9/16 to $16 1/4 as investors are looking at the value of mutual fund managers in light of recent acquisitions in the financial services industry, specifically Zurich Insurance Group's acquisition of Scudder, Stevens & Clark. With steady, annuity-like earnings streams that come from managing mutual funds, some see these companies as attractive takeover targets. Some investors also believe that there would be less of a culture clash between a commercial banking company and a mutual fund manager than between a bank and a bunch of hotshot investment bankers, traders, and brokers. Zurich priced Scudder at 1.6% of assets under management, while Pilgrim was bumped up to 2.9% of assets under management. Pilgrim does have higher-yielding mortgage loans under management, though.

QUICK TAKES: Machine tool and consumables direct marketer JLK DIRECT DISTRIBUTION INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JLK)") else Response.Write("(NYSE: JLK)") end if %> jumped $5 1/2 to $25 1/2 from its $20 IPO price in its first day's trading... ALTRIS SOFTWARE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ALTS)") else Response.Write("(Nasdaq: ALTS)") end if %> moved up $1 1/4 to $6 5/8 after Delphi Consulting Group praised the document management software company in an upcoming report... Enterprise management software company INDUS GROUP INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IGRP)") else Response.Write("(Nasdaq: IGRP)") end if %> gained $3 to $20 as analysts expect the company to announce in the near future the successful closure of three or four large sales, according to Dow Jones... 3D SYSTEMS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDSC)") else Response.Write("(Nasdaq: TDSC)") end if %> rose $1 1/4 to $8 1/2 after the solid imaging software company said it will acquire EOS GmbH of Germany, a rapid prototyping software company.

MORE QUICK TAKES: Piper Jaffray upgraded to "buy" from "neutral" the shares of audio equipment company MACKIE DESIGNS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MKIE)") else Response.Write("(Nasdaq: MKIE)") end if %>, boosting those shares $1 to $8 1/2... Electronics design software company AVANT! CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AVNT)") else Response.Write("(Nasdaq: AVNT)") end if %> rose $3 7/16 to $30 3/8 after announcing a strategic partnership agreement and an order in the tens of millions of dollars with a "major Japanese semiconductor company"... VLSI TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VLSI)") else Response.Write("(Nasdaq: VLSI)") end if %> cruised for a $2 11/16 gain to $25 1/4 after Salomon Brothers upped its rating on the specialty maker of integrated circuits to "strong buy" from "hold," citing ordering activity at the company and the attractive valuation on the stock.

Medical products maker MAXIM MEDICAL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MAM)") else Response.Write("(NYSE: MAM)") end if %> was driven upward $1 3/4 to $17 1/8 on a mention in a major business magazine with the initials "BW"... STORAGE TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STK)") else Response.Write("(NYSE: STK)") end if %> gained $4 to $46 1/8 after SoundView Financial said sales of the company's Iceberg enteprise storage systems are going well and that it expects the company to beat Q2's EPS estimate of $0.82... PLC SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PLC)") else Response.Write("(AMEX: PLC)") end if %> rose $2 1/4 to $21 5/8 in advance of the medical device maker's June 28 appearance before an FDA panel, according to PLC spokesperson Michele Fasano.

GOATS

AMERICAN FILTRONA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AFIL)") else Response.Write("(Nasdaq: AFIL)") end if %> fell $2 7/8 to $42 1/8 after the maker of cigarette filters and plastics products said that WBT Holdings LLC has canceled a merger agreement with American Filtrona. The company added that it will continue to contemplate strategic alternatives. Possibly due to investor trepidation over owning a company involved with cigarettes, the company is priced at 11.7 times the one 1997 EPS estimate of $3.55 per share given by First Call. In its most recent quarter, American Filtrona grew EPS 25% on an 11% revenue increase. With only 2% market share, the company's operating margin of 6.4% in 1996 was rather strong and increased from 1995's 5.7%, which translated into a 23% increase in operating income on top of a 9.5% increase in revenues.

PACIFICARE HEALTH SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHSYA)") else Response.Write("(Nasdaq: PHSYA)") end if %> lost another $6 1/2 to $59 3/8 in the wake of Tuesday's $17 1/4 drop when it issued a general warning that it would miss Q2 earnings estimates of $1.16 per share. The company finally quantified its projections today, saying it will earn between $0.30 and $0.45 per share for the quarter primarily due to higher costs in the markets served by the recently acquired FHP. The company dropped the ball somewhat in its dealings with analysts and investors in that it apparently didn't issue the correct guidance for its tax rate and goodwill amortization levels, as it cited those income statement items as a reason for the lower earnings performance. Its guidance on higher Medicare costs in California and Oregon also hurt other HMOs serving those markets, including WELLPOINT HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLP)") else Response.Write("(NYSE: WLP)") end if %>, down $2 to $46, and UNITED HEALTHCARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UNH)") else Response.Write("(NYSE: UNH)") end if %>, off $1 5/8 to $52 1/2.

Broken down energy momentum stock CHESAPEAKE ENERGY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CHK)") else Response.Write("(NYSE: CHK)") end if %> lost another $2 15/16 to $9 1/8 after announcing that it plans to take a $150-200 million pre-tax writedown on its Masters Creek Investments and that it will cut its yearly exploration and capital expenditure budgets from $400-425 million in 1998 and 1999 to $275-300 million. That will lead to lower production growth rates in 1998 and 1998, as well. Chesapeake now estimates production of 95-100 billion cubic feet of natural gas for fiscal 1998, and approximately 115-120 billion cubic feet for fiscal 1999.

QUICK CUTS: Energy exploration firm BELCO OIL & GAS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOG)") else Response.Write("(NYSE: BOG)") end if %> fell $1 3/8 to $20 on news of partner Chesapeake Energy's busted Austin Chalk formation investment... HAMBRECHT & QUIST GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HQ)") else Response.Write("(NYSE: HQ)") end if %> lost $1 7/8 to $32 1/4 on a Smith Barney rating downgrade on the investment banker to "underperform" from "neutral"... Banker and broker DONALDSON, LUFKIN & JENRETTE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLJ)") else Response.Write("(NYSE: DLJ)") end if %>, the subject of takeover speculation and a favorite of value investors earlier this year, lost $3 3/8 to $60 7/8... CUBIST PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CBST)") else Response.Write("(Nasdaq: CBST)") end if %> fell $2 3/8 to $6 after the biopharmaceutical company sold $10 million in stock and said it doesn't expect any addition financing from PFIZER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PFE)") else Response.Write("(NYSE: PFE)") end if %>, which has collaborated with the company in the past... NEUREX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NXCO)") else Response.Write("(Nasdaq: NXCO)") end if %> slid $2 5/8 to $14 1/2 after yesterday announcing that a FDA panel recommended approval for its hypertension drug for intravenous delivery... Software development company GENSYM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GNSM)") else Response.Write("(Nasdaq: GNSM)") end if %> lost $1 5/16 to $4 9/16 on pre-announcing a Q2 operating loss of $0.20 to $0.30 per share... Specialty lighting company JUNO LIGHTING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JUNO)") else Response.Write("(Nasdaq: JUNO)") end if %> slid $1 5/8 to $15 9/16 after reporting flat Q2 EPS of $0.29, below the sole estimate of $0.32... Crafts products retailer GARDEN RIDGE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GRDG)") else Response.Write("(Nasdaq: GRDG)") end if %> sank $1 1/16 to $11 7/16 after announcing its intention to slow down its expansion in the third quarter to one store instead of two... AMC ENTERTAINMENT <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AEN)") else Response.Write("(AMEX: AEN)") end if %> was dimmed $1 1/2 to $18 3/8 on a Bear Stearns downgrade of the movie theater company to "neutral" from "attractive."

FOOL ON THE HILL
An Investment Opinion by Jeff Fischer

Fair Value -- The Buck Doesn't Stop Here

Investors who take stock positions based on technical analysis often, as logic follows, overweigh the technical aspects of the investment -- from reading the chart to tracking money-flow and the resulting "indicators." In like fashion, some analytical investors place an equally large amount of importance on tracking the "fair value" of an investment at any given time. Of course, investors need to know how to value stocks and find "fair value," but acting upon their research can often be detrimental.

Analysts are quick to upgrade or downgrade stocks based on price. Full-service firms base their business on the premise that they owe their clients close attention to detail -- including weekly valuation updates and frequent recommendation updates. But as stock prices are volatile, the firms' opinions and advice are often volatile, too. Meanwhile, analysis of micro-conditions within industries also leads to volatile and fast-changing recommendations -- and possibly ulcers.

Semiconductor and networking stocks are a recent example of "over-analysis." Most of the analyst downgrades in both industries hit the wires long after the stocks had fallen well below their 52-week highs. Selling intensified as copycat downgrades flowed from brokerage firms.

Leading stocks in both industries became historically inexpensive after weeks of heavy trading before finally turning and heading for higher ground. But many of the analyst upgrades didn't arrive until well after the stocks had again risen substantially. In fact, many analysts upgraded the stocks at prices that were actually above the prices at which they had originally downgraded them.

But most importantly, during the debacles that both sectors endured, the industries were still growing at market beating paces and the underlying fundamentals remained solid. Any cyclical slowdown in semiconductors is a short-term concern, which would be discounted if analysts and investors truly have a long-term outlook.

Likewise, judging from the multiple downgrades and intense selling, a person could surmise that the networking industry was dying, rather than only experiencing slower sequential growth -- to a more moderate market-beating pace of 25% to 35% annually.

Fools know to take analyst recommendations with a grain of salt, and Fools who watch an industry closely begin to learn which analysts are worth listening to and which are changing their minds by several degrees every few months (i.e. Micron Technology and semiconductors in the past, with a few analysts).

Not following analysts' varying and often nebulous or even chaotic buy and sell recommendations, Fools value their stocks on their own accord, and thereby develop an in-depth understanding of their investments and the businesses behind them. But how much attention should we pay to our own decrees of "fair value" regarding the stocks in our portfolios?

The obsession that analysts and the investing public have with "fair value" at any given time is in part a result of shortsighted thought. The current "fair value" of a company is a temporary thing, as the fair value of any good company is destined to rise if only given more time.

If you feel that a stock you own is at fair value, there are several variables you might consider. First, can you find a better investment? How many Dells and Coca-Colas are there in the world? If you can't find another Cisco Systems, but you want to sell Cisco and buy it back later, then the second consideration might be, "What are the odds of the stock falling enough to make up for my tax consequences upon selling?" And then third, "Given the growth rate, how much time will it take until my stock -- currently at fair value -- becomes undervalued again, and will I still beat the market over the long-term by holding it?"

If you're investing in the best companies that you can find, the answer to the first question will almost invariably be "no" -- no, you can't find a better investment. Obviously Coca-Cola has been at or above "fair value" many times during the past eight years while Warren Buffett has owned it. Gillette as well. And probably every investment in his portfolio. He's never sold. "Fair value" is a temporary measure that arguably should have little influence on a long-term investor's actions.

While it's important to be able to assess your investments and find "fair value," acting upon your findings by selling your leaders is counter to the very premise that the "fair value" of the stock market and its leading companies continues to rise over time. Selling at current "fair value" leads to Dell being sold at $12 in 1991. Or Coca-Cola at $40 last year, and on and on. Perhaps you would have sold every leading stock in late 1995, many of which have gone on to at least double.

Fair value isn't so black and white as "The buck stops here."

CONFERENCE CALLS

ECHLIN INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ECH)") else Response.Write("(NYSE: ECH)") end if %>
(800) 683-1535 (password: McCurdy) -- replay through 6/27

CABLETRON SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CS)") else Response.Write("(NYSE: CS)") end if %>
(402) 220-5185 -- replay available through 6/30

06/26/97 (Thursday)
COGNOS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COGNF)") else Response.Write("(Nasdaq: COGNF)") end if %>
(800) 997-6910 -- replay available from 1:15 p.m. EDT to midnight 6/30

THIS WEEK'S CONFERENCE CALL SYNOPSES

JABIL CIRCUIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: JBIL)") else Response.Write("(Nasdaq: JBIL)") end if %> Q3 Call
ST. JOHN KNITS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SJK)") else Response.Write("(NYSE: SJK)") end if %> Q2 Call
MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> Q3 Call
MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> Q3 Call
BRODERBUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BROD)") else Response.Write("(Nasdaq: BROD)") end if %> Q3 Call
COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> / TANDEM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDM)") else Response.Write("(NYSE: TDM)") end if %> Merger
3COM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: COMS)") else Response.Write("(Nasdaq: COMS)") end if %> Q4 Call
ABOBE SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADBE)") else Response.Write("(Nasdaq: ADBE)") end if %> Q2 Call

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