HEROES

WHG RESORTS & CASINOS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WHG)") else Response.Write("(NYSE: WHG)") end if %> climbed $1 3/16 to $13 15/16 after turning in a much-improved fourth quarter, with EPS of $0.46 up from $0.10 last year. Diminished losses at its El San Juan Hotel & Casino investment were responsible for a good deal of the improvement. Outside of its non-consolidated affiliates' results, the company is running things efficiently. Return on invested capital this year (backing out investments in those affiliates) reached 22%, which is more than enough to cover its cost of equity and debt capital. Comparing the Puerto Rican company to the hotel and casino benchmark, HILTON HOTELS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HLT)") else Response.Write("(NYSE: HLT)") end if %>, some casino watchers might agree that WHG looks cheap at its level of operating efficiency and trading at 12 times trailing earnings and 7.7 times run-rate EPS.

Digital printing equipment maker PRESSTEK INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRST)") else Response.Write("(Nasdaq: PRST)") end if %> today clarified its 10-Q filing that was released earlier this week. To wit, the company's PEARLsetter product did not ship during the quarter because of product improvements, but that will not materially impact yearly revenues. What scared investors yesterday was the terse wording of the 10-Q: "Market acceptance of the company's PEARLsetter is developing more slowly than the company originally anticipated. This resulted in no sales of the PEARLsetter for the second quarter..." Presstek said the product will be shipping in coming quarters, a forecast that investors will just have to take on faith right now. After trading down this morning, the stock finished up $2 1/32 to $38 1/32.

Oilfield data services company CORE LABORATORIES NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CRLBF)") else Response.Write("(Nasdaq: CRLBF)") end if %> rose $2 3/8 to $28 3/4 on reporting a better than 100% increase in Q2 revenues of $54 million and EPS of $0.30, beating estimates of $0.28. Core said its acquisitions have fueled growth, although investors might have preferred to see something other than a decline in pre-tax margins for the quarter. If the company is doing its acquisitions for cash, though, an investor can ignore the effect of goodwill amortization on the income statement. Since Core has been able to grow EPS at 63% per year compounded over the last five years, some investors might bump up First Call's five-year EPS growth estimates of 18%. Improved reservoir modeling is an excellent way for an oil company to extend the life of a field and increase margins on longer-lived assets. It's in this area that oil and gas investors see growth continuing on top of an already buoyant industry outlook.

QUICK TAKES: Pharmaceutical and chronic patient care products company CHRONIMED INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CHMD)") else Response.Write("(Nasdaq: CHMD)") end if %> rose $1 3/4 to $10 1/8 on reporting a 23% increase in Q4 revenues of $30 million and operating EPS of $0.15, which beat the mean First Call estimate of $0.10... ENVIRONMENTAL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: EVTC)") else Response.Write("(Nasdaq: EVTC)") end if %> heated up $1 3/8 to $10 1/8 after the refrigerant supplier and recovery services company reported Q3 revenues of $17.2 million and EPS of $0.33, up 38% year-over-year... APPLIED SIGNAL TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: APSG)") else Response.Write("(Nasdaq: APSG)") end if %> gained $1 5/16 to $10 1/4 after the manufacturer of digital signal processing equipment reported Q3 EPS of $0.25, smashing estimates of $0.04... Pay phone operator DAVEL COMMUNICATIONS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DAVL)") else Response.Write("(Nasdaq: DAVL)") end if %> dialed up a $2 1/2 gain to $21 1/4 on reporting a 67% increase in Q2 EPS of $0.35, which beat estimates due in large part to highly improved margins... Specialty insurance company INTERCARGO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ICAR)") else Response.Write("(Nasdaq: ICAR)") end if %> rose $1 9/32 to $13 on announcing that its largest shareholder, Orion Capital, will increase its stake in the company from 25% to 35%. Intercargo also announced that it will sell most of its stake in Kingsway Financial Services to pay down debt... KMART CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KM)") else Response.Write("(NYSE: KM)") end if %> gained $1 3/16 to $12 15/16 after reporting Q2 operating EPS of $0.06, 50% above estimates, and won the company a rating upgrade to "strong buy" from "outperform" from Morgan Stanley.

Heavy industrial products manufacturer GLOBAL INDUSTRIAL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GIX)") else Response.Write("(NYSE: GIX)") end if %> gained $1 1/4 to $19 1/8 after reporting Q3 operating EPS of $0.61, beating estimates of $0.51... Computer retailer, services, and assembler company COMPUSA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> added another $1 3/8 to $30 3/4 after yesterday reporting better-than-expected earnings and today receiving positive analyst mentions... MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %> regained $2 1/4 to $44 7/8 after yesterday's Merrill Lynch downgrade and earnings estimate haircut... Specialty packing company W.R. GRACE & CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GRA)") else Response.Write("(NYSE: GRA)") end if %> jumped $3 to $69 1/2 before announcing late today an agreement to merge with SEALED AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SEE)") else Response.Write("(NYSE: SEE)") end if %>. The successor company will be majority-owned by Grace holders... Real estate investment trust CALI REALTY CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CLI)") else Response.Write("(NYSE: CLI)") end if %> rose $1 7/8 to $37 5/8 after announcing a $1.2 billion deal to acquire the office buildings assets of private companies Mack Co. and Patriot American Office Group... ANDREA ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: AND)") else Response.Write("(AMEX: AND)") end if %> jumped $8 1/16 to $29 after the audio devices and electronics manufacturer said it expects to win between 30% and 70% of a $420 million NORTHROP GRUMMAN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOC)") else Response.Write("(NYSE: NOC)") end if %> subcontract for headsets... MICRO FOCUS GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MIFGY)") else Response.Write("(Nasdaq: MIFGY)") end if %> stepped up $4 9/16 to $35 1/16 after the software development tools company announced a 33% increase in Q2 revenues and EPS of $0.18... TUESDAY MORNING <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TUES)") else Response.Write("(Nasdaq: TUES)") end if %> climbed $1 5/8 to $22 after the specialty retailer agreed to be acquired by private investment firm Madison Dearborn Partners for $25 per share in cash.

GOATS

AMERCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UHAL)") else Response.Write("(Nasdaq: UHAL)") end if %> was hauled down $4 1/4 to $26 7/8 after the holding company for do-it-yourself moving firm U-Haul International provided guidance that its first quarter fiscal year 1998 earnings will not meet expectations. Like clockwork, slavish analysts have begun to trim estimates, and Lehman Brothers cut its rating on the shares to "neutral" from "buy." The questions remain, has anything fundamentally changed about the business, and should investors sell before the release of the company's numbers next Tuesday (Aug. 19)? The company has attributed the anticipated shortfall to the somewhat nebulous "weakness in truck rental revenues." Amerco hovers near a 52-week low and trades at 0.53x trailing 1997 sales. Growth in sales has been low but solid at 7% (5-year average). In this mature business, execution becomes essential. However, any operational difficulties such as the cited "increase in fleet repair costs" can usually be turned around rather quickly. With its brand name and business intact, sustained revenue pressure is the only real threat to Amerco's business.

Earlier this year there was a whole lot of revenue chasing too few "rigs" in the offshore oil services industry, creating an excellent pricing environment. For instance, a premium "jackup" rig -- which floats out to a site and then extends its legs to the ocean floor (300 feet or less) -- could be rented for $19,000 to $28,000 a day in December 1995. In December 1996, that same rig could demand $42,000 to $46,000 a day, according to Offshore Data Services. Today, that number has moved up to $50,000-$52,000, and rig-supplier GLOBAL MARINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLM)") else Response.Write("(NYSE: GLM)") end if %> has suddenly become the proxy for further day rate increases as its contract client UNOCAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UCL)") else Response.Write("(NYSE: UCL)") end if %> has so far refused to suck up higher rates. However, this "barometer of the market" idea is undoubtedly an exaggeration, as news reports indicate that Unocal simply wants to move to smaller, less-costly rigs. Despite reporting that it had not acquiesced to a rate decline, Global Marine's shares dropped $1 11/16 to $26 3/16.

QUICK CUTS: Reporting its latest financial results after market close yesterday, infomercial king NATIONAL MEDIA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NM)") else Response.Write("(NYSE: NM)") end if %> paid the price today by dropping $1 to $5 5/16 when news spread of its $0.54 EPS loss, falling short of expectations of a $0.15 loss... After posting disappointing second quarter results, independent energy company WISER OIL CO. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WZR)") else Response.Write("(NYSE: WZR)") end if %> was downgraded today by McDonald & Co. to a "hold" from a "buy," punishing the shares $2 1/2 to $15... SNYDER COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SNC)") else Response.Write("(NYSE: SNC)") end if %> fell out of line $2 to $26 1/2 when the marketing services firm was cut by Schroder & Co to an "underperform" from "perform in-line"... PRE PAID LEGAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: PPD)") else Response.Write("(AMEX: PPD)") end if %> got shaved $1 13/16 to $22 1/4 after a CNBC guest analyst said this morning that the legal service company's practice of capitalizing expenses over a three-year period did not jibe with reality... After yesterday warning analysts of its impending earnings shortfall, PUMA TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PUMA)") else Response.Write("(Nasdaq: PUMA)") end if %> was shot today, falling $2 3/8 to $4 7/8 thanks to an Alex. Brown downgrade to "market perform" from "buy."

Oil and gas concern HALLWOOD CONSOLIDATED RESOURCES CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HCRC)") else Response.Write("(Nasdaq: HCRC)") end if %> was leaking fuel, down $1 1/2 to $24, after reporting EPS of $0.41, compared with $0.72 per share in the previous year... KARRINGTON HEALTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KARR)") else Response.Write("(Nasdaq: KARR)") end if %> slid $3 7/8 to $12 5/8 after the operator of assisted-living residences reported a 2Q loss of $0.08 per share, missing expectations... Chemical process simulation and design software company ASPEN TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AZPN)") else Response.Write("(Nasdaq: AZPN)") end if %> fell $3 3/8 to $34 5/8 after reporting a 29% rise in Q4 revenues and EPS of $0.38, $0.02 above estimates; however, the company was significantly affected by a lower tax rate... Pay-TV operator @ENTERTAINMENT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATEN)") else Response.Write("(Nasdaq: ATEN)") end if %> was tuned out $2 9/16 to $16 when it announced a memorandum of understanding with Philips Business Electronics... In contrast to its big brother, MICRON TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MU)") else Response.Write("(NYSE: MU)") end if %>, MICRON ELECTRONICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MUEI)") else Response.Write("(Nasdaq: MUEI)") end if %> lost $2 to $16 after Rodman & Renshaw downgraded it to "neutral" from "buy" ... Independent oil and gas company MAYNARD OIL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MOIL)") else Response.Write("(Nasdaq: MOIL)") end if %> was roiled today $1 1/4 to $12 after reporting 2Q EPS of $0.18 versus $0.37 last year.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Another Examination of Options

Although we at the Fool eschew options completely, one particular options strategy known as "writing covered calls" is advertised by its advocates as a "conservative, safe income-generating" approach. As the approach gains more and more inexperienced adherents, its popularity has risen to alarming levels. The glorification of call writing owes its existence in no small part to the roaring market and its promotion by a number of short-term trading oriented investors. However, before investors happily sign off on the notion that this is a risk-free deal, they should examine the potential pitfalls a bit more closely.

For investors unfamiliar with options terminology, a few quick definitions so you can understand the specific transaction being contemplated. A "call" is an options contract that gives you the right to buy 100 shares of a stock at a certain price at some specific point in the future. If Micron Technology has a September 1997 $50 call, it means that whoever owns that contract can buy 100 shares of Micron Technology at $50 a share before the third Friday in September. For the owner of the call, being right on the underlying stock is only half the battle given that this is a time sensitive right that expires. You also have to be correct within the amount of time specified or else the call expires worthless.

As there are two sides to every transaction, you can sell calls as well as buy them. An investor can sell the rights to buy 100 shares at a fixed price and collect the premium. If the call expires worthless, they keep the premium. If the stock trades above the specific strike price on the call, they have to cough up the shares. Now, there are two situations you can be in when you sell a call. The first is if you sell the call and do not own the stock -- this is high-risk financial transaction known as selling a "naked" call. If you are wrong, you have to cough up the dough to buy 100 shares of the stock for each contract you sold. If you don't have the underlying equity to do so, all of the premium income in the world cannot help.

The second situation, the subject of this screed, is when you actually own the underlying shares and have sold the right to buy your shares at a fixed price. This is called selling a "covered call" and is touted by many so-called financial advisors as an income-generating conservative strategy. Since you actually own the stock, there are three possible results from selling the call. Say for instance you sell the aforementioned Micron Technology $50 calls that expire in September of 1997. The first possible result is that you collect the premium income and the stock stays between $44 7/8 (where you sold the call) and $49 15/16. In this situation, the call expires worthless, you keep the premium and you make money on the stock. This is the call-writers dream, as not only do they get some income from the premium, but the stock appreciates as well. However, this is not the only possible result.

The second possible result is that the stock goes up past $50. You keep the premium money but lose out on any rise above the $50 mark. If it goes well above $50, although you do not lose any money, you could easily end up making less money than if you had kept the stock. For instance, right now Micron Technology September 1997 $50 calls sell for $1 5/8 with Micron at $44 7/8. If the stock goes to $60 (where it was a week ago), you only get $5 1/8 plus the $1 5/8 call premium, while people who own the stock get $15 1/8. In fact, if the stock goes above $51 5/8, every increment means an opportunity cost, as $51 5/8 is the most you can make from the combination of the stock and the call premium. Although not an actual loss, you have essentially capped your possible upside to owning the stock at the strike price of the call plus the income from the premium.

The third possible result is really where this idea of capping your upside becomes problematic. Because you are selling a covered call, you actually own the underlying equity. This means that although you have limited the amount you can make, you still have not limited the amount of money you can lose. While the premium offsets any loss, if the stock goes down quite a bit you still lose all the same money from owning the stock you would have lost even if you had not sold the call -- you only dent the loss with the premium. This might sound okay if you like the company and would have owned it otherwise, but if you like the company, why in the world would you ever limit your upside in the first place? If the company is a good company and you believe it can substantially appreciate in the future, why set up a trade where you have limited upside and virtually unlimited downside? Plus, if you really wanted the shares in your portfolio, you would have to buy back the shares at a higher price if they are called.

There is actually a worse variation of the third possibility, one that is being actively promoted by some of the more questionable voices in the financial world. These individuals advise that you to buy the company not because it is a compelling value or a great business, but because the call premiums are high. The purpose of owning the equity becomes not one of owning the business, but being able to make short-term income by selling high-priced calls. As with all things in life, nothing is free. If the options premium is very high, it means the underlying stock is very volatile. As the vast majority of professional options traders use the Black-Scholes formula as one way to price the option, they are certainly taking the volatility into account when buying the calls -- it is part of the formula. However, this raw volatility cuts both ways. If it is a company where the terms "speculative" or "richly valued" might apply, the potential downside could be significant, while you have completely capped your potential upside.

Take the Micron Technology calls we have been using as an example. You own 100 shares and sell the call today and get $1 5/8 with the stock at $44 7/8. Analyst Tom Kurlak comes out tomorrow and issues a "sell" rating and cuts his estimates to $1.00 EPS after prices for 16 meg DRAM fall to $4. Micron falls another $15. Although you made $162.50 selling the calls, you lost $1500 owning the stock. Now, if you like the company and you are a long-term investor, you might just pass that off as a paper loss. However, if you are neophyte trader who knows nothing about Micron and have no clue what DRAM even is, that one $1500 loss can wipe out a long string of $162.50 per month profits in one sitting. The higher the premium, the higher the volatility, and the more likely it will happen.

The kicker to possibility three is that if you have been doing this for a while, you have probably been reinvesting your call income into new stocks. This means that when the hammer finally drops, you have a lot more equity than when you first started selling the calls, meaning one significant drop could wipe out a lifetime's worth of call income. Double-ouch. Truth be told, I cannot see the benefit either way. Either you own the company because you like it, sell "out-of-the-money" calls (meaning the stock's current price is lower than the call's strike price) for pocket change to generate income, and then miss out when the company is purchased at a 50% premium that is greater than your lifetime's worth of premium income; or you don't know anything about the company except that the premiums are high, get caught up in the inevitable down volatility after a string of profitable call-selling, and lose more than you put in. Conservative, income generating, and safe are not really words I would use to describe this approach.

CONFERENCE CALLS

BELMONT HOMES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BHIX)") else Response.Write("(Nasdaq: BHIX)") end if %> and
CAVALIER HOMES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAV)") else Response.Write("(NYSE: CAV)") end if %>
Regarding agreement to merge
(816) 650-0761 -- replay

AUTOMATIC DATA PROCESSING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AUD)") else Response.Write("(NYSE: AUD)") end if %>
(800) 633-8284 (reservation # 2748489) -- replay

ASPEN TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AZPN)") else Response.Write("(Nasdaq: AZPN)") end if %>
(402) 220-0112 -- replay through 8/14 @ 8:00 pm EDT

APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %>
(800) 642-1687 (code: 522530) -- replay through 8/14 @ 8:30 pm EDT

SARA LEE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLE)") else Response.Write("(NYSE: SLE)") end if %>
(402) 220-3124 -- replay through 8/14

DOLLAR GENERAL CORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE:DG)") else Response.Write("(NYSE:DG)") end if %>
(402) 220-1032 -- replay through 8/15 @ 6:00 pm EDT

CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>
(800) 633-8284 (code: 2875731) -- replay through 8/15

FOUNDATION HEALTH SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FHS)") else Response.Write("(NYSE: FHS)") end if %>
(402) 220-0104 -- replay through 8/15

SEAGRAM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VO)") else Response.Write("(NYSE: VO)") end if %>
(800) 558-5253 (reservation # 601492) -- replay through 8/15

NUEVO ENERGY COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NEV)") else Response.Write("(NYSE: NEV)") end if %>
Regarding this morning's press release
(800) 633-8284 (reservation # 3057791) -- replay through 8/16 @ 1:00pm EDT

WOOLWORTH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: Z)") else Response.Write("(NYSE: Z)") end if %>
(800) 953-6481 -- replay

08/18/97 (Monday)
HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
(800) 633-8284 (code: 2857062) -- replay through 8/22

THIS WEEK'S CONFERENCE CALL SYNOPSES

APPLIED MATERIALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> Call

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JOIN THE FOOLS-ON-PHONES CAMPAIGN!

What's that jingling? Is it lots of belled jester caps, flittering in the breeze? Nope -- it's the sound of telephones ringing on the desks of business editors at newspapers across the country, as Foolish readers call and request that The Motley Fool's syndicated newspaper feature be carried. (You can e-mail a bunch of these editors, too.) Check out the list of newpapers that have signed up for us and consider making a call or sending a note. Click the link above for a list of phone numbers of some major newspapers. Join the merry campaign and help bring Foolery to your hometown paper -- call or e-mail an editor today! (We'll be reporting on the results periodically.)

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

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Ups & Downs

Brian Bauer (TMF Hoops), and yet another Fool
Editing