HEROES

Retail electronics outlet CIRCUIT CITY STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CC)") else Response.Write("(NYSE: CC)") end if %> moved $3 5/8 higher to $40 3/16 after it reported a 22% total sales increase and a 4% same-store sales increase during August. Same-store sales, also known as comparable-store sales, can sometimes be misleading. That figure refers to sales from stores open for one year (excluding sales from new stores) and can be boosted by mark-downs that contribute to revenue but are low margin and do little for the bottom line. Circuit City's move today raises it up from some tough industry conditions that have contributed to weak results in the last year, primarily as a result of its titanic struggle with BEST BUY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BBY)") else Response.Write("(NYSE: BBY)") end if %> in its major markets. The ongoing shake out in electronics retail will ultimately benefit these two players. Recent total 2Q sales for Circuit City's CarMax Group were $78.3 million, higher than expected, which going forward will be a strong growth driver for the company.

This morning Merrill Lynch initiated coverage on HESKA CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HSKA)") else Response.Write("(Nasdaq: HSKA)") end if %>, a developer and manufacturer of diagnostic products, vaccines, and pharmaceuticals for "domestic animals," which could mean animals in the U.S., domesticated animals, or just "pets." Regardless, Heska was thrown a bone today and gained $2 5/8 to $11 1/2. The company's strategy is to become the animal health care company of choice for veterinarians (primarily for dogs, cats, and horses) by enabling them to comprehensively manage diseases using its line of diagnostic, vaccine, and therapeutic products. The company has six products currently on the market and over 25 products in research and development and operates in a unique niche. The recent acquisition of CMG Centre Medical in Switzerland gives the company a strong foothold in Europe.

QUICK TAKES: Retail music purveyor MUSICLAND STORES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MLG)") else Response.Write("(NYSE: MLG)") end if %> said last night that same-store sales for its Mall Stores Division rose 17.3% in August, helping shares dance $1 higher to $6 7/8... Shares of casino operator SHOWBOAT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SBO)") else Response.Write("(NYSE: SBO)") end if %> hit the jackpot today, rising $1 15/16 to $19 as Salomon Brothers raised its rating on the shares to "buy" from "hold"... Reflecting the overnight turnaround in the Asian markets, several closed-end regional mutual funds rebounded. INDONESIA FUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IF)") else Response.Write("(NYSE: IF)") end if %> rose $5/8 to $8 5/8 and JAKARTA GROWTH FUND <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JGF)") else Response.Write("(NYSE: JGF)") end if %> rose $1/2 to $7 3/16... NEXTEL COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NXTL)") else Response.Write("(Nasdaq: NXTL)") end if %>, operator of a nationwide network of radio dispatch systems, jumped $2 1/16 to $26 15/16 after PaineWebber reiterated its "buy" recommendation... Bankers Trust Alex. Brown started coverage of three footwear companies today, rating STRIDE RITE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SRR)") else Response.Write("(NYSE: SRR)") end if %> a "buy," which gave shares a $1 1/16 kick to $12 7/8.

Shares of paper company GRUPO INDUSTRIAL DURANGO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GID)") else Response.Write("(NYSE: GID)") end if %> went north today, climbing $1 1/8 to $15 7/8 as Caspian Securities raised its rating to "buy" from "market performer"... Schroder & Co. initiated coverage of TOKHEIM CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TOK)") else Response.Write("(NYSE: TOK)") end if %> with a "buy" rating and set a $20 a share price target, moving shares of the largest maker of electronic and mechanical gas-dispensing marketing systems up $15/16 to $14 5/16... Communications network products maker SCIENTIFIC ATLANTA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFA)") else Response.Write("(NYSE: SFA)") end if %> rose $1 3/16 to $22 3/8 after Furman Selz added the shares to its "recommended list" with a $29 price target... Wendy's franchisee DAVCO RESTAURANTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DVC)") else Response.Write("(NYSE: DVC)") end if %> advanced $4 1/2 to $17 7/8 after announcing that it received a buyout offer for $18-$20 a share from an investor group that includes its largest shareholder and members of the company's management.

Shares in IMPERIAL CREDIT MORTGAGE HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IMH)") else Response.Write("(NYSE: IMH)") end if %> added $1 1/2 to $26 1/2 after its board declared a higher quarterly dividend of $0.65 on common shares payable October 15 to holders of record September 15... Cell phone operating system company GEOWORKS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GWRX)") else Response.Write("(Nasdaq: GWRX)") end if %> dialed up a gain of $3 5/8 to $14 5/8 after Rauscher Pierce Refsnes raised its rating on the company to "buy-market outperformer" from "market performer"... CANNONDALE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BIKE)") else Response.Write("(Nasdaq: BIKE)") end if %> pedaled $2 3/4 higher to $22 3/4 after announcing two days ago that it would buy back up to 1 million shares. Cannondale currently has 8.7 million shares outstanding.

GOATS

Medical device maker BOSTON SCIENTIFIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BSX)") else Response.Write("(NYSE: BSX)") end if %> fell $13 7/16 to $62 7/16 today after the company said its third quarter results would be little changed in comparison to its second quarter. In the second quarter, the company posted a net loss of $26.9 million, or a loss of $0.14 a share. Following the announcement, SBC Warburg Dillon Read trimmed its 1997 earnings estimate for the company to $1.85 a share, but still raised its rating on the company to "buy" from "outperform." Piper Jaffray downgraded the company from "buy" to "neutral." Boston cited weaker demand in Europe and fluctuations in the dollar as the main factors that contributed to the downward guidance. Since it dominates a market segment that will only continue to pick up as managed care asserts itself, some analysts feel reluctant to dump the stock. Boston makes minimally invasive surgical devices that reduce procedural trauma and surgical complexity, hence reducing overall risk to the patient at a lower cost than more invasive surgery.

After a delayed opening TUPPERWARE CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TUP)") else Response.Write("(NYSE: TUP)") end if %>, the world's leading direct seller of containers for food and other storage needs, was canned for a $6 13/16 loss to $28 5/16. The company guided expectations downward for its upcoming 3Q, citing promotional difficulties in its Argentinean and Brazilian markets that were noted as being "key to having a good second half." Tupperware is the largest direct seller (meaning outside of traditional retail store channels) of food storage containers in the world, with U.S. sales accounting for only about 15% of revenues. The company's presence in over 70 countries inspired visions of "Tupperware parties" infiltrating nascent middle-class populations around the globe. However, lower priced "knock-offs" flooding large discount chains have taken market share from the company, and sales to distributors haven't been as robust as previously thought. This development drastically alters estimates of net income for the 1997 fiscal year to $1.88 a share, 17.5% lower than the previous estimate of $2.28 a share.

Many companies were bashed today due to analyst downgrades. The hit list includes plumbing products, automotive braking systems, and air-conditioning systems firm AMERICAN STANDARD COMPANIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ASD)") else Response.Write("(NYSE: ASD)") end if %>, which was flushed $4 1/8 to $41 on a Morgan Stanley downgrade from "strong buy" to "outperform." PaineWebber analyst Gary Gordon cut residential mortgage banking company HOMESIDE INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HSL)") else Response.Write("(NYSE: HSL)") end if %> to "neutral" from "attractive," helping the shares to a $1 loss to $24. WENDY'S INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WEN)") else Response.Write("(NYSE: WEN)") end if %> was eaten for a $1 5/8 loss to $22 after Bear Stearns reduced its rating on the shares to "neutral" from "buy." BORDEN CHEMICALS & PLASTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BCU)") else Response.Write("(NYSE: BCU)") end if %>, a maker of resins and specialty chemicals, melted $9/16 to $9 7/8 after Credit Suisse First Boston cut its rating on the company to "hold" from "buy." Merrill Lynch downgraded drug developer BIOGEN INC. (NYSE BGEN) to "intermediate-term neutral" from "accumulate," causing the stock to fall $2 3/16 to $37 3/8. Signal testing company ORBIT/FR INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORFR)") else Response.Write("(Nasdaq: ORFR)") end if %> slipped $1 3/4 to $27 1/4 as Unterburg Harris cut the company to a "buy" from a "strong buy."

QUICK CUTS: The world's #1 direct seller of cosmetics and beauty-related products, AVON PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVP)") else Response.Write("(NYSE: AVP)") end if %>, smeared some make-up on the way down $4 13/16 to $59 15/16 as it was downgraded from "buy" to "outperform" by Smith Barney... Interstate/Johnson Lane started coverage of PHYSICIANS RESOURCES GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PRG)") else Response.Write("(NYSE: PRG)") end if %> with an "underperform" rating, sending the physician practice management company down $11/16 to $9 13/16... Shoe seller NINE WEST GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NIN)") else Response.Write("(NYSE: NIN)") end if %> tripped $2 1/8 to $38 11/16 after reporting 2Q EPS of $0.80, beating estimates of $0.78... Shares in external power conversion maker AULT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AULT)") else Response.Write("(Nasdaq: AULT)") end if %> discharged $1 to $7 5/8 after the company said it expects to report fiscal 1998 first quarter earnings below those of the same period a year ago due to weaker-than-expected orders... PRAEGITZER INDUSTRIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PGTZ)") else Response.Write("(Nasdaq: PGTZ)") end if %> said today that it has reduced its staff by 103 people, or about 6% of its work force, which reduced the stock of the multi-layer printed circuit board maker $1 3/8 to $11 5/8... NN BALL & ROLLER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NNBR)") else Response.Write("(Nasdaq: NNBR)") end if %> said it expects to report earnings "significantly below'' current analyst estimates of $0.15 to $0.18 per share, which crunched the steel ball and roller maker $1 1/8 to $11 1/4.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Cymer Beamed -- UV laser producer dimmed today.

Shares of CYMER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CYMI)") else Response.Write("(Nasdaq: CYMI)") end if %> have apparently learned which way is down today, tumbling $9 13/16 to $82. The buzz was that the company might miss its upcoming quarterly earnings estimate after it cancelled a meeting with analysts originally set for next Wednesday. Cymer has been an incredible performer over the past few months and recently announced that it was splitting its shares two-for-one. Today is one of the largest down days the shares have seen since beginning a huge upward surge after beating earnings estimates by 50% when Cymer reported its June 1997 quarter.

The company is the leading producer of excimer laser illumination sources for deep-ultraviolet (deep UV or DUV) photolithography systems. Photolithography is one of the most expensive steps in making a semiconductor, representing one-third of the cost according to the latest 10-K405 filing from SILICON VALLEY GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SVGI)") else Response.Write("(Nasdaq: SVGI)") end if %>. In this step, the laser light is projected through a photomask or reticle onto the actual silicon, burning the pattern on to the silicon. As the line widths have shrunk to as small as 0.25 microns, more precise lasers are required to successfully generate a pattern. Cymer sells to ASM LITHOGRAPHY <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASMLF)") else Response.Write("(Nasdaq: ASMLF)") end if %>, Silicon Valley Group, Canon, and Nikon among other DUV photolithography producers.

Cymer has the lion's share of the DUV excimer laser market, with some sources putting its market share as high as 90% in that specific market. With one-third of wafer fabrication costs going into photolithography, Cymer's surge in earnings and revenues began even before the semiconductor capital equipment group as a whole, which points to how in-demand these units are. Many investors have viewed Cymer has a better way to buy the DUV lithography business than buying shares in any of the producers. As a group, only ASM Lithography represents a "pure-play," as all of the other manufacturers have significant revenues from other businesses. Only public since last October, it is this high market share in this high growth industry that has set the stage for Cymer quadrupling its stock price over the past eleven months.

As the industry has begun to switch from 0.35 micron lasers to 0.25 micron lasers, Cymer has had to ramp up the new size. As with any production ramp-up, there is always a risk that problems in manufacturing will cause gross margins to fall. One of the things investors routinely and systematically chose to ignore is that poor production ramp-ups of products can cause losses no matter how great the technology is or what market share the company owns. When investors fail to price the actual business/production risk into a company, they tend to create situations where short-term risk is exacerbated. Taking Cymer's meeting cancellation as a sign that the production ramp-up is experiencing a few bumps, these forgetful investors are now pricing in the production risk.

In a Dow Jones story, Morgan Stanley Dean Witter analyst Jay Deahna called the rumors that there was a manufacturing problem "unsubstantiated [and] pretty much ridiculous." Although Morgan Stanley did help underwrite the company, I am prone to believe him in this case. Whether it is Cymer, PREMIER LASER <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PLSIA)") else Response.Write("(Nasdaq: PLSIA)") end if %>, or INTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>, investors always want to think that technology is everything and that trivial and mundane issues like production ramp-ups and product transitions are never a problem, always allowing the company maximal profit on their new technology and seldom resulting in a negative surprise. The less experienced the company is in mass production, the higher the risks run. With a great deal of experience selling to the photolithography market and making production transitions on excimer lasers, Cymer does not seem to carry as much risk here as would a company in an emerging product category.

Based on current earnings estimates, Cymer looks far from cheap. Five analysts are projecting an average of $2.30 EPS in fiscal 1998, with the current high estimate at $2.50 EPS. Even at $82, this is still 35.6 times the consensus estimate and 32.8 times the high estimate. That said, the company reported $0.48 EPS last quarter, up from a pro forma $0.13 EPS in the prior year. The current assumption of only 33.7% year-over-year growth in the estimates may be quite conservative, especially in light of the shrinking geometries of almost all semiconductors. Cymer's operating margins of 15.9% indicate that it is far from gouging its customers, although if there was a production mishap it could probably result in a significant earnings disappointment even if it only shaved 0.5% to 1.0% off of the gross margin. Current estimates of $0.45 EPS, though, do anticipate a drop from last quarter's $0.48 EPS -- a drop that may not necessarily be the case if the company maintains or increases unit volume on its lasers.

What can investors do to assess whether the estimates are accurate or conservative in order to determine the real earnings power of the company? Because it has so much of the DUV market, you can just find out the unit sales of all DUV systems and get a pretty good estimate of Cymer's unit sales. Silicon Valley and ASM Lithography report quarterly, whereas the Nikon and Canon numbers might be a little harder to get. Companies like Infrastructure and Dataquest follow this kind of information quite closely, with Infrastructure geared towards individual investors. (In fact, if you are investing more than a few thousand dollars in semiconductor-related industries, I might almost call the Infrastructure subscription mandatory.) Certainly if there is a round of upgrades to 0.25 micron over the next two years, Cymer's unit volume should remain steady or increase compared to currently levels. In the end, the individual investor willing to turn over the most stones will be the one who is able to figure out whether situations like Cymer represent opportunity or should be avoided -- not rumor-mongers or trend-following chartists.

CONFERENCE CALLS

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Randy Befumo (TMF Templr), a Fool
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