HEROES

ORCKIT COMMUNICATIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCTF)") else Response.Write("(Nasdaq: ORCTF)") end if %> jumped $2 9/16 to $18 1/16 after the Israeli company said it will make the first demonstration of asymmetric digital subscriber line (DSL) digital modulation for ISDN lines at the Telecom Inter@ctive 97 trade show in Geneva, Switzerland. Orckit is one of a number of companies developing xDSL modulation modules for integrated services digital network (ISDN) infrastructures, in good part because Europe has a highly developed ISDN infrastructure and because many U.S. enterprises connect with the telco backbone via ISDN lines. Rather than shooting for the mass market, which is coming along more slowly, Orckit is aiming for enterprise connectivity with this product. The thought that Orckit is first with xDSL for ISDN is somewhat novel, though.

TITAN EXPLORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TEXP)") else Response.Write("(Nasdaq: TEXP)") end if %> said today it will acquire OFFSHORE ENERGY DEVELOPMENT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: OEDC)") else Response.Write("(Nasdaq: OEDC)") end if %> in a stock swap, which boosted shares of Offshore $1 1/16 to $7 1/16. The deal calls for Offshore stockholders to receive 0.675 shares of Titan common stock for each share of Offshore common. Titan will issue about 6 million shares for Offshore, which explores for and develops natural gas in the Gulf of Mexico and is also a gas marketer. Along with the addition of proved reserves to Titan's balance sheet, the company gets Offshore's interests in two gas processing facilities off the shore of Alabama. Titan says the acquisition will be immediately accretive to cash flow.

QUICK TAKES: Nearly half of nearsighted patients tested achieved better than 20/20 vision when treated with the KERAVISION INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KERA)") else Response.Write("(Nasdaq: KERA)") end if %> "KeraVision Ring," according to the first clinical results from a multi-center U.S. Phase III clinical study. The company's shares climbed $3 1/16 to $10 3/16... Cell-based gene transcription pioneer ONCOGENE SCIENCE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONCS)") else Response.Write("(Nasdaq: ONCS)") end if %> replicated $3 7/32 higher to $11 3/4 after announcing that it had been issued a U.S. patent that broadly claims the use of "reporter genes to identify chemical compounds that modulate gene transcription in-vivo"... AMERICAN DENTAL TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ADLI)") else Response.Write("(Nasdaq: ADLI)") end if %> rose $2 3/4 to $9 1/2 after the dental laser and equipment company said it expects to report record Q2 operating earnings as a result of better gross margins... Enterprise management systems company PROPHET 21 <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PXXI)") else Response.Write("(Nasdaq: PXXI)") end if %> gained $3 1/8 to $12 3/8 after reporting yesterday Q4 EPS of $0.27, up 440% over last year.

SOFTWARE SPECTRUM <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SSPE)") else Response.Write("(Nasdaq: SSPE)") end if %> rose $4 1/8 to $ $18 5/8 after the supplier of personal computer software and technology services reported Q1 EPS of $0.12, below expectations of $0.15 per share... Consumer-lending and credit-checking software company CREDIT MANAGEMENT SOLUTIONS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMSS)") else Response.Write("(Nasdaq: CMSS)") end if %> jumped $2 to $16 3/4 on word that the company signed General Motors Credit Acceptance Corp. as a customer... AMERICAN HEALTHCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMHC)") else Response.Write("(Nasdaq: AMHC)") end if %> rose $1 1/2 to $12 1/8 as UBS Securities initiated coverage of the diabetes treatment company with a "strong buy" rating... Network equipment maker TELCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TELC)") else Response.Write("(Nasdaq: TELC)") end if %> moved up $2 3/8 to $15 7/8 after the company said it expects to return to profitability in the fourth quarter with revenues of $31 million... Lingerie seller FREDERICK'S OF HOLLYWOOD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FOH.A)") else Response.Write("(NYSE: FOH.A)") end if %> got a $3 3/8 boost to $10 1/4 after its board approved an amended agreement to be acquired by an investor group led by Knightsbridge Capital Corp. for $7.75 per share.

THE GENERAL CHEMICAL GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GCG)") else Response.Write("(NYSE: GCG)") end if %> rose $4 to $33 3/8 after institutional brokerage and money manager Salomon Brothers started coverage of four chemical companies, bestowing General Chemical and UNION CARBIDE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UC)") else Response.Write("(NYSE: UC)") end if %> with "buy" ratings... Wholesale food distributor RICHFOOD HOLDINGS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RFH)") else Response.Write("(NYSE: RFH)") end if %> gained $2 13/16 to $24 1/2 after reaching an agreement in principle to acquire the assets of Farm Fresh Inc., a privately held supermarket chain based in Norfolk, Virginia... DENBURY RESOURCES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNR)") else Response.Write("(NYSE: DNR)") end if %> gushed $2 1/8 to $19 1/8 after announcing that two of its wells are expected to add approximately 4.2 million barrels of net proved oil reserves, based on estimates from Netherland, Sewell and Associates, the company's independent consulting engineers... Restaurant operator CKE RESTAURANTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CKR)") else Response.Write("(NYSE: CKR)") end if %> gained $3 3/8 to $37 on reporting Q2 EPS of $0.28, grilling the mean estimate of $0.24... CHIQUITA BRANDS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CQB)") else Response.Write("(NYSE: CQB)") end if %> picked up $1 1/16 to $15 5/8 after the World Trade Organization upheld and strengthened an earlier ruling against the European Union for its banana trade policy.

GOATS

SUNGLASS HUT INTERNATIONAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAYS)") else Response.Write("(Nasdaq: RAYS)") end if %> was burned three weeks ago for a 17% loss after reporting second quarter same-store sales growth of 1.4% and 2Q EPS of $0.26. Today, two companies that rely on the retailer's ability to move products suffered losses as well. OAKLEY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OO)") else Response.Write("(NYSE: OO)") end if %> fell $1 1/8 to $11 5/8 after announcing that lower-than-expected sales for the 1997 third quarter will cause earnings to fall "substantially below" the consensus estimate of $0.16 per share. Oakley did not explicitly cite weak industry demand as a factor for these losses. Oakley's news also slammed competitor GARGOYLES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: GOYL)") else Response.Write("(Nasdaq: GOYL)") end if %>, which dropped $17/32 to $6. New product development and an aggressive pipeline are needed to succeed in the sunglasses business, especially as product life cycles continue to shrink.

Smith Barney initiated coverage on a number of trusts with natural gas interests today, pummeling several trust stocks with "neutral" ratings. TORCH ENERGY ROYALTY TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TRU)") else Response.Write("(NYSE: TRU)") end if %> was neutralized $5/8 to $9, and DOMINION RESOURCES BLACK WARRIOR TRUST <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DOM)") else Response.Write("(NYSE: DOM)") end if %> also dropped $3 7/16 to $21 1/4 after the lukewarm rating. Dominion had been previously rated an "outperform." Royalty trust companies are formed when an oil or gas company spins off its reserves to avoid double taxation. Besides cash and temporary investments held for the payment of expenses, these trusts hold "royalty interests." Royalty interests entitle the trust to receive a percentage of the gross proceeds from the underlying properties.

A leading producer of fiber-optic cable, CORNING INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLW)") else Response.Write("(NYSE: GLW)") end if %>, fell $4 5/8 to $48 7/8 today after a newspaper in the company's hometown published a story that cast doubt on the outlook for the company's optical fiber business. The Leader newspaper reported that Corning's optical fiber business was facing serious threats both overseas and on the domestic front. In addition, the newspaper (citing unnamed company sources) stated, "Some reports say as little as half the demand Corning predicted for 1997 actually existed." The final word from The Leader was that Corning is planning to announce revisions to its prediction before the end of the week. Since Corning did not comment, it seems safe to conclude that the scoop is true.

QUICK CUTS: Hospital operator COLUMBIA/HCA HEALTHCARE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> fell $3 1/16 to $29 5/8 after announcing that it anticipates weaker-than-expected financial results in the third quarter... In other earnings guidance, MEADOWBROOK INSURANCE GROUP <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MIG)") else Response.Write("(NYSE: MIG)") end if %> announced that it expects earnings in the third and fourth quarters of 1997 to be well above 1996 levels but slightly below street estimates, which cut the stock $3 to $22 1/4... INDUSTRIE NATUZZI <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NTZ)") else Response.Write("(NYSE: NTZ)") end if %> fell $2 9/16 to $25 7/16 after NatWest Securities analyst Francesca DiPasquantonio cut her rating on Italian leather furniture company to "hold" from "buy"... After gaining on the strength of strong airline industry fare hikes, TRANS WORLD AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: TWA)") else Response.Write("(AMEX: TWA)") end if %> lost altitude today, slipping $7/16 to $7 11/16 after it set an air fare sale promotion for weekend travel during September and for travel any time between November 1 and December 17... HIRSCH INTERNATIONAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HRSH)") else Response.Write("(Nasdaq: HRSH)") end if %>, a distributor of computerized embroidery machines, tumbled $4 5/8 to $17 7/8 after the company said its third quarter earnings would fall short of analysts' expectations... Designer of data transport and network access systems TELLABS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> said today that it does not expect its 1997 third quarter earnings to beat consensus estimates of $0.33 per share, crunching the shares $5 15/16 to $56 13/16... SHELDAHL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SHEL)") else Response.Write("(Nasdaq: SHEL)") end if %> dropped $2 to $21 1/2 after the flexible laminates and printed circuitry company announced that it has named Michele Edwards to the position of Vice President of Supply Chain Operations.

FOOL ON THE HILL
An Investment Opinion by Jim Surowiecki

Gateway 2000 looks to the future

For the second time in three months, GATEWAY 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> has announced that its quarterly earnings will be weaker than analysts had expected, calling into question whether the company will be able to sustain the rapid growth rates that catapulted it into the second tier of computer manufacturers. In a statement released last Wednesday, Gateway said that profits for the third quarter will be at "marginal levels," primarily because rising inventories have provoked larger-than-normal price cuts. Gateway CEO Ted Waitt insisted that unit shipments would be up 30% for the quarter, but intense price pressure in the industry will have a major impact on the company's bottom line. Waitt also suggested that Gateway's woes were in part the result of poor planning, as the company set internal goals for itself that were unrealistic, leading to the buildup in inventories. "When you over-cast your business," Waitt told Reuters, "you have to make price concessions."

Consensus earnings estimates for Gateway had been around $0.47 a share for the quarter, which would have been up 25% over last year's earnings. In the wake of the announcement, though, estimates dropped to $0.18 a share, down 54% from the third quarter of 1996. Earnings estimates for FY 1997 now project a decline of more than 20%. Before this year, Gateway had enjoyed nine straight quarters of phenomenal growth, transforming itself into a $5 billion company. But last quarter's earnings rose just 9%, and the promised third-quarter decline may mean that Gateway's problems are more than just temporary.

The earnings warning that Gateway issued three months ago blamed weak demand for PCs in April and May, but a Dataquest study published not long after that announcement reported that U.S. PC sales were up 22% for the second quarter, rising from a 15.4% rate in the first quarter. All indications are that the introduction of the MMX and Pentium II chips by INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> have continued to fuel demand, as has the growth in the market for sub-$1,000 machines at the other end of the spectrum. Indeed, while Gateway saw its quarter-over-quarter sales decline slightly, the four dominant PC players -- COMPAQ <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %>, IBM <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %>, HEWLETT- PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HP)") else Response.Write("(NYSE: HP)") end if %>, and DELL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> -- saw their market rise from 26% in the second quarter of 1996 to 31% in the second quarter of 1997. In other words, what's wrong with Gateway is not overall demand.

Gateway may just be going through growing pains as it tries to expand its base from beyond the consumer desktop market. Tomorrow, the company is going to announce a set of new product lines and strategies for corporate customers, whom it has already begun courting actively over the last few months. Where Dell, for example, gets most of its revenues from corporate customers, including 20% from portables and 8% from servers (which Dell has only recently begun to push hard), Gateway's corporate business is negligible. Even laptops provide just a tenth of the company's revenues. And that, in turn, has left Gateway vulnerable to the brutal competition in the desktop market. Although Gateway's unit selling price is among the highest in the industry -- in part because its technology is top-of-the-line, its prices dropped in the second quarter. And recent announcements of permanent price cuts by Compaq and Hewlett-Packard have raised the spectre of an industry war that Gateway would be hard-pressed to survive unbloodied.

Still, analysts seem relatively sanguine about Gateway's future. Certainly Waitt has proved himself an able manager in the past, and the company retains both a strong consumer brand identification and a reputation for excellent service that may help it make the transition to the corporate market. The company's balance sheet is strong, with close to $1 billion in cash and very little debt, and its recent acquisition of Advanced Logic Research has given it the access to server technology that it needed.

At $33 a share, Gateway trades at 19 times earnings, substantially below the 25% growth rate analysts are continuing to predict for FY 1998, while Dell, for instance, now trades at 45 times earnings. Dell, though, has beaten earnings estimates with startling regularity, while Gateway keeps getting beaten by them instead. Clearly, one has to be bullish on the PC industry, but the possibility certainly exists that the largest players in the market will grow increasingly powerful while the smaller players will either become niche players or get gobbled up. Until Gateway makes it clear that it can command real respect in the corporate market and do a better job of managing its consumer inventory, its value as a long-term investment will be uncertain at best.

CONFERENCE CALLS

MANNESMANN AG (TOC: MNNSY)
(888) 566-0793 -- replay through 9/10 @ noon EDT

09/09/97 (Tuesday)
HEWLETT-PACKARD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %>
Announcement of Business Strategy
(800) 839-1949 -- replay through 9/11

09/11/97 (Thursday)
PIER 1 IMPORTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PIR)") else Response.Write("(NYSE: PIR)") end if %>
(888) 243-0810 (reservation # 527406) -- replay through 9/12 @ 11:00 am EDT

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