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HEROES

Impotency drug company Zonagen Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZONA)") else Response.Write("(Nasdaq: ZONA)") end if %> fired a shot across the bow of shortseller Asensio & Co. today, stating that Asensio's attack on the company was unfounded, thus boosting the stock $2 3/8 to $30 7/8. A spokesman for Zonagen said that the drug in question, Vasomax, was properly tested and had proven "effective and safe in four completed late-stage trials involving 1100 patients." Vivus, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VVUS)") else Response.Write("(Nasdaq: VVUS)") end if %>, which makes pharmacological systems to help impotency, rose $2 5/8 to $25 1/2 after it announced that it was notified by the Food and Drug Administration (FDA) that its original manufacturing facility is in compliance with the FDA's current Good Manufacturing Practice requirements. The end result is removal of the uncertainty surrounding Vivus's ability to continue to manufacture its products and expand capacity as anticipated by investors.

Dairy products, fruit drinks, and ice producer and distributor Suiza Foods Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SZA)") else Response.Write("(NYSE: SZA)") end if %> gained another $4 5/16 to $57 11/16, extending an excellent advance in shareholder value for the company since its IPO in March of this year. Moving the stock today was BT Alex. Brown initiating coverage of Suiza with a "strong buy" rating. With recent acquisitions feeding distribution and product synergies, analyst John O'Neil estimates 1998 EPS of $2.90. Like other very successful holding companies such as Berkshire Hathaway <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BRK.A)") else Response.Write("(NYSE: BRK.A)") end if %> and Carlisle Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSL)") else Response.Write("(NYSE: CSL)") end if %>, Suiza acquires companies for cash wherever it can, which is a lower-cost funding source than equity. They also buy family businesses and keep successful managements in place where possible. Finally, these companies engage in arbitrage between private and public valuations when the private market does not value good companies as highly as the public markets. By selecting good cash flow generators, the arbitrage pays off when the differences in valuations -- private market versus public market -- are realized and also through killing debt with the company's cash flow.

Sometimes reporters can be like gunslinger fund managers or traders. In the race to get a scoop, haste can sometimes make waste. Such was the case yesterday when Citrix Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTXS)") else Response.Write("(Nasdaq: CTXS)") end if %> made a presentation and answered investor questions at an investment conference. Dow Jones today reported that yesterday's nearly 15% drop in the shares of Citrix was caused by "...remarks made by Citrix Chief Financial Officer Jim Felcyn." However, Citrix yesterday broke its policy of not commenting on trading in its stock to counter a Dow Jones story that had reported that "...Citrix's substantial 49% operating margins in the third quarter were `not sustainable.'" Felcyn countered that the company has cautioned investors many times before that, long term, its recent profit margin performance is not sustainable. Citrix gained back $10 7/16 to $75 7/16 today. Netting out Dow Jones's story from the picture, Citrix has made a $3/4 gain since Tuesday's close.

Financial stocks of all stripes gained ground today due to a variety of factors. Tennessee banks started out the day with First Union <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %> saying that it is far from done with its acquisition strategy and that the "agriculture and commerce" state would be an excellent place to gain market share. First Tennessee National Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FTEN)") else Response.Write("(Nasdaq: FTEN)") end if %>, Tennessee's largest bank and a major force in bond underwriting, gained $2 5/8 to $60 5/8 to close just under its 52-week high. The state's second-largest (deposit share) bank, First American Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FATN)") else Response.Write("(Nasdaq: FATN)") end if %>, gained $1 7/16 to $48 3/8, and number-four (deposits) bank Union Planters Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UPC)") else Response.Write("(NYSE: UPC)") end if %> made a fractional gain of $11/16. Brokerages and investment banks also had a good day, especially those that are considered to be takeover targets. PaineWebber Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PWJ)") else Response.Write("(NYSE: PWJ)") end if %> rose $1 5/8 to $31 13/16, Lehman Brothers <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LEH)") else Response.Write("(NYSE: LEH)") end if %> picked up $2 13/16 to $48 3/8, and smaller underwriter Hambrecht & Quist Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HQ)") else Response.Write("(NYSE: HQ)") end if %> jumped $5 7/8 to $34 7/8.

QUICK TAKES: Everybody's favorite rainforest-themed restaurant, Rainforest Cafe (Nasdaq: RAIN), gained $1 13/16 to $37 9/16 today after reporting that it will split its shares 3-for-2... Clothing and footwear concern American Eagle Outfitters <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AEOS)") else Response.Write("(Nasdaq: AEOS)") end if %> rose $1 3/8 to $35 1/8 after it reported Q3 EPS of $0.61 versus estimates of $0.49 a share. Comparable store sales increased 23.8% compared with the prior year quarter... Standard & Poor's announced that cryogenic and vacuum technology company Helix Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HELX)") else Response.Write("(Nasdaq: HELX)") end if %> will be added to the S&P SmallCap 600 Index after the close of trading today, which boosted shares by $1 1/4 to $24. Access Health <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ACCS)") else Response.Write("(Nasdaq: ACCS)") end if %> was added as well, but was not up significantly on the news... Hungarian Broadcasting Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HBCO)") else Response.Write("(Nasdaq: HBCO)") end if %> rose $1 3/8 to $9 after it announced that it was forming a joint venture to launch a communications satellite serving the Central and Eastern European region.

Wandel & Goltermann Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WGTI)") else Response.Write("(Nasdaq: WGTI)") end if %>, a maker of test and analysis equipment for data and telecom equipment, rose another $15/16 to $12 3/4 as its German parent company is considering various "strategic transactions"... Aastrom Biosciences <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ASTM)") else Response.Write("(Nasdaq: ASTM)") end if %> launched $3 higher to $7 3/4 after the announcing that it had received a patent for its cell culture chamber for the "ex vivo production of human (stem) cells"... Bookseller Barnes & Noble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BKS)") else Response.Write("(NYSE: BKS)") end if %> gained $1 11/16 to $28 11/16 after posting Q3 break-even EPS versus estimates for a loss of $0.03 a share. During the quarter the company's same-store sales rose 9.3% for its flagship stores... Standard & Poor's affirmed its ratings (corporate credit B+ and subordinated debt B-) on hospital and nursing facility operator Paracelsus Healthcare Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PLS)") else Response.Write("(NYSE: PLS)") end if %> and removed the ratings from CreditWatch, which boosted shares of the company $5/8 to $5 3/4.

Chip-to-chip interface designer Rambus Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RMBS)") else Response.Write("(Nasdaq: RMBS)") end if %> exploded $17 15/16 higher to $60 15/16 after Hambrecht & Quist's Robert Chaplinsky, the analyst who said in a recent article, "Trident is up a buck. I pumped it up this morning," raised his price target on the company and said Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> will be driving the company's place in the architecture of the personal computer... Staff Leasing Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STFF)") else Response.Write("(Nasdaq: STFF)") end if %> jumped $3 3/8 to $22 1/2 after Lehman Brothers reiterated a "buy" rating... Intersolv <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ISLI)") else Response.Write("(Nasdaq: ISLI)") end if %> rose $2 to $15 3/4 after the software developer last night reported Q2 EPS of $0.15, beating the analysts' mean estimate of $0.13 a share. EPS more than doubled over last year's results on a 27% increase in revenues.

MAVERICK TUBE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MAVK)") else Response.Write("(Nasdaq: MAVK)") end if %> gained $2 15/16 to $30 5/16 after the manufacturer of pipe for the energy exploration and distribution industries reported Q4 EPS of $0.35, which met the First Call mean estimate. Maverick generated a 37% increase in revenues on a 28% increase in tons of product shipped during the quarter... Deepwater driller Reading & Bates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RB)") else Response.Write("(NYSE: RB)") end if %> advanced $2 5/16 to $39 3/16, pacing the advance in the rest of the drilling group and other energy-related companies following a bit of a selloff in the last few days... Water treatment and purification systems manufacturer Culligan Water Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CUL)") else Response.Write("(NYSE: CUL)") end if %> ascended $3 15/16 to close at $44 1/4 on reporting Q4 EPS of $0.42, beating estimates of $0.41 a share, on a 44% increase in revenues.

GOATS

WPI Group <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: WPIC)") else Response.Write("(Nasdaq: WPIC)") end if %> lost $4 9/16 to $7 7/16 after the diversified industrial company said it will report a fourth quarter loss due to taking a restructuring charge and because it will not take a gain on a sale of assets as was expected. The company makes handheld programmable terminals and computers tailored to harsh environments. The company will take some restructuring charges related to its purchase of Husky Computers, a maker of handheld computers. The expected loss will be the first in the company's history. The company was expected to earn $0.17 a share for the quarter and $0.92 a share for the year. Assuming that year-end estimates drop by 20%, the company will trade at roughly 10 times forward earnings estimates, which puts WPI close to the cheap side of its historical valuation.

Hoechst AG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOE)") else Response.Write("(NYSE: HOE)") end if %> fell $3 5/8 to $37 1/4 after the chemical and pharmaceutical company's Hoechst Marion Roussel pharmaceuticals unit reported a 9% increase in nine-month revenues due to favorable currency exchange. However, that unit's operating profit from ongoing operations dropped by 13% because of increased amortization expenses, "...adverse market conditions, competitive pressures, and timing of R&D spending." In particular, revenues from the drug Seldane fell because of an FDA recommendation that certain users of Seldane should not use the allergy drug. While Hoechst produces an alternative drug, sales apparently have not been totally replaced. HMR's Trental drug, which is used to treat AIDS, has also faced competition from generic alternatives. Despite the company's move to restructure its heavy chemicals units and create shareholder value, Merrill Lynch lowered its long-term rating on the company to "accumulate" from "buy," possibly because it is unhappy with the company's progress on these initiatives so far.

QUICK CUTS: Agribusiness, consulting, and manufacturing company Erly Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ERLY)") else Response.Write("(Nasdaq: ERLY)") end if %> lost $1 1/32 to $6 1/2 after reporting a $0.20 per share loss for the second quarter on a 25% decline in revenues... Mail processing and scanner equipment maker Bell & Howell Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BHW)") else Response.Write("(NYSE: BHW)") end if %> fell $1 3/4 to $23 7/8 on announcing that prior sales projections now appear to be "overly optimistic" due to lengthening sales cycles and product introductions in the mail processing equipment industry. The company expects to miss the Q4 mean analysts' EPS estimate of $0.78... Power supply manufacturer Computer Products <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPRD)") else Response.Write("(Nasdaq: CPRD)") end if %> lost $1 1/8 to $20 3/8 after the company's CFO said at an investment conference that the company's networking customers are requesting push-outs of fourth quarter shipments. Merger partner Zytec Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZTEC)") else Response.Write("(Nasdaq: ZTEC)") end if %> lost $1 7/8 to $26 5/8 on the news.

FOOL ON THE HILL
An Investment Opinion by Randy Befumo

Applied Materials Announces Q4

Shares of Applied Materials <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMAT)") else Response.Write("(Nasdaq: AMAT)") end if %> rose $2 27/32 to $37 23/32 today on anticipation that earnings released after the market close would be good. Options volume was huge with more than 9,000 $35, $37 1/2, and $40 call contracts controlling almost one million shares trading hands, while 18 million individual shares fired off. Many of these investors were literally betting that incremental information, like Applied's hiring of Bob Dylan and the Wallflowers to play at the company's 30th anniversary party for $800,000, indicated it was going to have a blow-out quarter. Shares have risen almost $9 in the past four trading days.

Although rock solid, Applied's earnings may disappoint some speculators. The company earned $0.47 per share in the quarter, a penny above expectations and 135% above last year. Unfortunately for the bettors, this was two cents below last quarter's results. Revenues were at at record level, with Applied booking $1.28 billion in sales and $1.37 billion in orders. Revenues were up 20.2% sequentially and orders were up 10.2% sequentially from last quarter, indicating that while activity is strong, the acceleration from the low is slowing up. Backlog stood at $1.72 billion at the end of the quarter, giving the company about 1.35 quarters worth of sales in the hopper at the current run-rate. Overall, fiscal 1998 was flat versus fiscal 1997, an amazing performance considering that fiscal 1997 was the worst year for semiconductor capital equipment in the last seven.

Applied reported that it continued to gain market share on the front-end, seeing solid performance in etch, physical vapor deposition (PVD), chemical vapor deposition (CVD), chemical mechanical polishing (CMP), and rapid thermal processing (RTP). The company's gains in market share were particularly pronounced because 40% of its sales were for 0.25 micron equipment, which is the current cutting edge technology. Applied clearly communicated that the largest vendor of wafer tools is doing just fine right now, thank you. As always, much of the reaction will come because of the conference call. In this case it will be even more pronounced as Applied will be able to comment on how critical Southeast Asian demand has been affected by the recent economic turmoil. The conference call number for interested Fools is 1-800-642-1687, code 695322, available after 8:30 p.m.

The financial statement looked solid, with gross margins coming close to an all-time peak. Spending on research and developed jump to 13.7% of sales, up from 11.5% last quarter. This sequential increase in R&D is huge and communicates some confidence about Applied's position and what the market will be like in coming quarters. Unfortunately for investors, the last time Applied was this bullish was in the first half of fiscal 1997, after which the industry suffered a bit of a slump. As for general and administrative and sales and marketing, things were pretty much unchanged from the prior quarter. The entire decrease in operating margin came as a result of higher R&D.

Most impressive is the fact that Applied's cash position now is more than $1.5 billion -- cash that the company could use to repurchase shares or make acquisitions. Although it is important for any semiconductor capital equipment company to maintain an over-capitalized balance sheet because of the potential for sharp swings in demand, Applied has a little extra cash to play with. In fact, this much cash on the balance sheet reduces the company's return on invested capital.

With Applied estimated to earn $2.13 per share in the next fiscal year, the company trades at roughly 18 times forward earnings. At 13 times forward earnings four days ago, the stock was certainly much more attractive. Although in the end 18 will probably be attractive as well, the risk of the investment four days ago was much lower than the risk currently because the valuation left more room for error. As the cash flows of these capital equipment vendors are very volatile, investors should never assume that a premium valuation will be maintained for long. Thus, with the industry forecast to grow in the 19% to 21% range over the next five years and Applied being a good chunk of that industry, expecting a 19 to 21 multiple is reasonable.

CONFERENCE CALLS

Please see the Motley Fool's Conference Calls page for call information and links to synopses.

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Randy Befumo (TMF Templr), a Fool One

Dale Wettlaufer (TMF Ralegh), Fool Two

Alex Schay (TMF Nexus6), Fool Three
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Brian Bauer (TMF Hoops), Fool Four
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