DJIA:          8567.14   -2.25       (-0.03%) 
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 Nasdaq:        1725.16  -28.33       (-1.62%) 
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 30-Year Bond  102 8/32  +25/32   5.96% Yield 
 

HEROES

Internet stocks gained today as the latest investment thesis posits that the sector will be isolated from the Asian financial problems causing the latest "tech armageddon." Also, some analysts are starting to ruminate that falling PC prices might spur those already not hooked up to the Web to finally get online and see what this Internet stuff is all about. Internet search engine company Yahoo! Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: YHOO)") else Response.Write("(Nasdaq: YHOO)") end if %> added $7 1/4 to $87 13/16, fellow search engine Infoseek <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEEK)") else Response.Write("(Nasdaq: SEEK)") end if %> advanced $2 1/32 to $20 13/32, and Excite Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: XCIT)") else Response.Write("(Nasdaq: XCIT)") end if %> ascended $5 1/16 to $53 1/2. Online bookseller Amazon.com <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMZN)") else Response.Write("(Nasdaq: AMZN)") end if %> jumped $6 5/8 to $83 3/8, cyber-auctioneer ONSALE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONSL)") else Response.Write("(Nasdaq: ONSL)") end if %> rose $4 5/16 to $33, and Lycos Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LCOS)") else Response.Write("(Nasdaq: LCOS)") end if %> moved $2 11/32 higher to $45 3/4. Internet services providers also got a lift, as Mindspring Enterprises <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSPG)") else Response.Write("(Nasdaq: MSPG)") end if %> tacked on $6 1/4 to $63 5/8 and EarthLink Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELNK)") else Response.Write("(Nasdaq: ELNK)") end if %> gained $5 3/8 to $55 3/8.

Alumax Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMX)") else Response.Write("(NYSE: AMX)") end if %> jumped $10 5/16 to $47 after agreeing to merge with fellow aluminum producer Aluminum Co. of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AA)") else Response.Write("(NYSE: AA)") end if %> in a deal valued at about $3.8 billion. Under the agreement, Alcoa will launch a cash tender offer for half of the outstanding shares of Alumax at $50 per share. Each remaining Alumax share will be exchanged for 0.6975 of a share of Alcoa stock, or $49.95 per share (a 28% premium to Friday's close). Despite the confidence expressed by Alcoa's chairman and CEO today, antitrust issues are definitely a concern. In December, the Feds broke up the company's bid for an aluminum can rolling plant owned by Reynolds Metals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RLM)") else Response.Write("(NYSE: RLM)") end if %> on antitrust grounds. Moreover, the annual aluminum output of the combined company would be more than twice that of Alcan Aluminum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AL)") else Response.Write("(NYSE: AL)") end if %>, its closest rival, which could touch off "relevant market" considerations by regulators. Fellow aluminum company Kaiser Aluminum <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KLU)") else Response.Write("(NYSE: KLU)") end if %> also picked up $5/8 to $9 7/8 today.

Canadian forest products company Avenor Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ANR)") else Response.Write("(NYSE: ANR)") end if %> rose $1 31/32 to $23 29/32 after agreeing to merge with the largest producer of newsprint in the U.S., Bowater Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BOW)") else Response.Write("(NYSE: BOW)") end if %>, in a deal valued at $2.47 billion including assumed debt. Under the agreement, Bowater will acquire Avenor for $24.67 per share in cash. The announcement was a bummer for vowel-rich Montreal newsprint maker Abitibi-Consolidated <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABY)") else Response.Write("(NYSE: ABY)") end if %>, which launched a $19.74 per share cash tender of its own for Avenor on Feb. 25. Today, Abitibi's CEO conceded his intended to Bowater, saying the rival bid was too rich for his blood. "[T}here is no way that we will bet the future of our company on any one acquisition," he said. He may have a point: Bowater's bid values Avenor at 1.69 times last year's sales and 23 times 1998 EPS estimates of $1.04 (converted from $1.47 per share Canadian). However, for the overall industry, the removal of another producer from the game bodes well for the pricing power of newsprint.

QUICK TAKES: Textiles and apparel maker Delta Woodside <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DLW)") else Response.Write("(NYSE: DLW)") end if %> climbed $9/16 to $5 after saying it would take a $32 million charge to its fiscal Q3 earnings to close fabric plants and sell its Nautilus International fitness equipment unit... Mortgage loan servicer Capstead Mortgage Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMO)") else Response.Write("(NYSE: CMO)") end if %> gained $1 13/16 to $20 11/16 after announcing a fiscal Q1 dividend of $0.50 per share and that it may increase the payment for fiscal 1998 due to the performance of its investment portfolio... Commercial real estate investment trust American Industrial Properties REIT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IND)") else Response.Write("(NYSE: IND)") end if %> rose $3/4 to $13 3/8 after its board approved a stock buyback program for up to 1 million shares... Satellite manufacturer Loral Space & Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LOR)") else Response.Write("(NYSE: LOR)") end if %> was launched $3 1/2 higher to $29 5/16 after reporting Q4 EPS of $0.17, beating the First Call mean estimate of a loss of $0.06. Orion Network Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ONSI)") else Response.Write("(Nasdaq: ONSI)") end if %>, which is being acquired by Loral, gained $1 7/8 to $20 1/4...

Sears, Roebuck & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> was lifted $3 1/8 to $57 13/16 as Total System Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TSS)") else Response.Write("(NYSE: TSS)") end if %> announced that it is in negotiations to support the retailing giant's private label credit card accounts... German conglomerate Hoescht AG <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HOE)") else Response.Write("(NYSE: HOE)") end if %> added $1 13/16 to $40 9/16 after its Hoescht Marion Roussel pharmaceutical company received approval from the FDA to sell its Refludan drug, which is used to treat a rare, adverse reaction to the anticoagulant heparin... Toronto-based security products maker MDC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: MDQ)") else Response.Write("(AMEX: MDQ)") end if %> added $9/16 to $8 13/16 after reporting Q4 EPS from continuing operations of $0.49, up 23% from the $0.40 earned a year ago... Oshman's Sporting Goods <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: OSH)") else Response.Write("(AMEX: OSH)") end if %> scored a $3/8 gain to $5 1/8 after the operator of SuperSports USA stores reported Q4 EPS of $0.94 versus a loss of $2.59 per share a year ago.

Consumer electronics firm Recoton Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RCOT)") else Response.Write("(Nasdaq: RCOT)") end if %> gained $3 3/4 to $23 today after retailer Sears <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: S)") else Response.Write("(NYSE: S)") end if %> agreed to carry the company's line of home audio speakers... STM Wireless <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STMI)") else Response.Write("(Nasdaq: STMI)") end if %> picked up $1 to $10 as the wireless communications products maker announced the completion of a $10 million private offering of stock... Long-distance telephone company LCI International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LCI)") else Response.Write("(NYSE: LCI)") end if %> jumped $3 5/16 to $37 11/16 after multimedia communications firm Qwest Communications International <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QWST)") else Response.Write("(Nasdaq: QWST)") end if %> agreed to buy the company in a $4.4 billion stock swap... CEL-SCI Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HIV)") else Response.Write("(NYSE: HIV)") end if %> gained $1/2 to $5 1/8 after the immunotherapy developer said animal studies showed that a new version of its HGP-30 AIDS vaccine induces a stronger cellular immune response than the previous vaccine, which could help in fighting the HIV infection.

Seismic data acquisition services firm 3-D Geophysical <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TDGO)") else Response.Write("(Nasdaq: TDGO)") end if %> climbed $1/2 to $9 3/8 after agreeing to be acquired by oilfield services company Western Atlas <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WAI)") else Response.Write("(NYSE: WAI)") end if %> for $9.65 per share in cash... Multimedia projection display systems provider Proxima Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PRXM)") else Response.Write("(Nasdaq: PRXM)") end if %> soared $2 5/16 to $10 5/8 after agreeing to be acquired by Norway's ASK for about $84 million in cash, or $11 per share... Internet-based audio and video communication software developer VocalTec Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VOCLF)") else Response.Write("(Nasdaq: VOCLF)") end if %> gained $1 11/16 to $23 1/4 after signing an agreement with Fujitsu Business Systems to distribute VocalTec's telephony network products to its corporate clients worldwide... Internet connectivity solutions and software provider Netopia Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTPA)") else Response.Write("(Nasdaq: NTPA)") end if %> added $5/8 to $5 3/4 after Internet services provider EarthLink Network <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ELNK)") else Response.Write("(Nasdaq: ELNK)") end if %> agreed to license Netopia's Virtual Office software on EarthLink's "Internet Room" personalized website.

Enterprise data storage management firm MTI Technology Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MTIC)") else Response.Write("(Nasdaq: MTIC)") end if %> advanced $15/16 to $14 3/8 after introducing fibre channel support for its Gladiator ESS storage system. Fibre channel will increase transfer rates up to 100 Mbit/second and increase cable distances to over six miles, the company said... Video game maker Acclaim Entertainment <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AKLM)") else Response.Write("(Nasdaq: AKLM)") end if %> gained $7/8 to $6 15/32 after closing its coin-operated game division on Friday and shifting the unit's resources to its Acclaim Studios home entertainment products business... Welding products company Lincoln Electric Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LECO)") else Response.Write("(Nasdaq: LECO)") end if %> shot up $2 3/4 to $46 after announcing a two-for-one stock split last Thursday.

Drugmaker ICN Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICN)") else Response.Write("(NYSE: ICN)") end if %> gained $3 5/8 to $62 13/16 after Goldman Sachs put the stock on its "recommended list" on the belief that the firm's new hepatitis C treatment is close to being approved by the Food and Drug Administration... Portable computer repair and multimedia services firm Enhanced Services Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ESVS)") else Response.Write("(Nasdaq: ESVS)") end if %> surged $1 5/32 to $5 25/32 on news that it has made a "significant investment" in interactive advertising sales and marketing company ZULU-tek Inc... Online financial services provider Atlanta Internet Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NTBK)") else Response.Write("(Nasdaq: NTBK)") end if %> rose $1 7/8 to $19 1/8 after reporting that its deposits have grown by 70% to over $100 million since January... Online music retailer CDNow Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CDNW)") else Response.Write("(Nasdaq: CDNW)") end if %> rolled $3 1/2 higher to $26 1/8 as BT Alex. Brown started coverage of the stock with a "buy" rating... State Auto Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: STFC)") else Response.Write("(Nasdaq: STFC)") end if %> added $1 7/8 to $34 5/8 after the insurance holding company announced a two-for-one stock split on Friday.

GOATS

The Department of Justice's sudden about-face regarding the planned merger between defense contractors Northrop Grumman <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOC)") else Response.Write("(NYSE: NOC)") end if %> and Lockheed Martin <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %> appears to contradict the Pentagon's efforts to encourage defense companies to combine to avoid overlap -- especially in this post-Cold War era where cutting weapons spending is en vogue. The Justice Department now says it is fundamentally opposed to the proposed $11.6 billion deal that would have Northrop become a subsidiary of Lockheed and create a $37 billion defense behemoth. The news is particularly bad for Northrop, as the smaller size of the debt-ridden maker of the B-2 stealth bomber promises to be a disadvantage in a rapidly consolidating industry. Northrop, which traded at $88 7/8 the day before the merger was announced, lost $20 1/8 to $117 1/2 today.

British publisher Reed International Plc <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RUK)") else Response.Write("(NYSE: RUK)") end if %> fell $3 1/4 to $41 5/8 after announcing it has scuttled plans to merge with the Netherlands' Wolters Kluwer NV. Reed International and Dutch partner Elsevier NV <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ENL)") else Response.Write("(NYSE: ENL)") end if %>, which lost $3 1/8 to $33 7/8, ditched the proposed $9 billion takeover of their Dutch rival after Wolters Kluwer demanded a larger stake in the combined business. Wolters Kluwer, the parent of Little, Brown & Co., sought better terms after realizing that the number of units that needed to be sold to comply with antitrust regulations wouldn't allow for the 15% earnings growth it had promised shareholders. Reed Elsevier, perhaps best known through its Lexis-Nexis database, decided that the changes Wolters Kluwer wanted would make the merger "unattractive" to its own shareholders.

What's good news for car owners is bad news for oilfield services companies, as crude oil prices dropped below $15 a barrel for the first time since April 1994. A number of oilfield services companies slumped on the news due to the fact that lower spot oil prices affect the cash flows and thus the spending plans of the major integrated oil concerns. Rowan Cos. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RDC)") else Response.Write("(NYSE: RDC)") end if %> tumbled $1 13/16 to $28 1/16. Noble Drilling Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NE)") else Response.Write("(NYSE: NE)") end if %> lost $2 1/8 to $27 3/16. BJ Services Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BJS)") else Response.Write("(NYSE: BJS)") end if %> slid $1 7/8 to $35 1/4. Halliburton Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HAL)") else Response.Write("(NYSE: HAL)") end if %> fell $2 1/8 to $46. National Oilwell <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOI)") else Response.Write("(NYSE: NOI)") end if %> was cut $1 5/8 to $28 13/16. R&B Falcon Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> lost $1 3/16 to $27 3/8. Marine Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MDCO)") else Response.Write("(Nasdaq: MDCO)") end if %> sank $1 7/16 to $20 13/16. Cliffs Drilling <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDG)") else Response.Write("(NYSE: CDG)") end if %> shed $2 9/16 to $37. Diamond Offshore <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DO)") else Response.Write("(NYSE: DO)") end if %> dipped $2 1/8 to $43 15/16 and ENSCO International <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ESV)") else Response.Write("(NYSE: ESV)") end if %> slipped $1 9/16 to $28 1/2.

Compaq Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPQ)") else Response.Write("(NYSE: CPQ)") end if %> fell $2 5/16 to $25 7/16 from its New York close on Friday of $27 3/4 after announcing after the close of trading last week that first quarter results will come in below plan. First quarter revenues are expected to be flat compared with 1997's first quarter revenues of $4.805 billion and down 34% from the seasonally busy 1997 fourth quarter. The company will probably need both the first and second quarter to work down its channel inventory. However, writing off the whole affair to "channel stuffing" misses a key element of Compaq's current strategy. In order for the company to properly roll back its price protection regime, it is currently in the throes of a move to channel assembly -- where it ships PC components to its resellers and other distributors who then assemble the components into a branded computer. In this way Compaq may save up to $70 per PC just in inventory holding losses, and clean up the company's financial picture sufficiently to run with the Digital Equipment Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DEC)") else Response.Write("(NYSE: DEC)") end if %> merger later this year.

QUICK CUTS: Compaq Computer's inventory channel woes, as well as fears that high-end PC demand is slowing and that the overall secular growth picture for the business might slow to 12-15% unit growth in 1998 sent shares of a number of PC manufacturers down today. Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> dropped $6 1/8 to $63 1/8, Apple Computing <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AAPL)") else Response.Write("(Nasdaq: AAPL)") end if %> fell $1 11/16 to $22 3/4, and Gateway 2000 <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GTW)") else Response.Write("(NYSE: GTW)") end if %> slipped $1 7/16 to $36 1/4. Retailer CompUSA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPU)") else Response.Write("(NYSE: CPU)") end if %> was cut $1 3/4 to $25 3/4 as well... Network computing systems maker Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> skidded $4 31/32 to $37 25/32 after more evidence emerged that the growing popularity of Windows NT is subverting the market share of the dominant Unix operating system. DataQuest reported that despite Sun's leading 27% market share in the workstation market, competitor Hewlett-Packard <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HWP)") else Response.Write("(NYSE: HWP)") end if %> is gaining with 25% share.

Computerized balancing equipment maker Schmitt Industries <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SMIT)") else Response.Write("(Nasdaq: SMIT)") end if %> plummeted $1 13/16 to $6 after announcing after the bell Friday that it anticipates lower-than-expected earnings for the third and fourth quarters due to delayed shipments of the company's precision measurement instruments to the semiconductor and data storage industries... ShoLodge Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LODG)") else Response.Write("(Nasdaq: LODG)") end if %>, franchisor of Shoney's Inns and owner of Sumner Suites, plunged $2 3/4 to $9 1/2 after announcing that it expects to report fourth quarter earnings between $0.08 and $0.11 per share, which falls short of the First Call mean estimate of $0.15... Berg Electronics <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEI)") else Response.Write("(NYSE: BEI)") end if %> slipped $2 1/2 to $25 5/8 after Merrill Lynch lowered its near-term rating on the electronic connectors maker to "neutral" from "accumulate" while keeping its "long-term buy" rating.

Sub-prime home equity lender Southern Pacific Funding Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SFC)") else Response.Write("(NYSE: SFC)") end if %> lost $1 1/4 to $16 3/16 after Moody's cut the company's senior debt rating to B3 from B2 and its subordinated debt ratings to Caa1 from B3 to reflect the company's negative operating cash flow and limited financial flexibility over the near term... Medical management firm PHP Healthcare Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PPH)") else Response.Write("(NYSE: PPH)") end if %> fell $1 1/8 to $15 7/16 after reporting third quarter earnings of $0.16 per share (before charges) compared with a $0.90 loss for the year-earlier period and the First Call mean estimate of $0.13... Bionx Implants <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BINX)") else Response.Write("(Nasdaq: BINX)") end if %>, a developer of self-reinforced, resorbable polymer implants for use in orthopaedic and craniofacial surgery, was cut $5 1/4 to $18 after announcing that new competition and deep discounts will impact sales and earnings in the first two quarters of 1998. The company anticipates lost sales will total $1-$2 million.

Template Software <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TMPL)") else Response.Write("(Nasdaq: TMPL)") end if %> fell $1 1/4 to $11 1/4 after announcing that it expects to report a first quarter loss of about $0.05 per share compared with earnings of $0.08 in the prior-year period... Network Computing Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NCDI)") else Response.Write("(Nasdaq: NCDI)") end if %> dropped $2 1/2 to $11 after the computer hardware and software company announced that it anticipates lower revenues and "modest" losses in the first half of 1998, and that it expects the ramp-up of orders for "thin client" systems to begin by the third quarter... Biotechnology company ZymeTx Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ZMTX)") else Response.Write("(Nasdaq: ZMTX)") end if %> lost $1 3/4 to $4 1/4 after announcing it will not realize significant sales of its ZStatFlu influenza diagnostic tests in 1998 because of the unexpected short influenza season in North America and because doctors prefer to have a "test drive" period before making a purchase decision.

Solectron Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLR)") else Response.Write("(NYSE: SLR)") end if %> slipped $2 11/16 to $40 15/16 after Merrill Lynch cut its rating on the contract electronics manufacturer to "near-term accumulate" from "near-term buy" while keeping its "long-term buy" rating... Bear Stearns lowered its rating on Quantum Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: QNTM)") else Response.Write("(Nasdaq: QNTM)") end if %> to "attractive" from "buy," sending the disk drive maker down $1 9/16 to $19 9/16... Dow Jones & Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DJ)") else Response.Write("(NYSE: DJ)") end if %> slid $3/4 to $53 11/16 after Bridge Information Systems halted its plans to acquire Dow Jones' ailing Markets unit due to its inability to renegotiate a contract with key vendor Cantor Fitzgerald.

Insurance holding company John Alden Financial Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JA)") else Response.Write("(NYSE: JA)") end if %> lost $1 1/8 to $21 1/2 after reporting a fourth quarter loss of $0.98 per share compared with a loss of $0.57 in the prior-year quarter... Security First Network Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SFNB)") else Response.Write("(Nasdaq: SFNB)") end if %> dropped $1 7/8 to $11 3/4 after reporting a fourth quarter loss of $0.93 a share versus a loss of $1.19 for Q4 1996. The fourth quarter loss includes approximately $0.34 per share of non-recurring charges and goodwill amortization resulting from the acquisition of Solutions By Design Inc... Signature Eyewear <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SEYE)") else Response.Write("(Nasdaq: SEYE)") end if %> fell $1 7/8 to $ after the prescription eyeglass frame maker reported first quarter earnings of $0.07 compared with $0.08 in the year-earlier period... Long-distance telecommunications company Viatel Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VYTL)") else Response.Write("(Nasdaq: VYTL)") end if %> shed $1 1/16 to $9 3/8 after Moody's Investors Service on Friday downgraded to Caa1 from B3 the senior unsecured debt of the company's $120.7 million 15% senior discount exchange notes due 2005 due to increased financial risk as a result of Viatel's plans to build a pan-European, fibre-optic ring.

FOOL ON THE HILL
An Investment Opinion
by Dale Wettlaufer

A Look at American Express, Part 2

On Friday we posited that American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> looks and acts like a bank, but with some vital differences. The company has three main moving parts -- the predominant Travel Related Services and American Express Financial Advisors, with American Express bank bringing up the rear. In Part 1, we took a look at the charge card part of Travel Related Services (TRS). Today we will look at the rest of TRS, American Express Financial Advisors, and then look at how the company's financials look in comparison to banks.

Amex's transaction facilitation, through its American Express cards and traveler's checks, accounts for the bulk of its Travel Related Services revenues. However, Amex is still a major force in the travel agency business, with nearly $1.5 billion a year in revenues. That represents around 8% of the company's consolidated revenues and is the slowest growing segment of Amex. With airlines cutting back on the commissions they pay travel agents, revenue growth has been harder to come by here, despite the fact that the unit's client base meshes very well with the rest of the company's businesses.

The overhead costs of running the company's travel centers is a burden that comes come along with this business. To its credit, the company has kept occupancy expense growth low and has a good deal of fully depreciated real estate on the books, which doesn't weigh down the income statement but does represent capital that could be redirected elsewhere if the travel agency business does not generate a good return on capital. Since the travel agency business does feed the other units, though, the view that the company's agency business is not earning its keep may be premature. As it is, however, the better growth in Travel Related Services comes from discount revenue, or the percentage of the purchase price Amex keeps when a customer makes a purchase with an Amex card.

American Express Financial Advisors is a major component of the company's business. This part of Amex looks like a bank trust company, a brokerage, and an insurance underwriter. With nearly 8,800 financial advisors representing the company and assets under management and under trust over $200 billion, Amex is among the largest asset managers in the country. Other companies in the Financial Advisors division include IDS Life Insurance, with nearly $50 billion in assets. A growing part of the division is the company's Tax and Business Services unit, which has been acquiring accounting firms around the country. The company's strategy of maintaining client relationships as a way to grow the business is especially important here.

If a client is using Amex CPAs and other consultants, 401(k) services, and Amex cards along with expense management services, the company has to make a client pretty mad for that customer to bolt. In addition, American Express finds itself in a good position to lend to the client, supplanting local bankers and brokers with a more cost-efficient structure.

American Express's financials look very much like a bank's in that the company uses a lot of leverage to acquire assets. With an average equity/average assets ratio of 7.6% (as of Q3), the company uses one of its dollars to support about $13.5 in assets, which matches the ratio shown by many banks. By comparison, this is about what you would see with Norwest Bank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NOB)") else Response.Write("(NYSE: NOB)") end if %>, a little higher than Chase Manhattan <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMB)") else Response.Write("(NYSE: CMB)") end if %> and super regionals such as First Union <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FTU)") else Response.Write("(NYSE: FTU)") end if %> or NationsBank <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NB)") else Response.Write("(NYSE: NB)") end if %>, and a little lower than BankAmerica (NYSE; BAC). A telling number on the productivity of the company isn't so much the return on equity (ROE), which is right in the favorable 23-24% range, but the company's asset turnover. Since asset turnover, leverage, and profit margins make up the components that determine ROE, and since Amex's leverage is equal to that of banks but its current profit margin is lower, we would expect to see the difference made up in asset turnover. And, indeed, we do.

Asset turnover is the company's revenues divided by the year's average assets. In the case of Amex, this number falls in the 15% range. Larger banks generate much lower asset turnover rates, with only Norwest approaching Amex because of its high rate of securitizing the mortgage loans it originates.

Asset turnover
BankAmerica: 5.75%
Chase Manhattan: 4.78%
Citicorp: 7.5%
Wells Fargo: 7.1%
BankBoston: 6%
Norwest: 8.4%

Even with lower margins, Amex's asset base is much more active, creating a higher level of absolute earnings from each dollar of assets.

Another way to assess the quality of a bank is to look at its noninterest revenues (from trust activities, asset management, mortgage origination fees) in comparison with net interest income (interest income minus interest expense) or in comparison to just interest income. A higher percentage of noninterest income to net interest income or interest income is preferable, as this can indicate a less capital-constrained business model or a more stable stream of revenues. Most of Amex's net revenues come from noninterest income, and its noninterest income to interest income ratio is 263%. Among the banks mentioned above, the closest such ratio is 44.6% and the lowest is BankBoston's 29.6%.

Certainly, the Visa and MasterCard consortia present challenges to Amex's many franchises. The company also hasn't hit its potential with alternative delivery channels, such as the Internet. However, its growth in services, such as its accounting practice acquisitions, gives it entr�e to the very lucrative middle market (companies with revenues of $5 million to $100 million), putting Amex into direct competition with regional banks. With a full array of services that most banks are acquiring or are trying to build, Amex stands on a solid foundation to compete.

The company's business model is lighter than its banking competitors, it is not as highly regulated as its banking competitors, and it generates much more cash per dollar of assets than its competitors. At a P/E of 22.5, the company is priced cheaper than the premium banks, whose business models are not superior to Amex. American Express already looks like the organization that every super regional bank is trying to become.

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