FOOL PLATE SPECIAL

Internet Menace?

Business Week has apparently struck again. The magazine, which has an online service on America Online, has maintained its incredibly hostile attitude toward the Digital World in its latest issue, which will hit the news stands today. To save you the questionable experience of reading the article penned by Gary Weiss, who is ironically involved in managing Business Week's online presence, we offer the following excerpt, which effectively sums it up: "The Internet is hardly as potent a market force as are analyst reports and the financial press--but it's getting there, and fast."

Weiss rehashes the recent Zytec <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ZTEC)") else Response.Write("(NASDAQ: ZTEC)") end if %> incident, pulling a quote from Fool real-money portfolio manager Greg Markus (MF Boring) completely out of context, and focusing on the Waaco Kind -- in reality a 55 year-old management consultant who began his investment career a little over a year ago. Weiss pens, " Many of the new Internet investment savants are, like Markus, strictly amateur investors," a blatant slam on anyone who is not part of the Wall Street establishment and a implicit misuse of the Latin-based word amateur, which is classically intended to convey that someone has a mastery of a subject without the benefit of a formal education.

The paranoia fostered by Business Week is deliciously ironic, given that Business Week's "Hot Stocks" column regularly causes stocks to pop up or down on the unsubstantiated comments of portfolio managers and analysts. Since there is arguably no formal degree awarded to analysts and that the C.F.A. designation pioneered by Ben Graham is more symbolic than indicative of any advanced schooling, all that separates the portfolio managers and analysts that Business Week champions from amateur investors with a number of years of successful investment experience behind them is the halo conveyed by working for a money management firm. Somehow for the print media, unless you are paid to manage money, your comments do not have the same standing as those from established sources. In my opinion, it simply highlights the degree to which most business reporters know little or nothing about the actual mechanics of investing or the workings of Wall Street.

UPGRADES & DOWNGRADES

Autodesk <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ADSK)") else Response.Write("(NASDAQ: ADSK)") end if %> got smacked for $5 5/8 to $34 7/8 after Goldman Sachs moved its coverage to analyst Laura Conigliaro (who rated it a "market perform") from Gregory Gould (who had listed the company as a "buy" and had it on the firm's recommended list). This effective downgrade was sparked by forecasts for a weak AutoCAD market. Hambrecht & Quist also cut Autodesk from "buy" to "hold". The company used to trade under the symbol ACAD.

Cognex <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CGNX)") else Response.Write("(NASDAQ: CGNX)") end if %> dropped $2 3/4 to $19 3/4 after an analyst at Prudential cut estimates. Apparently, analysts have only recently realized that the machine vision company sells to semiconductor manufacturers, as the company has traded at a multiple much higher than the rest of the group. The company gave some cautionary statements at a conference this morning.

Hambrecht & Quist analyst Alex Zisson initiated coverage of GelTex Pharmaceuticals <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GELX)") else Response.Write("(NASDAQ: GELX)") end if %> with a "buy", boosting the developer of non-absorbed polymer-based pharmaceuticals $2 to $26 1/4 this morning.

DSC Communications <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DIGI)") else Response.Write("(NASDAQ: DIGI)") end if %> dropped $1 1/2 to $33 3/4 after Donaldson, Lufkin & Jenrette cut the stock from "underperform" to "market perform".

EARNINGS SURPRISES

Optical Coating Labs <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCLI)") else Response.Write("(NASDAQ: OCLI)") end if %> soared $1 1/8 to $15 1/4 this morning after the company posted earnings per share (EPS) that were $0.06 ahead of the $0.12 EPS expectations.

Consilium Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSIM)") else Response.Write("(NASDAQ: CSIM)") end if %> dropped $1 3/4 to $7 1/4 after the company reported a surprise $0.29 EPS loss and chief financial officer (CFO) Richard Van Hoesen resigned over questions of perceived improprieties.

Compression Labs <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLIX)") else Response.Write("(NASDAQ: CLIX)") end if %> toppled $1 1/8 to $6 5/8 after reporting miserable first quarter results yesterday of a $0.40 EPS loss, defying expectations of a slimmer $0.35 EPS deficit.

Telco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TELC)") else Response.Write("(NASDAQ: TELC)") end if %> dropped $1 1/8 to $12 1/4 after the company forecast a larger-than-expected third quarter loss due to restructuring charges.

High-speed digital subscriber line (HDSL) developer Westell Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: WSTL)") else Response.Write("(NASDAQ: WSTL)") end if %> got smacked for $4 1/2 to $80 after it reported earning two cents more than expected.

Confirming the notion that the difficulty of installation for Integrated Subscriber Digital Network (ISDN) lines are holding back growth, Gandalf Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GANDF)") else Response.Write("(NASDAQ: GANDF)") end if %> dropped $1 7/8 to $16 3/8 after posting break-even profits, four cents below expectations.

Former Fool Portfolio holding Boston Technology <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BSTN)") else Response.Write("(NASDAQ: BSTN)") end if %> dropped $1 3/8 to $17 3/8 today after reporting earnings in line with estimates. Boston Technology develops voice-mail and other applications for telecommunications companies.

Internet access provider IDT Corp. (NADSAQ: IDTC) was rewarded $1 5/8 to $13 1/2 for a 450% gain in revenues in spite of the fact that the company lost $0.25 EPS in its fiscal first quarter. What a difference a UUNet buy-out makes.

Esterline Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ESL)") else Response.Write("(NYSE: ESL)") end if %> dropped $1 1/2 to $22 5/8 after the company said the second quarter would be higher than expected. However, the manufacturer of capital equipment for the creation of circuit boards had lower visibility after this quarter.

ODDS & ENDS

The addition of a member of Iomega's management team to Number Nine Visual <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: NINE)") else Response.Write("(NASDAQ: NINE)") end if %> has sparked interest in the stock, causing the shares to rise $2 1/8 to $10 1/2 today after a similar gain yesterday.

Quality Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QSII)") else Response.Write("(NASDAQ: QSII)") end if %> continued the trend in healthcare informatics mergers begun by HBO & Co. earlier in the week, getting together with privately-held Clinitec International for $11.8 million and rising $3 to $28 1/4 as a result.

STB Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: STBI)") else Response.Write("(NASDAQ: STBI)") end if %> continued to rise after Dell's first quarter earning surprise, up another $1 1/4 to $14 1/4 this morning. STB supplies Dell with graphic adapter cards for its PC lines marketed to small businesses and corporate clients.

US Long Distance <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: USLD)") else Response.Write("(NASDAQ: USLD)") end if %> pulled back $1 7/8 to $38 1/8 after a two-day surge based on prospects for the spin-off of its billing unit.

Student Loan Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: STU)") else Response.Write("(NYSE: STU)") end if %> rose $1 1/2 to $36 3/8 after Business Week quoted Furman Selz's Les Nelkin as saying that the company would be worth more if it deployed excess capital more efficiently.

Randy Befumo (MF Templar), a Fool
Selena Maranjian (MF Selena), another Fool