Investment Opinion
FOOL PLATE SPECIAL

AOL Down Amid New Fears

When it rains, it pours for shareholders in AMERICA ONLINE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AMER)") else Response.Write("(NASDAQ: AMER)") end if %>. In rapid succession, investors confronted a litany of news this morning. Montgomery downgraded the shares to "hold" from "buy" because of a deceleration of sign-ups and the current rate of "churn". Cowen & Co. reduced their expectations today for June subscriber growth. The fact that yesterday America Online hastily canceled their presentation at today's Bear Stearns growth conference did nothing to assuage institutional fears.

News that COMPUSERVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSRV)") else Response.Write("(NASDAQ: CSRV)") end if %> was going on the Web with a recently-announced software from Redmond-based MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MSFT)") else Response.Write("(NASDAQ: MSFT)") end if %> was the final thumb in the eye of America Online shareholders this morning, with all this causing shares of America's largest consumer online service to drop $5 5/8 to $47 3/8. CompuServe's recently-announced intent to abandon its proprietary operating system to jump onto the Web continues shake America Online's shareholders. The move to the Web, which ironically improves CompuServe's text-driven interface, makes people wonder whether or not America Online is actually behind the curve. With Microsoft's perceived muscle behind the shift to the Web, CompuServe is again viewed as a threat instead of an also-ran.

The real question investors in America Online need to be asking themselves is whether or not the company can ramp up advertising, transaction and merchandise revenues faster than it will be forced to drop usage revenues. This is the question that Michael Murphy fails to ask in his recent pan of the company -- the question that will determine whether America Online has a future as a media company or is simply going to fulfill his bearish prediction and become a provider of commoditized access. Expect to find more coverage of these questions in a Special Section today.

UPS

Temporary services concern NORRELL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NRL)") else Response.Write("(NYSE: NRL)") end if %> blew out earnings estimates and declared a 2-for-1 split today, rising $2 1/2 to $44 this morning. Microsoft and IBM accounted for over 22% of Norrell's business in the last quarter.

ALPHA-BETA TECHNOLOGY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ABTI)") else Response.Write("(NASDAQ: ABTI)") end if %> rose $5/8 to $12 5/8 this morning after discovering a "novel receptor". No, this will not clear up your television reception. The receptor Alpha-Beta found apparently primes immune cells to fight diseases.

A bit of a turnaround occurred today for APPLE COMPUTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: AAPL)") else Response.Write("(NASDAQ: AAPL)") end if %>, up $15/16 to $25 1/8. It appears it has finally found a financial instrument the Street likes -- the convertible junk bond. The third-largest manufacturer of personal computers floated $575 million in convertible notes yesterday, easing its cash-poor situation and earning an upgrade to "outperform" from "neutral" by Smith Barney.

ORTEL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ORTL)") else Response.Write("(NASDAQ: ORTL)") end if %> rose $1 3/4 to $24 this morning -- the only news we could find to explain this was a deal to supply fiber-optic equipment to Lockheed Martin <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LMT)") else Response.Write("(NYSE: LMT)") end if %>.

DIANA CORP.'S <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DNA)") else Response.Write("(NYSE: DNA)") end if %> management came out swinging today, fending off attacks from a shorting-oriented newsletter and Asensio & Co.'s questions about the quasi-networker's value. Shares rose $4 3/4 to $83 3/4 after management called comments about its Sattel Communications unit "inaccurate".

The charmed effect of yesterday's initiation of names like ULTRATECH STEPPER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: UTEK)") else Response.Write("(NASDAQ: UTEK)") end if %> and ONTRAK SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ONTK)") else Response.Write("(NASDAQ: ONTK)") end if %> as "long-term buys" by Merrill is wearing off; Ultratech was down $1 5/16 to $26 1/16 while Ontrak lost $1 1/4 to $27 3/4 this morning.

TRANS FINANCIAL <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: TRFI)") else Response.Write("(NASDAQ: TRFI)") end if %> rose $1 7/8 to $17 3/4 this morning after its chairman, chief executive officer and president resigned. Gives you a sense of the esteem in which shareholders held him.

COMPUTER LEARNING CENTER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CLCX)") else Response.Write("(NASDAQ: CLCX)") end if %> shot out the lights this morning, reporting $0.27 earnings per share (EPS) versus $0.13 EPS last year. The regional education-oriented corporation, based in the Northern Virginia area, tends to be overshadowed by its nationwide competitors and might still trade at a discount to fair value. Shares rose $4 3/4 to $22 3/4.

She starts wars, she splits stock. Hair product manufacturer HELEN OF TROY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: HELE)") else Response.Write("(NASDAQ: HELE)") end if %> rose $3 1/4 to $30 1/4 this morning after announcing a two-for-one split. The company also emphasized that 1997 should be "another record year".

DOWNS

The cryptic Dow Jones Retrieval headline read "Cephalon, Chiron down on Smith Barney comments". We have no idea what they said, but CEPHALON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CEPH)") else Response.Write("(NASDAQ: CEPH)") end if %> was off $2 3/16 to $24 1/2 this morning.

MF Boring's mused in his portfolio report last night that investors viewed the 4.9 million share secondary offering for PRIME MEDICAL SERVICES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PMSI)") else Response.Write("(NASDAQ: PMSI)") end if %> as favorable. However, shares slumped $2 to $18 3/8 this morning after small institutions and individual investors found out the details.

Perhaps those rumors that ALTERA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: ALTR)") else Response.Write("(NASDAQ: ALTR)") end if %> customers had about seven months of inventory already in the channel were partially true. Altera slumped $1 3/4 to $45 5/8 this morning after it stated that second quarter revenues will be 15% below the first quarter.

LAM RESEARCH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: LRCX)") else Response.Write("(NASDAQ: LRCX)") end if %> dropped $2 1/2 to $34 3/4 after it forecast earnings 4% to 5% below the First Call consensus estimate of $1.34 EPS for the fourth quarter. It said the first and second quarters might also be weak, citing excess inventory due to a slowdown in the semiconductor equipment industry's growth rate $1 3/8 to $15 1/4 after the company told analysts that delays in contracts would take some steam out of the second quarter.

Remember a price cut on their desktop projectors in March, poor comparisons, and missed estimates in their April fourth quarter? Now PROXIMA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PRXM)") else Response.Write("(NASDAQ: PRXM)") end if %> is letting people know that it expects a first quarter loss, losing $1 1/4 to $14 3/4.

Well, perhaps being interviewed by Mark Haines on CNBC's Squawk Box does not always guarantee multi-point rises, however engaging the questions might be. SPECTRAN CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPTR)") else Response.Write("(NASDAQ: SPTR)") end if %> dropped $3 3/8 to $24 5/8 after the interview this morning.

OPTA FOOD INGREDIENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OPTS)") else Response.Write("(NASDAQ: OPTS)") end if %>, which develops proprietary food ingredients, slumped $4 1/4 to $12 1/4 after it told the Street that it will more than likely miss analyst's estimates for both the second quarter and the full year.

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