Investment Opinion
FOOL PLATE SPECIAL

AVEMCO CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVE)") else Response.Write("(NYSE: AVE)") end if %> suffered the unkindest of cuts yesterday -- and we are not talking analyst recommendations. The property and casualty insurance underwriter was absolutely smashed yesterday when Frank Russell & Co. dumped the shares from its proprietary Russell 3000 Index, falling $2 1/8 to $12 1/8 -- well off the $15 3/4 the company was valued at a mere 30 days ago.

All one needs to do to understand what has happened is to look at the volume of shares traded over the past 30 days. Volume for the thinly traded company has exploded in the last few days, topping 40,000 three out of the last four days compared to the roughly 1,000 shares a day at the end of May and well above the 7,689 average daily volume listed in yesterday's Investor's Business Daily. This 40-fold expansion in volume over the past 30 days is the result of an adjustment in the company make-up of the Russell 3000 Index, a proprietary index that hundreds of professional money managers use to "passively" manage money.

The Russell 3000 is an index just like the S&P 500 or the Dow Jones Industrial Average, the major difference being that the Russell 3000 includes 3000 companies instead of simply 30 or 500. The Russell 3000 is particularly inventive in that it can be broken up a number of ways, as well. The companies in the Russell Index are ranked according to market capitalization, and adjusted for insider holdings (which is where the proprietary part comes in). The first 1000 stocks are also known as the Russell 1000, which is a large-cap index that compares well with the S&P 500. The last 2000 companies are grouped in the Russell 2000, which is widely recognized as a small-cap index, even though it is actually a mixed mid-cap/small-cap deal.

What happens is that once a year the Russell Index is adjusted to reflect the changes in market capitalization that occurred over the previous 12 months. A lot of early Iomega investors will recall there was a hubbub over Iomega's inclusion in the Russell 3000 last summer. The reason why people get excited about it is a lot of institutional money exactly mirrors the Index, buying and holding equal amounts of companies list in the index. When a company is dropped from the Index, like AVEMCO, then all these passive managers dump their shares without regard for value.

This periodic adjustment can cause major fluctuations when a thinly traded stock is added or dropped -- making the prediction of what companies will be added or subtracted a bit of a cottage industry on Wall Street. With only $131.19 million in market capitalization, apparently the cut off this year for the Russell 3000 was just too much -- signaling a wave of selling for the insurance concern. Last year, Graphic Industries was the smallest Russell 3000 company with a market capitalization of $90.8 million, meaning that the spectacular performance of the equity markets has raised the bar for the Russell Index. As always, when a perfectly good company is trashed for reasons that have nothing to do with its core business, there is the potential for above-average returns. Avemco shares today were up $2 1/8 to $14 1/4.

UPS

Space-based laboratory research facility developer SPACEHAB <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPAB)") else Response.Write("(NASDAQ: SPAB)") end if %> is up $2 to $10 3/4 on a mention in Business Week's "Inside Wall Street" column. The company is cited as a pure play in space commercialization, with a lot of potential growth ahead.

Portable storage technology firm IOMEGA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IOMG)") else Response.Write("(NASDAQ: IOMG)") end if %> continues its rebound, up $2 3/8 to $29 7/8 following yesterday's "buy" rating from J.P. Morgan.

Rumors that a Korean firm was pushing out orders for semiconductor design software were flatly denied by CADENCE DESIGN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CDN)") else Response.Write("(NYSE: CDN)") end if %>, allowing the shares to recover $2 to $35 1/8 after yesterday's drop.

PLANET HOLLYWOOD <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: PHII)") else Response.Write("(NASDAQ: PHII)") end if %> shares are in orbit today, up $4 1/8 to $26 7/8 on news that the company is entering into a joint venture with ITT CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ITT)") else Response.Write("(NYSE: ITT)") end if %>.

Industrial equipment manufacturer COMMERCIAL INTERTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TEC)") else Response.Write("(NYSE: TEC)") end if %> is soaring, up $7 3/4 to $26 7/8, on news that UNITED DOMINION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: UDI)") else Response.Write("(NYSE: UDI)") end if %> is offering $27 per share for the company.

Online service COMPUSERVE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CSRV)") else Response.Write("(NASDAQ: CSRV)") end if %> was started by Lehman with an "outperform" rating, sending shares up $1 to $21.

Sunglass and goggle company OAKLEY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: OO)") else Response.Write("(NYSE: OO)") end if %> has investors squealing "Ooo!" with delight, as shares rose $2 1/8 to $44 1/4 on an upgrade to "strong buy" from Alex. Brown.

ICC TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ICGN)") else Response.Write("(NYSE: ICGN)") end if %> surged $1 3/4 to $7 1/4 this morning when a joint venture it has with ENGELHARD CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: EC)") else Response.Write("(NYSE: EC)") end if %> received a large order from Samsung.

Pipeline concern LAKEHEAD PIPE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LHP)") else Response.Write("(NYSE: LHP)") end if %> gushed $1 3/8 to $25 1/4 on an upgrade from "market perform" to "buy" from Goldman Sachs.

Business operation software developer MANUGISTICS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MANU)") else Response.Write("(NASDAQ: MANU)") end if %> was boosted $5/8 to $16 1/4 by an Alex. Brown upgrade from "attractive" to "buy".

GRAHAM-FIELD HEALTH PRODUCTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GFI)") else Response.Write("(NYSE: GFI)") end if %> leapt up $1 to $9 after announcing plans to acquire V.C. Medical Distributors for $1.5 million.

Internet concern SPYGLASS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: SPYG)") else Response.Write("(NASDAQ: SPYG)") end if %> jumped $1 to $20 3/4 after shipping the first device-independent World Wide Web technology kit.

Alarm system manufacturer DETECTION SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: DETC)") else Response.Write("(NASDAQ: DETC)") end if %> popped up $1 7/8 to $14 3/8 today after it forecast first quarter earnings of $0.18 EPS versus $0.06 EPS a year ago.

GELTEX PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: GELX)") else Response.Write("(NASDAQ: GELX)") end if %> continued to crumble after news broke that it had lost a Japanese partner in a development deal, slipping another $2 3/4 to $19 7/8. Apparently, the company did not report this material move even after the stock started to tumble yesterday morning.

Interstate Johnson upped its rating on BROADWAY & SEYMOUR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BSIS)") else Response.Write("(NASDAQ: BSIS)") end if %> to "buy" from "neutral", causing the shares to power ahead $1 to $11 3/4.

REGENERON PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: REGN)") else Response.Write("(NASDAQ: REGN)") end if %> continued to gain ground today, up $2 to $17 5/8 after announcing a collaboration yesterday with MEDTRONIC <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDT)") else Response.Write("(NYSE: MDT)") end if %>. The two companies will jointly develop therapeutics for central nervous systems disease.

DOWNS

MINNTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: MNTX)") else Response.Write("(NASDAQ: MNTX)") end if %>, which develops medical devices and filtration products intended mainly for kidney and heart-related purposes, plunged $3 to $11 after suggesting that customers stop using Biocor, its oxygenator product.

VITESSE SEMICONDUCTOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: VTSS)") else Response.Write("(NASDAQ: VTSS)") end if %>, which surged strongly yesterday, was raised to "buy" by Oppenheimer & Co. today. Shares retreated a little, down $2 3/8 to $23 3/8.

PENN ENGINEERING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNN)") else Response.Write("(NYSE: PNN)") end if %> slipped $1 1/8 to $19 today after issuing 2.85 million additional shares at $19 a share.

Increasing perception on Wall Street that the chief executive officer (CEO) of OPTICAL CABLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: OCCF)") else Response.Write("(NASDAQ: OCCF)") end if %> is inflating his firms prospects a bit has exacerbated the sell-off in the shares, down $1 3/4 to $18 3/4 today.

CHOLESTECH <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: CTEC)") else Response.Write("(NASDAQ: CTEC)") end if %> was crunched for $3/8 to $5 3/8 after the firm offered 2.5 million additional shares at $5 a stub.

Hype comes home to roost today. INTERNATIONAL AUTOMATED SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: IAUS)") else Response.Write("(NASDAQ: IAUS)") end if %> blanketed the world a few weeks ago with the announcement of an impossibly-high-speed modem they were going to demo last night. The stock plunged $20 to $20 (yes, 50%) in panic selling this morning after they did not demostrate anything.