HEROES

SEMTECH CORP. (Nasdaq: SMTC) gained $1 1/2 to $24 3/8 after reporting Q4 earnings of $0.38 per share, down 5% from last year, but up 22% from last quarter on a 13.4% sequential sales increase. Gross margins expanded and the company showed a book-to-bill in excess of 1.0. Semtech has added staff at its Santa Clara, California design center and is optimistic about customer relationships and design wins for the coming year -- important and positive news for investors who realize that power management semiconductors can be quite design intensive. Without the right facilities and personnel to keep up with customers' demanding design specifications, the company will have a hard time succeeding in this market. With the sequential improvements over the last year, Semtech is demonstrating its proficiency in dealing with those market demands.

Deathcare services company CARRIAGE SERVICES INC. (Nasdaq: CRSV) rebounded $7/8 to $19 3/8 after yesterday reporting Q4 EPS of $0.12, beating the mean estimate of $0.10. The company made $69 million in acquisitions, emulating the "gobble to grow" approach of industry leaders SERVICE CORP. INTERNATIONAL (NYSE: SRV) and LOEWEN GROUP (NYSE: LWN). Continuing that approach, the company's board has authorized management to raise its acquisition budget to $125 million for the coming year. The company's emergence into profitability doesn't yet reflect the $50 million acquisition of 15 funeral homes and one cemetery wrapped up last month. Given these factors and yesterday's results, Interstate/Johnson Lane came off the sidelines this morning and raised its rating on the company to "buy" from "hold."

CONVERSE (NYSE: CVE) drove the lane for a $4 3/8 gain to $20 3/4 after a U.S. Bankruptcy Court confirmed the Chapter 11 liquidation plan for the company's Apex One apparel unit. Converse announced in August 1995 that it would shut down the business because profit margins had been destroyed by industry overcrowding and a general malaise among sports apparel buyers since the baseball strike in 1994. The bankruptcy ruling releases Converse from a number of Apex liabilities and cancels warrants to buy Converse stock held by certain Apex principals. Last week, a jury awarded Converse $25.6 million in a lawsuit Converse brought against former Apex owners. With many of the unknowns now lifted and investors focusing on sponsorships deals with Dennis Rodman, the evergreen revenues, and new products, Smith Barney raised its rating on the company to "buy," while Dillon Read initiated coverage with a "buy" rating.

QUICK TAKES: Consumer finance company THE MONEY STORE (Nasdaq: MONE) moved $5 1/8 higher to $26 3/8 on reporting Q4 EPS of 0.48, an increase of 41% year-over-year, on loan delinquency rates in-line with projections... FRACTAL DESIGN (Nasdaq: FRAC) jumped $2 1/4 to $10 3/8 after agreeing to merge with graphics software company METATOOLS (Nasdaq: MTLS)... Toymaker YESS! ENTERTAINMENT (Nasdaq: YESS) bounced $1 to $6 after signing a licensing agreement with Baskin-Robbins and successfully issuing $10 million in debt earlier this week... ACCESS HEALTH (Nasdaq: ACCS) gained $4 1/2 to $29 3/4 after the telephone triage company signed an agreement to serve the members of the State of Georgia's health plan... Healthcare information company APACHE MEDICAL SYSTEMS (Nasdaq: AMSI) moved up $1 3/8 to $6 7/8 after posting a smaller-than-expected loss for the quarter... XIRCOM INC. (Nasdaq: XIRC) shot up $4 3/8 to $27 1/2 after laptop network adapter card company's CEO appeared on CNBC's Squawk Box... Medical research equipment company VENTANA MEDICAL SYSTEMS (Nasdaq: VMSI) perked up $2 1/8 to $16 3/4 following its initial public offering of 2.75 million shares at $15 yesterday... NEW AGE MEDIA FUND (NYSE: NAF) popped $2 to $14 3/8 after shareholders agreed to open the closed-end fund, meaning shareholders get shares at net asset value (NAV) where those shares had traded below NAV before... COLEMAN CO. (NYSE: CLN) rose $1 5/8 to $13 7/8 after the company announced a worse-than-expected Q4 loss, and also named a new Chairman... NATIONAL SEMICONDUCTOR (NYSE: NSM) rose $2 1/8 to $25 3/8 after the company's CEO commented at the Goldman Sachs Technology Conference that he feels "very confident" about prospects for the third quarter... Mainframe and enterprise storage company EMC (NYSE: EMC) picked up $3 1/8 to $37 1/2 on signing an OEM agreement with NCR (NYSE: NCR)... CHESAPEAKE ENERGY CORP. (NYSE: CHK) rose $2 1/4 to $23 1/2 as Fidelity Investments reported its 15% stake in an SEC filing... Auto parts manufacturer ENGELHARD CORP. (NYSE: EC) gained $1 1/2 to $22 1/2 after Merrill Lynch raised its short-term rating on the shares... THERMO INSTRUMENTS (AMEX: THI) rose $3 1/2 to $35 3/4 after announcing that it expects to beat Q4 estimates of $0.30 by at least 10%.

GOATS

Data network design consultants and service provider INTERNATIONAL NETWORK SERVICES (Nasdaq: INSS) fell $2 1/4 to $23 3/4 as the lockup period expired that had restricted the sale of one million shares held by insiders. Ever since the company filed its first registration statements, the lockup and the expiration date have been well-documented information. The company's September 1996 IPO was well-received, as shares shot from the $16 offering price to a 52-week high of $51 7/8. Since that time, the company has released two earnings reports, with the last showing sequential revenue growth of 24%. Although its association with networking has led it to be priced like a company that makes routers or switches, its operating and net margins haven't grown to match is prodigious revenue growth rate.

GREENWICH AIR SERVICES (Nasdaq: GASIB) fell $1 to $21 1/4 even though the company reported this week that it has signed several new contracts. Greenwich is selling at a low multiple to its sales, even as it has grown its topline for thirteen sequential quarters. Much of last quarter's 220% sales growth was due to its acquisition of Aviall, which made it the largest gas turbine engine repair company in the world. By traditional debt measures of debt/market cap and debt/equity, the company may look somewhat leveraged, but cash flow from operations covered interest expense three times for the year just ended. With annualized earnings of $1.28 per share and $35 million in operating cash flow with little need for recurring capital expenditures, growth-at-a-reasonable-price (GARP) investors might be sniffing around where the momentum people have left for another ride.

QUICK CUTS: DATUM INC. (Nasdaq: DATM) lost $3 1/4 to $19 1/2 after the communications equipment company was downgraded to "neutral" from "buy" by Rodman & Renshaw... Industry research firm INTELLIQUEST INFORMATION GROUP (Nasdaq: IQST) slipped $2 to $19 1/2 after reporting estimate-beating Q4 EPS of $0.14... RUTHERFORD-MORAN OIL (Nasdaq: RMOC) fell $2 to $20 after the energy exploration company reported earnings last night... Tobacco and flower distributor DIMON INC. (NYSE: DMN) fell $1 1/4 to $23 1/8 on reporting Q4 EPS of $0.40 vs.a mean estimate of $0.57... RED ROOF INNS INC. (NYSE: RRI) lost $1 1/8 to $15 1/4 though the company announced a half-million share buyback, saying it believes its price to be "significantly undervalued"... TRINET CORPORATE REALTY TRUST (NYSE: TRI) lost $2 to $33 1/4 after Merrill Lynch downgraded the shares to "near-term neutral" this morning...

FOOL ON THE HILL
An Investment Opinion by MF Templar

Applied Leads Industry Higher

APPLIED MATERIALS (Nasdaq: AMAT) soared $7 to $52 1/8 after reporting first quarter operating results last night that were four cents ahead of consensus expectations. Although earnings were 9% ahead of expectations, the $0.48 EPS result was down 48.4% from year-ago levels and off a penny from last quarter's $0.49 per share operating net. These stronger-than-expected results in conjunction with positive guidance from Applied's management during the earnings conference call have sparked a rally in semiconductor and semiconductor equipment shares -- a rally matched only by what we saw last November 20th when Applied reported its fourth quarter results.

Applied Materials is among the largest manufacturers of semiconductor capital equipment in the world. The company has a very high profile among investors interested in the sector because it is the largest American pure-play, only matched in size by a handful of Japanese companies like Kyocera. Until late November, 1996 had been a terrible year for investors interested in semiconductor equipment. An "inventory correction" early in the year turned into a full-blown drought of new semiconductor orders, causing anxious semiconductor manufacturers to slash their capital expenditure budgets. In turn, this drop in capital expenditures caused shares of semiconductor equipment companies to crumple under the pressure, hitting their cycle lows in August and September of 1996.

Looking at Applied's results from a purely quantitative standpoint, the numbers were not that great, but what these results signal to investors is that an industry turnaround predicted to be complete at the end of this year is underway. Comparing the first quarter results to the fourth quarter, we can see a number of factors at work in Applied's basic business that show signs of strength. Orders of $904.7 million booked in the first quarter were up 32% from the $683.2 million in orders the company booked in the fourth quarter, a marked improvement. Revenues, however, were down 3% sequentially to $835.8 million from $861.0 million in the fourth quarter of 1996.

Looking at the $904.7 million in new orders, Applied stated that a "significant increase" came from customers in Japan, Korea and Taiwan ordering leading edge tools. Customers are still hesitant to commit to building fabs with "trailing edge" technology, meaning application specific integrated circuits (ASICs) and other products with geometries above 0.35 microns. Given this dynamic, it is still difficult to envision a broad-based strengthening of the semiconductor equipment business in the next nine months. Instead, this information suggests that we will witness a product transition to leading edge tools following a major stoppage in capital investment, meaning that only the companies whose leading-edge tools are adopted by a wide variety of manufacturers can expect to see their fortunes improve -- or even stabilize -- over the next six to nine months.

Even after forking out over $246 million in cash to acquire Opal Inc. and Orbot Instruments, Applied still has a cash cushion of more than $1.07 billion. The company reduced long-term debt to $233.7 million from $275.5 million last year. With 185.4 million shares outstanding, the company is currently valued at roughly $8.8 billion, net cash and plus long-term debt. Comparing this to the $850 million revenue run-rate the company is currently enjoying, Applied has an enterprise value that is 2.6 times the current revenue run-rate. Even if Applied can maintain its revenue base in its current equipment and grow through its bevy of new products to have revenues in the $1.0 to $1.2 billion level by the end of the year, you still have the company at an enterprise value to sales ratio of 1.8 to 2.2 -- a level that some would consider fairly valued with the cycle improving.

Current earnings estimates for Applied are $1.86 EPS for this year and $2.64 for next year, numbers that we will probably see rising in the coming days. If 1998 numbers go to $3.00 EPS, this puts Applied at 17 times next year's estimates. Imagining the company could garner a 20 to 22 multiple implies a $60 to $66 price assuming no dilution, a 15% to 26% gain over the next seven quarters -- or an annualized rate of 8% to 14%. This positive scenario requires that the transition to 0.35 micron geometries and 300 mm wafers occurs seamlessly over the next three quarters, suggesting that there is some risk that needs to be discounted as well. Although back in November this was the same justification given for why Applied at $46 a share seemed to offer a skewed risk-reward, with Applied returning a snappy 13% since then, the fundamental picture to this dispassionate analysis still seems pretty much the same.

Applied's good news carried over into other semiconductor equipment shares, particularly the following: automation concern ADE CORP. (Nasdaq: ADEX) rose $1 5/8 to $20 1/8; deposition and etch machine manufacturer ASM INTERNATIONAL (Nasdaq: ASMIF) was up $1 1/2 to $17; lithography developer ASM LITHOGRAPHY (Nasdaq: ASMLF) jumped $6 5/16 to $72 5/16; automation expert ASYST TECHNOLOGIES (Nasdaq: ASYT) climbed $2 3/8 to $26 3/8; mask pattern generation maker ETEC SYSTEMS (Nasdaq: ETEC) rose $2 5/8 to $40 5/8; metrology and wafer inspection giant KLA INSTRUMENTS (Nasdaq: KLAC) ballooned $6 5/8 to $43 3/4, soon to complete its merger with TENCOR INSTRUMENTS (Nasdaq: TNCR), up $6 3/16 to $41 7/8; bonder and back-end equipment czar KULICKE & SOFFA (Nasdaq: KLIC) barreled ahead $3 7/8 to $27 1/4; deposition and etch maker LAM RESEARCH (Nasdaq: LRCX) skipped ahead $2 3/4 to $39 7/8; deposition and etch specialist NOVELLUS SYSTEMS (Nasdaq: NVLS) jumped $8 3/4 to $82 3/4; and finally, for the sake of brevity, automation specialist PRI AUTOMATION (Nasdaq: PRIA) motored up $5 5/8 to $59 1/2.

CONFERENCE CALLS

APPLIED MATERIALS (Nasdaq: AMAT)
(800) 642-1687 (access code: 221082) -- replay after 5:30

DOLLAR GENERAL (NYSE: DG)
(strategic plans for FY98)
(402) 220-1032 (code: 971032) -- replay

CISCO SYSTEMS (Nasdaq: CSCO)
(800) 633-8284 in USA
(303) 446-5399 elsewhere
passcode: 2338711#

ANN TAYLOR STORES (NYSE: ANN)
(re: January sales)
(402) 351-9977 -- replay through 5:30 PM EST on 2/14

ALLIED SIGNAL (NYSE: ALD)
(800) 633-8284 (reservation # 2216671)
replay avail. thru 2/13

02/13/97 (Thursday)
TITAN HOLDINGS (NYSE: TH)
(800) 633-8284 (reservation # 2471439)
replay on 2/13 from 4:30-5:30 only

FOOL FEATURES

The Fool introduces a new feature today -- the Daily Double. It provides a description and valuation of a company whose stock has more than doubled over the last six months. Each day, the Fool will review the business, talk about the cause of its doubling in value, and broadly consider valuation.

Our aim is two-pronged. We hope that by concentrating attention on spectacular recent performance, together we'll come to a more thoroughgoing understanding of how and why certain businesses rapidly double in value. But just finding and focusing on the doubles isn't fulfilling. Additional to that task, we'll venture out in search of a fair value for the business.

ANOTHER FOOLISH THING
Bust the Tipsters Debuts!

Hear ye! Hear ye! Fooldom is beside itself with delight as it debuts the exciting new game, Bust the Tipsters! It is hailed by many at Fool HQ as, "The most amazing interactive and educational game featuring a Foolish hero and evil stock manipulators and misimformers ever!" Check in and try to solve a new case every day, aided by Motley Fool as he tries to foil the villainous Dr. Mortimer Stocktout, Mo-Mental, The Churner, the Smile and Dial sisters, Cold Call Pete, Pork Belly, The Whisper and The Talking Head. This fun new game pays off with education, amusement, and prizes from FoolMart. You'll find Bust the Tipsters in the Fool's School and in our Games area, with new cases six times a week. Enjoy!


Randy Befumo (MF Templar), a Fool
Fool On the Hill

Dale Wettlaufer (MF Raleigh), another Fool
Heroes & Goats

Brian Bauer (MF Hoops), one more Fool
Editing

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