Wednesday, December 17, 1997
DJIA: 7995.45 +19.14 (+0.24%) S&P 500: 970.99 +2.95 (+0.30%) Nasdaq: 1559.52 +6.52 (+0.42%) Wilshire 5000 9219.51 +56.75 (+0.62%) 30-Year Bond 102 1/32 -8/32 5.97% Yield

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An Investment Opinion by Dale Wettlaufer

Words of Wisdom from Dale

Having spent time recently writing entries for a little project we're doing, but which won't be seen until 1999, I thought I'd leverage the work I've already done for today's Fool Plate Special. For this project, we had to come up with some pithy maxims, lessons, and some humorous commentary on the investing world. Submitted for your approval, some items that I've drafted:

-- "Don't think of it as the stock market, think of it as a market of stocks."

-- Portfolio turnover is total sales and total purchases of securities in your portfolio divided by average account balance during the year. Try to pick great companies and keep the turnover ratio below 25%.

-- Addendum to above: Question your broker if turnover surpasses 75% in any year.

-- EBITDA stands for "earnings before interest, taxes, depreciation, and amortization." Make sure the "E" part of the formula is the largest.

-- As a general rule of thumb, avoid companies that speak in terms of "EBITDA" or "cash flow" to the exclusion of talking about earnings.

-- "Hot tips" and portfolio growth go together like bologna and whipped cream.

-- Don't project trends too far out into the future. Then again, who is to stop you from thinking your puppy will grow to be a 3,000 pound beast.

-- If everyone in the U.S. were a stock mutual fund manager, the funds of 219 million Americans would have underperformed the S&P 500 last year.

-- Being a contrarian is fine as long as you're not a contrarian with a margin account.

-- Playing with stock options is like playing hockey without wearing a helmet. It blows your hair back for a while but eventually, you'll get brained.

-- Inside information is usually neither inside nor information. Stay away from inside tips. They're usually wrong, and when they're right, trading on them can land you in jail.

-- "It's better to buy a great business at a fair price than a fair business at a great price." -Warren Buffett


Green Tree Financial (NYSE: GNT) continued its rebound this morning, rising $2 7/16 to $24 9/16 after receiving a "buy" rating in initial coverage by Keith Menzel at John G. Kinnard & Co. yesterday. Meanwhile, Morgan Stanley Dean Witter reiterated a "strong buy" rating for the second time since Green Tree declared its "non-cash" addition to valuation reserves.

Japanese consumer electronics giant Sony Corp. (NYSE: SNE) rose $5 13/16 to $90 1/8, storage products maker TDK Corp. (NYSE: TDK) gained $4 11/16 to $77 3/16, and Honda Motor Co. (NYSE: HMC) rose $1 11/16 to $73 3/8. These moves come in the wake of Prime Minister Ryutaro Hashimoto's proposed a 2 trillion yen ($15.7 billion) cut in personal income taxes, which many feel will provide the stimulus needed to boost Japanese consumer spending. Some others believe that a $125 per-person tax cut equal to 6/10 of one percent of gross domestic product won't do it.

Snyder Communications (NYSE: SNC) moved $1 7/16 higher to $34 7/16 after it announced that it has entered into a three-year contract "targeting" $200 million in revenue with GTE Communications Corp. (NYSE: GTE). Snyder will provide a number of "turn-key" marketing services.

Moving away from its semiconductor supply role, Philips Electronics NV (NYSE: PHG) said today that it would sell its leadframe production unit based in Sittard, Netherlands, to Jade Technologies Singapore Ltd. (NYSE: USI) for about $14 million. Philips was up $2 15/16 to $59 3/4 this morning.

Brooktrout Technology (Nasdaq: BRKT) rose $2 1/4 to $12 1/8 after Prudential upgraded the supplier of products for the messaging market to "buy" from "hold."

International Network Services (Nasdaq: INSS) gained $3 5/8 to $22 1/2 after Morgan Stanley Dean Witter raised its rating on the company to "strong buy" from "neutral."

Franklin Bancorporation (Nasdaq: FNBC) shot up $3 1/8 to $21 5/8 after agreeing to be acquired by North Carolina-based BB&T Corp. (NYSE: BBK) in a stock swap that valued Franklin at $22.28 per share of last night's close. The acquisition is BB&T's first foray into the Washington, D.C. market, where it will face familiar competitors such as First Union (NYSE: FTU) and NationsBank (NYSE: NB) and independents such as Riggs National Bank (Nasdaq: RIGS).

Multi-line insurance company Cincinnati Financial (Nasdaq: CINF) jumped $17 5/8 to $132 1/2 after Standard & Poor's announced that it will include the company in its S&P 500 index as of Thursday morning. The company will replace CUC International (NYSE: CU) and HFS International (NYSE: HFS), which are merging and will be re-named Cendant Corp. and traded under the symbol "CD" on the New York Stock Exchange.

Electronics contract manufacturer (ECM) Jabil Circuit (Nasdaq: JBIL) followed up on Solectron's (NYSE: SLR) performance yesterday and topped it. Jabil is up $5 5/8 to $42 3/4 on reporting record Q1 EPS of $0.49, beating the mean analyst estimate of $0.48. Revenues grew 5% sequentially and 57% year-over-year while EPS grew 4.3% sequentially and 116% year-over-year. Printed circuit board manufacturer and ECM Sanmina Corp. (Nasdaq: SANM) gained $3 15/16 to $65 1/8 on the news, while Plexus Corp. (Nasdaq: PLXS) jumped $1 13/16 to $25 5/16.

Sulzer Medica Ltd. (NYSE: SM) added $2 1/4 to $22 9/16 a day after announcing an agreement to acquire medical device maker Spine-Tech Inc. (Nasdaq: SPYN), which is a leader in the spinal fusion cage devices and procedures market.

Oilfield products manufacturer EVI Corp. (NYSE: EVI) moved up $3 13/16 to $48 5/16 after yesterday announcing a slick merger with Christiana Corp. (NYSE: CST), a logistics company and holder of EVI stock. For the issuance of its shares to merge with Christiana, EVI gets back an equal amount of its common stock that Christiana already holds. It will also receive a one-third interest in Christiana's main logistics subsidiary, which is being sold. Donaldson, Lufkin & Jenrette added EVI Corp.'s shares to its "recommended list" with a 12-month price target of $87.

Real estate title insurance underwriter and financial services company Alleghany Corp. (NYSE: Y) gained $16 to $287 on news reports that it will spin off its Chicago Title & Trust Co. to shareholders.

Georgia Pacific Corp. (NYSE: GP) gained $3 5/16 to $63 5/16 after shareholders approved the creation of a separate class of stock to reflect the performance of the company's timber business. That class of stock started trading today under the symbol "TGP." Morgan Stanley Dean Witter restarted coverage of Georgia Pacific today with a "strong buy" rating and initiated coverage of the tracking stock with a "strong buy."


Centocor (Nasdaq: CNTO) dropped $6 3/4 to $31 1/8 after the company warned that 1997 earnings per share would only come in at $0.20. The company has been unable to find a marketing partner for Avakine, an anti-THF inhibitor designed to treat Crohn's disease and rheumatoid arthritis.

East Asian economic turmoil combined with nausea in Brazil has hit diversified industrial powerhouse 3M (NYSE: MMM) below the belt. The Dow Jones Industrial Average component tumbled $5 7/16 to $88 7/16 after warning that fourth quarter earnings would be at least 10% below prior expectations because of the "large, negative impact" currency exchange rates had on the company during the quarter.

Interlink Electronics (Nasdaq: LINK) dropped $1 3/8 to $5 1/4 this morning after the developer of "computer pointing device technology" reported that lower- than-expected yields on its new VersaPad product would cause the company to lose $750,000 to $1 million in its fiscal fourth quarter.

In a complicated legal story, VISX (Nadsaq: VISX) is off $1 1/2 to $22 3/4 after the company announced it would exceed fourth quarter earnings estimates of $0.27 a share. The company will do this because it is no longer making royalty payments to Summit Technology (Nasdaq: BEAM) and instead is taking them to Santa Clara County Superior Court. However, if the agreement is found to be valid, VISX will have to fork over the royalties, which may be why the market is reacting negatively to the news.

Sundstrand Corp. (NYSE: SNS) dropped $2 7/8 to $48 15/16 after the technology component and subsystem manufacturer specializing in aerospace and industrial markets was downgraded to "buy" at Cowen & Co.

Barbecue purveyor Famous Dave's of America (Nasdaq: DAVE) dropped another $1 1/8 to $8 today after warning yesterday that earnings for the upcoming quarter would not meet expectations.

Development stage medical device manufacturer Heartport (Nasdaq: HPRT) was clocked for $2 7/8 to $20 1/2 after BT Alex. Brown downgraded the shares to "buy." A recent Forbes article by Gretchen Morgenson suggested that a BT Alex. Brown downgrade to "buy" was equivalent to a "neutral" or a "sell" at other major brokerages given Alex. Brown's momentum emphasis. (Nasdaq: AMZN) dropped $1 3/8 to $52 1/8 after Barnes & Noble (NYSE: BKS) paid America Online (NYSE: AOL) 40 million bucks for exclusive rights to sell books on the online service. Although the news had pretty much already been known, the size of the price tag and the fact that America Online now controls 10 million eyeballs has some investors worried that Barnes & Noble might be catching up.

Wisconsin Central (Nasdaq: WCLX) has not been having a very good year. Shares fell $5 7/8 to $21 3/8 this morning after the railroad said that higher-than-expected labor costs and expenses related to a derailment and lower-than-expected contributions from its Great Britain and New Zealand units would impact the company's fourth quarter. Wisconsin also warned that fiscal 1998 results would not be as high as previously thought because of North American operations.

Food distributor Fleming Companies (NYSE: FLM) dropped $1 5/16 to $13 15/16 after the firm was bounced out of the S&P 500 Index and tossed all the way down to the S&P 600 SmallCap Index. The fact that the shares have lost 9.8% a year, including reinvested dividends, since December of 1990 probably has quite a bit to do with the decision, as the company has been one of the biggest underperformers in the index during this decade. Advertising agency Omnicom Group (NYSE: OMC) was promoted from the S&P MidCap 400 Index to replace Fleming and rose $3 3/8 to $76 5/8 on the good news. Omnicom enhances the S&P 500's advertising presence and adds a company that has returned 34.7% per year since December of 1990 -- a darn sight better than Fleming's run.

American Pad & Paper (NYSE: AGP) was dumped for $1/2 to $11 after Salomon Smith Barney cut the company to "neutral."

Interra Financial (NYSE: IFI), owner of investment banker Dain Bosworth, dropped $3 9/16 to $62 7/16 after investment banks lost some of the gains they posted yesterday on the news of the Piper Jaffray (NYSE: PJC) acquisition by U.S. Bancorp (NYSE: USBC).


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Randy Befumo (TMF Templr), Fool One

Dale Wettlaufer (TMF Ralegh), Fool Two

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