<THE LUNCHTIME NEWS>

Monday, February 1, 1999
THE MARKET MIDDAY
DJIA 9382.77 +23.94 (+0.26%) S&P 500 1274.19 -5.45 (-0.43%) Nasdaq 2505.87 -0.02 (-0.00%) Russell 2000 427.56 +0.34 (+0.08%) 30-Year Bond 101 10/32 -1 7/32 5.16 Yield

FOOL PLATE SPECIAL
An Investment Opinion
by Warren Gump

Nike Swooshes Higher

Following comments from Chairman and CEO Phil Knight over the weekend, athletic footwear behemoth Nike (NYSE: NKE) jumped up $2 3/4 to $48 1/4 this morning. Knight said that earnings were going to be "pretty flat" in fiscal 1999 (ends in May), signaling an EPS figure around the $1.62 reported in fiscal 1998 and a few cents higher than the current $1.54 First Call consensus estimate. Even more encouraging, Knight predicted that there will be "considerable improvement" in fiscal 2000 (analysts are looking for a 25% improvement to $1.92 per share). This morning, analyst Dana Cohen at Donaldson Lufkin & Jenrette raised the company to a "buy" from "market perform."

Considering that for the first two quarters of fiscal 1999, earnings were down 40%, achieving flat results will be quite impressive. Most of this feat will be related to cost cuts implemented last year, as sales are not yet showing signs of recovery. In its Q2 earnings release, Nike reported that future orders, an indication of sales between December 1998 and April 1999 were down 10%. You've got to give the company credit for its handling of the dramatic slump that hit athletic footwear and apparel.

As earnings started to decline in November 1997, the company quickly repositioned itself for the new environment. Within a year of the downturn, Nike slashed selling, general, and administrative expenses to keep them in line with projected revenues. The company also rapidly slashed inventory by clearing out merchandise at lower prices. While such action hurt short-term earnings, it has put the company in a terrific position for future growth.

Nike will not fully be out of the woods until it can drive the revenue line higher. No one can project exactly when that will happen, but a company with sharp management, a strong brand name, and a terrific balance sheet makes the wait much less nerve-racking. Nike certainly fits that bill.

UPS

Specialty chemicals and salt company Morton International (NYSE: MII) popped up $9 9/16 to $35 7/16 after agreeing to be acquired by fellow specialty chemicals maker Rohm and Haas (NYSE: ROH) for $4.9 billion in cash and stock, including $268 million in assumed debt. Rohm and Haas expects the deal will generate $200 million in cost savings, will add immediately to its cash flow, and will boost earnings by the second year.

Chip maker Advanced Micro Devices (NYSE: AMD) added $1 15/16 to $24 7/8 after a report in PC Week Online said bovine boxmaker Gateway (NYSE: GTW) will start offering PCs with AMD's K6-3 chip in March, backing away from its history of offering machines based solely on chips from AMD archrival Intel (Nasdaq: INTC).

Biopharmaceutical company Scios Inc. (Nasdaq: SCIO) jumped $1 1/16 to $10 15/16 after an FDA advisory panel recommended the company's Natrecor congestive heart failure management drug for approval.

Casual restaurant operator and franchiser Applebee's International (Nasdaq: APPB) gained $2 3/16 to $24 1/16 after Morgan Stanley Dean Witter raised its rating to "strong buy" from "neutral" with a 12-month price target of $32 per share.

Database software company Oracle (Nasdaq: ORCL) picked up $3 1/8 to $58 1/2 after setting a three-for-two stock split, payable Feb. 26.

Industrial, aerospace, and auto components maker Aeroquip-Vickers (NYSE: ANV) soared $20 3/8 to $55 5/8 after agreeing to be acquired by Cleveland-based Eaton Corp. (NYSE: ETN) for $1.7 billion, or $58 per share in cash. The purchase price represents a 65% premium to Aeroquip-Vickers' closing price of $35 1/4 per share on Friday. The deal is expected to be neutral to Eaton's earnings this year but add $1 per share to earnings three to five years out.

Airline Continental Airlines (NYSE: CAI.B) rose $2 11/16 to $36 11/16 following an upgrade from BT Alex. Brown to "strong buy" from "market perform." Several other air carriers also gained altitude after Northwest (Nasdaq: NWAC) followed some of its rivals' leads and raised its fares on Friday, setting the stage for more price increases further down the runway. Delta (NYSE: DAL) gained $1 1/16 to $55 5/8, US Airways (NYSE: U) added $1 11/16 to $51 7/16, United Airlines parent UAL Corp. (NYSE: UAL) ascended $1 1/2 to $63 3/4, and American Airlines big daddy AMR Corp. (NYSE: AMR) moved up $1 9/16 to $60 5/16.

Senior residential and healthcare services provider American Retirement Corp. (NYSE: ACR) tacked on $15/16 to $17 3/8 after agreeing to end its proposed $500 million merger with Assisted Living Concepts (AMEX: ALF) after Assisted Living indicated it will restate its earnings for fiscal 1997 and the first three quarters of fiscal 1998.

Defense contractor Northrop Grumman Corp. (NYSE: NOC) moved up $3 1/16 to $60 1/16 after PaineWebber raised its rating to "buy" from "neutral," citing the company's attractive valuation and dividend yield.

Toymaker Mattel Inc. (NYSE: MAT) trampolined $1 9/16 higher to $24 1/4 after Gerard Klauer Mattison raised its rating to "buy" from "hold."

Online community theglobe.com (Nasdaq: TGLO) spun $3 1/2 higher to $69 9/16 after agreeing to buy privately held interactive department store Azazz.com. Under the deal, theglobe.com will issue 307,000 new shares to Azazz.com parent company factorymall.com.

DOWNS

PC multimedia card company Creative Technology slid $3 3/8 to $11 1/2 after turning in fiscal Q2 EPS of $0.64, down from last year's $0.79 mark and flat with Street estimates. Several analysts expressed disappointment in a Reuters report, concerned that forward guidance was unexpectedly cautious as Q3 sales are now seen coming in 10% below year-ago levels.

Electronic publishing systems maker Inso Corp. (Nasdaq: INSO) tumbled $15 1/2 to $9 1/2 after it said it expects to report a loss for the fourth quarter and the fiscal year; two analysts surveyed by First Call currently project EPS of $0.23 and $0.44 for the respective periods. The company also said it will restate revenues for the first three quarters of the year, reversing $7 million in reported revenues.

Perfume seller Perfumania (Nasdaq: PRFM) lost $3 1/16 to $8 1/16 following Friday evening's news that CFO and COO Simon Falic is resigning, with CEO Ilia Lekach filling Falic's shoes. The news dulled today's announcement of the launch of Perfumania's online store

PC maker Compaq Computer (NYSE: CPQ) fell back $1 3/8 to $46 1/4 as Soundview Securities downgraded the stock to "buy" from "strong buy." Compaq, as detailed in today's Breakfast With the Fool, says its direct sales are cutting into the efforts of its competitors.

Finnish wireless telecom equipment company Nokia (NYSE: NOK.A) hung up $4 5/8 to $139 1/2 as Morgan Stanley Dean Witter lowered its rating on the stock to "neutral" from "outperform." On Friday the company announced plans for a 2-for-1 stock split and said Q4 net earnings rose 66% in local currency terms. The Fool reported on a Nokia Double in mid-December.

Richardson Electronics (Nasdaq: RELL), which makes electron tubes and power semiconductors, dropped $2 1/2 to $7 after reporting Friday night that fiscal Q3 EPS is seen coming in below Wall Street's $0.19 consensus estimate. "Sales during the holiday season were sluggish, consistent with historical patterns, but the post-holiday recovery has not been as strong as expected," said CEO Edward Richardson.

Online health and wellness information publisher OnHealth Network Co. (Nasdaq: ONHN), which completed a private sale of about 2.6 million shares of common stock, dropped $1 1/4 to $13 7/16 this morning. The sale raised $14.3 million, slated for e-commerce initiatives and marketing.

Boston-based energy holding company Eastern Utilities Associates (NYSE: EUA) fell $3/4 to $28 13/16 as New England Electric System (NYSE: NES) agreed to buy the company for $31 per share, about a 5% premium on Friday's closing price.

The bad fortune for enterprise resource planning (ERP) software firm PeopleSoft (Nasdaq: PSFT) continued today as the stock, beaten down for a $2 5/8 loss on Friday on disappointing earnings news, gave up a further $3/4 to $19 1/16 on at least two analyst downgrades.

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Contributing Writers
Brian Graney (TMF Panic), a Fool
David Marino-Nachison (TMF Braden), a new Fool

Editing
Brian Bauer (TMF Hoops), another Fool
Bob Bobala (TMF Bobala), a Fool's Fool
Jennifer Silber (TMF Amused), Fool at last