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Gold/Mining/Energy : KERM'S KORNER -- Ignore unavailable to you. Want to Upgrade?

To: Kerm Yerman who wrote (7957)	12/16/1997 12:55:00 PM
From: Kerm Yerman	Read Replies (1) \| Respond to of 15196

MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING MONDAY DECEMBER 15, 1997 (2) What's on Managers' Minds Gary Lamphier Vancouver Sun With 1998 dawning and the North American bull market well into its eighth year, stock market pros who have enjoyed big gains in recent years find plenty to fret about. Topping their list of worries are lofty stock valuation levels, signs of slowing corporate profit growth, Asia's recent economic implosion and the slumping Canadian dollar. As always, investors are wondering what lies ahead. To help them formulate a plan, The Vancouver Sun unveils its inaugural Investment Roundtable Forum. - - - The Forum took place over a two-day period in the Sun's boardroom in early December, and consisted of two separate investment panels. One was composed of Vancouver based money managers, the other local research analysts. Investment reporter Gary Lamphier asked the pros to share their views on equities markets, and spotlight some of their current stock picks. This is the first of a four-part series that flows from those sessions. Today's panelists include: Wayne Deans, Canada's 1996 mutual-fund manager of the year and a partner at Deans Knight Capital Management, with $2.5 billion of assets; Tony Massie, a money manager at Global Strategy Financial Inc. who oversees $2.5 billion of mutual fund assets; and Bill Wheeler, president of Leith Wheeler Investment Counsel, which manages $2.6 billion of pension fund and other assets. Lamphier: What are the big issues on your minds in the waning days of 1997? Wheeler: It's the valuation issue. There isn't a lot of room for much to go wrong with these levels of value in the market. Specifically the U.S. market, when it trades around 24 times earnings. Those earnings reflect strong sales growth, a strong economy, big pre-tax margins and a lower tax rate. You have the things that make for good earnings already there. Lamphier: Wayne, would you agree? Deans: Yeah, the biggest issue that I face right now is [high] valuation levels. Bill mentioned the S&P 500's price-earnings ratio is now around 24 times. I looked at the TSE 300 at the close of business [Dec. 1] and it was 23 times. But here's a wild one for you. If you look at the TSE 200 -- which is the 200 smaller companies in the TSE 300 -- it has out-performed the TSE 300 for the last year. Do you know what the P/E ratio is for TSE 200 as of [Dec. 1]? It's 41 times. That implies earnings for the companies in this index are going to double about every two years, which means that the size of those companies on average will double every two years. That is absolutely impossible. Lamphier: Tony, are high stock valuations worrying you? Massie: I don't follow the market as a whole. I'm more concerned about individual stocks and buying a stock in context with the market. Then you look at yields on bonds. I see the yields are at 5.5 per cent on a 10-year bond, so then I try to find a company that can beat that return. Now, there's a lot of liquidity out there and valuation levels are at way higher levels than possibly they should be. With the excess of liquidity, it's very difficult to determine what value a stock should trade at. Lamphier: Your big positions are in stocks like Canadian Pacific EdperBrascan and Atco. Have you seen valuation levels for these big-cap, senior Canadian stocks rising? Massie: They're still rising but they also have a rising earnings stream as we go into 1998, so I'm quite happy to live with them. They all have excellent balance sheets, so they look a lot better than a lot of other stocks out there. I do have a smattering of banks as well, such as TD. Lamphier: Before we get into specifics, I'd like all three of you to describe your investment philosophy, so readers will have some idea of how you find attractive stocks. Wayne, can you start? Deans: Our philosophy is directed towards small and mid-cap stocks, so the banks aren't in our universe. We're very specialized. We have basically eight qualititative screens that we look at first. Then we apply value screens to those companies to determine whether or not we're paying a fair price. An example that comes to mind is Cinram. It's a terrific little growth company, but it shows how valuations have changed over the last three years of this bull market. We bought it at $8 a share in October 1994. It had demonstrated a 10-year annualized earnings per share growth rate of 40 per cent and it earned 81 cents in 1994. So I paid roughly 10 times earnings. Cinram's total market capitalization was $185 million and it had revenues of $145 million, so I paid 1.3 times revenues. Now, fast-forward to today. The stock trades at about $50. It will earn $1.40 this year, so it's trading now at 36 times earnings, which is pretty close to its 10-year growth rate. It trades at a market cap of $1.5 billion on $500 million of sales, or three times sales. Now, I don't know what the word expensive means. I only know what it means in relative terms. But almost all the companies I own today are more expensive than they were. Lamphier: Wayne, getting back to your investment style, you're saying you looking for growth stories you can buy at a discount to their growth rates? Deans: Yeah, and they don't exist today. Lamphier: Tony, can you describe your investment philosophy? Massie: I'm a value investor. I like good balance sheets and I like to consider the macro environment first, then bring it back down into the Canadian equity market. I try to look at what could go wrong. So I look at all the negatives, and I invest on that basis. That way I won't get surprised. Lamphier: Is there a stock you own that illustrates this? Massie: I've liked Canadian Pacific over the last while. And I've liked EdperBrascan and Atco. If the world economies are growing and don't come to a full stop, they'll do fine. If you don't expect the world economy to be that strong, you try to look for stocks that will benefit more from the local economy. So I try to bring those things into my investment style as well. Lamphier: Bill, can you give an introduction to your investment approach? Wheeler: It all starts with a view of interest rates. So we look out over a three year time horizon and say, what kind of returns do we think we can get from the fixed-income market? For each stock we look at we build a target board three years out, with an expected rate of return. If we can't see an expected rate of return that exceeds what we can do in the fixed-income market, we'll stay in a fixed-income vehicle. Lamphier: So the key factor is interest rates? Wheeler: That's a big part of it. So to buy a stock, the more risky it is, the bigger the premium you need over what you can get in the fixed-income market. If you're looking at a utility, you'd accept a lower rate of return than you would in a highly-cyclical stock where risks are higher. That's where we start. The way we go about it is, we have four people in the firm who do Canadian equity analysis. We take a bottoms-up approach, and we're pretty strong value investors. We talk to the competitors, and each analyst has an area of specialization. We bring it back to building a book on the company, complete with a range of target prices over three years. Lamphier: So you're more value-oriented than growth-oriented? Wheeler: Yeah. I'd say we look for companies where the stock price seems [lower] than the [fair] valuation. All of us are trying to do that. But Wayne's focus is on smaller companies. Ours goes right across the spectrum. We own the banks and big-caps too. The ideal stock to me is a company that has a cloud over it for some reason. There is something that the market doesn't like, and we have a different perspective on it. Some of the things we look for are companies in depressed industries that are good, low-cost producers that are well run, where we have confidence in management. Lamphier: How about a current example? Wheeler: Tembec. It's in the forest industry. Commodity prices are down. People are worried about economic growth rates because of what's happened in Asia, so these stocks are all down. Tembec has a $12 book value and trades around $8. It's profitable, a good operator, and has a decent balance sheet. The swing factor is pulp. They also produce lumber, newsprint and specialty papers, but the swing on the earnings side is pulp. Lamphier: What about Inco? It's a big player in nickel and a low-cost producer. The entire company is now worth less than what Inco paid for Voisey's Bay. Is Inco's stock on your hit list? Wheeler: We don't own them, but it's a subject of discussion. Inco would be on the radar screen. We own a little Teck too, but we bought it a little early. Lamphier: Wayne, what are the characteristics you look for in growth stocks? Deans: One of the most important characteristics is to try to find a company that has a competitive advantage. The reason I owned Diamond Fields Resources was that there was a reasonable probability it would emerge as the world's lowest-cost producer of nickel. To me, that's a competitive advantage. Now it isn't always a cost advantage. You can be the sole supplier. Or if you have a patented product, you could have some kind of monopoly on a technology. Getting back to what we were talking about earlier, I'm having more trouble buying companies at prices I can feel all warm and gooey about. Lamphier: Tony, your thoughts? Massie: Well, everybody's perception is different. Some people want income, some want capital gains, some want a quick return, and others want a long-term growth situation. It just depends on what you're after. Another reason why the stock market has done so well is that interest rates have been dropping. Today, there's a lot more money that's feeding our equity market, so valuation levels have to reflect that. As long as that money stays there, valuation levels are going to stay at these levels for another four or five years, maybe. Lamphier: Tony, you know the gold stocks better than anybody here. What do you see ahead? I'm not asking for a price forecast, but what is your perception of market psychology, and where it's headed? Massie: Investors always live in hope, especially on the gold side. They're always hoping gold will go to $800, and they pay a premium for gold stocks because they expect them to do well in the future. In the past, an awful lot of money flowed into that area. We all kept on buying one another's stocks until it became absurd. Then we had the Bre-X thing. Lamphier: Bre-X? I think I've heard of that stock. Was the Bre-X disaster a watershed for the gold market? Massie: It was going to happen anyway. It just pushed it ahead by three or six months. Lamphier: But was it a trigger that helped investor psychology turn negative toward golds? Massie: Not really. It was going to happen ultimately anyway. As for the oils and the base metals, I think efficiencies are having an impact, and there's just too much inventory around. So that's going to affect earnings, and people are scared. So I've stayed out of that area, basically. Lamphier: So how do you buy gold stocks in this environment? Massie: You buy the high-quality names and you get rid of anything that's going to use up capital. We have a Gold Plus fund, so we can use the "plus" part of the portfolio to buy some oil and gas, some diamonds and other stocks, and hope we can generate a return on that until gold bounces back. Wheeler: Personally, I think gold will maintain its role as a store of value. There's 2,000 years of history and it isn't going to go to $35 an ounce. But I don't think you can find a logical argument why it should be at $350 or $450 or $250. Lamphier: What are your views on the Asian situation? Is this a long-term workout that might take two or three of four years to play out, or will it be just another blip? Deans: I think we spend too much time worrying about it. I don't know what's going to happen in Southeast Asia. I don't know what the effect of these massive bailouts will be. So I've stopped trying to figure it out. I focus on what I can see, which is the price of companies I want us to buy. Lamphier: But on the commodity side, isn't it important for you to know what the effect will be on zinc, copper and other metals? Deans: We don't know what the effect will be, Gary Lamphier: Bad. Deans: Well, you're telling me it's bad. But that's conventional wisdom. It's already been bad. Is it going to get worse? I don't know. We're seeing extreme price levels in a whole bunch of commodities. That's usually the time to buy. Now, I'm not a cyclical player. That's not why I buy resource stocks. It's not based on my view of commodity prices. None of us can predict these things. [Barick Gold's chair] Peter Munk wouldn't have bought Arequipa Resources from us at $30 (Cdn) a share after we paid $4 for it, if he knew the price of gold was going to go from $415 US to $290. And he runs the most profitable gold company in the world. So let's get realistic. We're talking about things we know nothing about. What's going to happen to the price of zinc? Who know?. If I did know, why would I tell anybody? Anybody who tells somebody doesn't know, they're just guessing. So, deal with what you know. Lamphier: So if mineral deposits that were worth a lot of money two years ago are worth a lot less today, does that mean this is a good time to buy selective resource stocks? Deans: It's a better time, not necessarily a good time. I remember writing to all our clients back in June 1996, and we said this is a pure speculative bubble going on among junior exploration stocks, fed by [takeover deals such as] Arequipa Resources, International Musto, and Diamond Fields Resources. Things became ridiculously over-priced. Now, it's swung back the other way. A lot of people are putting forward the doomsday scenario for metal prices, that gold is no longer money. Well, maybe it isn't. But somehow, I'm not inclined to throw out 2,000 years of history.

To: Kerm Yerman who wrote (7957)	12/17/1997 3:32:00 AM
From: Kerm Yerman	Read Replies (4) \| Respond to of 15196

CORP. / Pioneer Natural Resources Announces Exchange Ratio for Chauvco Resources Acquisition DALLAS--(BUSINESS WIRE)--Dec. 16, 1997--Pioneer Natural Resources Company (NYSE/PXD) announced today that the share exchange ratio for its acquisition of Chauvco Resources Ltd. (''Chauvco'') has been determined pursuant to the terms of the Combination Agreement dated September 3, 1997 between Pioneer and Chauvco. Upon consummation of the transaction, Pioneer will issue 0.493827 equivalent shares of its common stock for each Chauvco share outstanding, resulting in the issuance of up to an aggregate of 25,356,180 equivalent shares of Pioneer common stock. The special meeting of Pioneer shareholders to approve the transaction will be held at 10:00 a.m., December 18, in Dallas. Upon closing, Pioneer will become the second largest independent oil and gas exploration and production company in the U.S., based on total proved reserves.

To: Kerm Yerman who wrote (7957)	12/17/1997 10:32:00 AM
From: Kerm Yerman	Read Replies (2) \| Respond to of 15196

MARKET ACTIVITY/TRADING NOTES FOR DAY ENDING TUESDAY DECEMBER 16, 1997 (1) Wednesday, December 17, 1997 Tech stocks lead charge Wall Street stocks jumped as investors loaded up on battered technology shares. Toronto's key index could not hang onto early gains, as oil producers retreated on expectations of lower energy prices The Dow Jones industrial average rose 53.72 points, or 0.7%, to 7976.31. The Toronto Stock Exchange 300 composite index fell 17.27 points, or 0.3%, to 6567.43. The benchmark index had climbed as much as 29.9 points intraday before retreating. Volume on the TSE was 109.9 million shares, compared with 118.5 million shares traded on Monday. Among oils, Talisman Energy Inc. (TLM/TSE) fell $1.65 to $42.65, Canadian Occidental Petroleum Ltd. (CXY/TSE) slipped $1.30 to $31.35 and Tri Link Resources Ltd. (TLR/TSE) fell $4.25 to $18. Transportation stocks fell, led by Canadian National Railway Co. (CNR/TSE), which slipped $1.05 to $67.20. Traders and analysts are not expecting the broader market to erase its recent losses. "The sentiment in Canadian markets is appalling," said Rick Hutcheon, chief investment officer with the CentrePost Group of Mutual Funds. "The southeast Asian problem is not going away and as so much of the Canadian market is influenced by [natural] resources, our market is more sensitive to international influences than the U.S." Newbridge Networks Corp. (NNC/TSE) rose $2.90 to $50.90, its first gain in seven days, and Northern Telecom Ltd. (NTL/TSE) gained $3.25 to $128 to temper the decline. Other major Canadian markets closed mixed. The Montreal Exchange portfolio index rose 12.12 points, or 0.4%, to 3356.45. The Vancouver Stock Exchange index fell 1.8 points, or 0.3%, to 584.19. NEW YORK COMMENTARY -- Since sequels are all the rage in Hollywood right now, we're calling tonight's preview "Japan II: Will They Come Clean?" We're tempted to simply reinsert all that stuff we wrote Monday night about the release of Japan's fiscal-stimulus package being the key to trading tomorrow, and just substituting "Wednesday" for "Tuesday." But we won't. Some things have changed. Specifically, there's a smidgen of optimism on Wall Street that Japanese officials will use the extra day to add some muscle to the plan -- that maybe they need another 24 hours to finalize tough negotiations on hard core measures to revive their economy and banking system. If that's not the case, all the gains registered on Wall Street Tuesday will be wiped out, and then some. In fact, there were plenty of players on Wall Street who questioned the constitution of Tuesday's rally, particularly given the delay by the Japanese. "Don't know why the delay was viewed as positive or a neutral. I thought it would be a damper to activity," said Lisa Cullen, equity strategist at Merrill Lynch. "Maybe the market was just hoping it will be more impressive than expected." Cullen, who wryly observed that she hopes the fiscal-stimulus package is "stimulative," said even a market-friendly bailout in Japan will only provide a short-term boost to U.S. stocks. "We still have the same overvaluation problem with staples and other defensive stocks," she said. "The consensus is for slower (economic and earnings) growth in 1998, and the Asian thing is just exacerbating the situation." But we said there were players holding out hope that the delay would lead to more, rather than less, from the Japanese. One such optimist is Carl Bhathena, investment strategist at Everen Securities, who noted that Japanese officials have the doubly difficult task of saving their banking system while reviving the nation's flagging economy. "It might be they're looking at longer term goals, like moving toward a consumption based economy," from its export-based system, Bhathena said. "If they're taking these things more seriously, it would be a nice stabilizing factor for financial markets." However, the strategist noted that there are no simple or quick solutions to Japan's problems, spewing forth a litany of issues necessary for a turnaround -- things like a return of capital and confidence, economic stability and signs of strong growth in 1999. The challenge is heightened by the fact that Japan "doesn't have a lot of monetary options available" and is "leveraged" to the rest of Asia, where "anxiety" remains high. Bhathena's observation that "anxiety has spread here" is clearly evident by the performance of technology stocks of late. But the strategist believes the Dow is still going to new highs by year-end and "substantial" new highs in the second half of 1998, with an upside of 9,500 for the blue-chip index. For the short term, he expects a boost as the equity market "pays more attention to what's going on in bonds." Looking out a bit, the Everen strategist says the ability of investors to "assimilate" themselves to a slower earnings picture in 1998 will lead to "higher highs" as the market looks ahead to corporate earnings for 1999. "The discounting period has been extended. Investors are willing to pay for year out earnings sooner than they were a few years ago," he said. "We believe in the first quarter, investors will begin looking into 1999 and see good economic growth and benign inflation. And by mid to late 1998, the rescue packages in Asia will make it look like solutions are in place in the region, and Europe will begin taking care of its employment growth. Those are the parameters that would have to come together." If they don't come together, the "downside" risk for the Dow is 7,000, he says. AFTER THE BELL Centocor (CNTO) warned that its 1997 earnings will be 20 cents per share, far below the 52 cents analysts were expecting from the developer of medical test kits. Jabil Circuits (JBIL) reported fiscal first-quarter earnings of 49 cents per share, a penny ahead of expectations. The news from the computer manufacturer could help stem some worries about the degree of the slowdown in the PC industry. Polaroid (PRD) said it plans to take a fourth-quarter charge of about $310 million to pay for a restructuring that will eliminate about 1500 jobs. The Great Atlantic & Pacific Tea Co. (GAP) said it earned 29 cents per share in its third quarter, 6 cents below expectations. Charles Schwab (SCH) said it will offer online trading at a flat rate of $29.95. Harte Hanks Communications (HHS) increased its stock repurchase plan by 2 million shares. TUESDAY'S MARKETS A lack of action by both the Federal Reserve and the Bank of Japan helped send the Nasdaq up more than 16 points while the Dow rose nearly 54. The Federal Open Market Committee's decision to leave interest rates unchanged was widely expected. The decision of Japanese officials to postpone for a day the release of their third fiscal stimulus package was not. However, traders clung to the hope that another day of waiting would result in a stronger, stricter package for the nation's beleaguered financial system and economy. The Nasdaq Composite Index (COMP) was the Street's strongest market throughout the day. The tech-filled index opened the day higher by more than five points, then steadily climbed higher as the morning progressed. After climbing about 20 points, the index leveled off at about 11:30 a.m. and drifted in a tight range until about 2 p.m. when it began to head lower. The Nasdaq ended the day up 16.44 points at 1,553.00. The Dow Jones Industrial Average ($INDUA) experienced a choppier session than the Nasdaq. The blue-chip proxy opened higher by nearly 50 points behind a strong move in bonds and stabilization in international markets overnight. The climb accelerated through the rest of the morning and early afternoon, topping out with a rise of nearly 100 points shortly before 1 p.m. For much of the afternoon, however, the gains eroded -- until about 3:15 p.m., when the Dow was up only 38 points. The blue chips then regained their forward momentum, closing up 53.72 points at 7,976.31. The S&P 500 (SPX) tracked the Dow, closing up 4.65 points to 968.04, but well off its best levels of the session. The Russell 2000 Index (RUT) ended the day up 4.58 points at 425.34. Technology stocks were back in favor after six straight losing sessions and helped lead the advance. Some traders, however, wondered if the upturn was a function of technical factors -- like short-covering -- rather than a sustainable reversal of fortune, or the trend. An afternoon fade by the major indices seemed to support that view. On the NYSE, 639 million shares were traded, while advancing issues beat decliners by a 17-to-12 margin. In Nasdaq activity, 790 million shares were exchanged, as advancers bested decliners by a 23-to-20 spread. Bond prices rose 1/8 of a point after the Fed decided to leave interest rates unchanged. The yield on the benchmark 30-year Treasury bond, which moves in the opposite direction of its price, slid to 5.96%. Also aiding bonds was the Labor Department's report that the Consumer Price Index rose 0.1% in November, both overall and in the core reading, which excludes food and energy. Economists were expecting a gain of 0.2% for both components of the most widely followed inflation index. ECHNOLOGY STOCKS Micron Technology (MU) embodied the resilient tech stocks on Tuesday. The chip maker rose 1 1/8 to 23 5/8 despite reporting first-quarter earnings of 4 cents per share, 3 cents shy of First Call's consensus and down from 10 cents a year ago. Micron's gain also defied a downgrade to "neutral" from "accumulate" by Merrill Lynch's influential chip analyst, Tom Kurlak. And despite Micron's admission that downward pricing pressure remains, fellow DRAM chip maker Texas Instruments (TXN) rose 1 1/2 to 44. Also belying recent activity in the sector, Solectron (SLR) rose 5 7/8 to 35 5/8 despite posting fiscal first-quarter earnings of 38 cents per share, 2 cents below Wall Street projections. BT Alex. Brown upped its rating on the circuits-board assembler to "strong buy" from "buy," and the firm's CEO made some positive comments on CNBC Tuesday morning, helping to lead the stock higher. Amid the positive tenor, technology's bellwether names were rallying. Among the Dow's technology components, Hewlett-Packard (HWP) rose 2 1/8 to 63 3/8, and IBM (IBM) closed up 2 11/16 to 103 9/16. Also on the NYSE, Compaq Computer (CPQ) climbed 2 7/8 to 57 3/8, Computer Associates (CA) rose 1 1/2 to 50 1/2, and Nokia (NOK/A) closed up 2 1/8 to 69 7/8. Lucent Technologies (LU) gained 2 9/16 to 75 1/2 thanks to an upgrade by SBC Warburg Dillon Read to "buy" from "neutral." Notably missing out on the tech rally were Motorola (MOT), down 1 11/16 to 56 1/4, and Digital Equipment (DEC), which slid 1 1/4 to 37 3/4. In Nasdaq activity, Dell Computer (DELL) rose 3 9/16 to 87, Microsoft (MSFT) climbed 2 15/16 to 139 1/16, and Cisco Systems (CSCO) closed up 2 5/8 to 80 1/8 ahead of a 3-2 stock split slated to take effect before Wednesday's trading session. Intel (INTC) fell 15/16 to 71 3/16, while Sun Microsystems (SUNW) climbed 1 5/8 to 36 13/16, following a report in the Wall Street Journal that the two companies are expected to announce a broad alliance anchored on Intel's forthcoming Merced microprocessor. Elsewhere, Adaptec (ADPT) rose 5 1/16 to 40, PeopleSoft (PSFT) climbed 1 9/16 to 34 1/2 and Powerwave Technologies (PWAV) closed up 4 3/32 to 21 1/32. On the NYSE, Newbridge Networks (NN) rose 1 15/16 to 35 5/8, Cypress Semiconductor (CY) jumped 1 1/8 to 8 7/8, and EMC Corp. (EMC) finished up 1 7/16 to 27 5/16. Despite a profit warning from Veeco (VECO) and more sell-side analyst downgrades, most semiconductor equipment makers ended higher, or with only fractional declines. Veeco itself rose 11/8 to 20 5/16 while KLA-Tencor (KLAC) rose 2 11/16 to 37 1/16, and Teradyne (TER) gained 2 1/4 to 30 1/2. Among Internet-related stocks, Yahoo! (YHOO) rose 2 5/16 to 60 5/16, and Earthlink Network (ELNK) climbed 1 to 24 thanks to a new "outperform" rating from Everen Securities. America Online (AOL), however, dipped 9/16 to 84 5/16 and Amazon.com (AMZN) fell 1 1/2 to 53 1/2. Vishay Intertechnology (VSH) climbed 3 5/16 to 22 1/8 following its acquisition of Daimler-Benz's semiconductor unit for $500 million. Vishay executives said the acquisition will accrete to its 1998 earnings. With some jaded players suggesting the recent rash of downgrades signals a bottom -- particularly in semiconductor-equipment stocks -- a slew of upgrades from brokerage analysts hit tech stocks, and several names responded. Citrix Systems (CTXS) climbed 4 5/32 to 68 29/32 behind an upgrade by BT Alex Brown to "strong buy" from "buy." Electronic Data Systems (EDS) closed up 3 15/16 to 43 1/2 after UBS Securities raised its rating on the stock to "buy" from "hold." Excel Switching (XLSW) rose 1 3/16 to 18 7/16 thanks to an upgrade from Morgan Stanley Dean Witter to "strong buy" from "outperform." Xylan (XYLN) benefited from an upgrade at Van Kasper to "strong buy" from "buy," rising 1 3/4 to 16 13/16. An upgrade from Piper Jaffray to "strong buy" from "buy" helped send shares of Natural Microsystems (NMSS) up 2 3/16 to 44 5/16. Lehman Brother helped move shares of International Networks Services (INSS), which rose 1 15/16 to 18 7/8 after an upgrade to "buy" from "outperform." ACTIVE ISSUES In addition to its technology components, the Dow's gains were spurred by Procter & Gamble (PG), which rose 2 5/8 to 83 3/8, and Merck (MRK), which climbed 1 3/16 to 106 11/16. Boeing (BA) climbed 1 1/2 to 50 7/16 amid positive reaction to the firm's restructuring plans and an upgrade from CS First Boston to "buy" from "hold." Dow laggards were led by Caterpillar (CAT), down 1 7/8 to 48 13/16; Sears (S), which shed 15/16 to 44 1/4; and Goodyear Tire & Rubber (GT), off 3/4 at 65 7/16. Tied to Wall Street's whipping post on Tuesday was Danka Business Systems (DANKY). The stock fell 17 15/16 to 13 1/16 as the company revised its earnings expectations for its third quarter. The distributor of office equipment led all stocks in volume after saying it expects third quarter results of 21 to 24 cents per share, far below the 42 cents analysts were expecting. Prudential Securities cut its rating on the firm to "hold" from "buy." Also slammed by profit warnings -- released late Monday -- were shares of Famous Dave's of America (DAVE), down 7 7/16 to 9 5/8, and Suburban Lodges of America (SLAM), which closed off 6 5/32 to 13. Ladenburg Thalmann lowered its rating on Famous Dave's to "hold" from "buy." Bear, Stearns lowered its rating on Suburban to "neutral" from "attractive" while Raymond James downgraded the hotel company to "accumulate" from "buy." Liz Claiborne (LIZ) fell 4 15/16 to 44 5/16 after saying its business looks "spotty" and a day after it acquired the licensing rights to Donna Karan International's (DK) activewear line. Donna Karan shares rose 9/16 to 14 1/4. Among major industry groups, drug stocks were strong Tuesday, led by Eli Lilly (LLY), which rose 2 to 66 7/8. Bank stocks were weak, however, as evidenced by Bankers Trust(BT), which fell 5 3/4 to 124 9/16. Citicorp (CCI) fell 2 5/8 to 129 1/2, and Chase Manhattan Bank (CMB) dipped 1 3/8 to 110 7/8. O'Sullivan Industries Holdings (OSU) slid 1 1/4 to 11 1/8 following its warning that second Quarter earnings will fall 20% to 30% from its earnings of 27 cents a year ago. Analysts were looking for results of a penny higher from the furniture manufacturer. Urologix (ULGX) slid 1 1/8 to 17 3/8 on its warnings that slower sales in Europe will hamper its results in 1998 and 1999. Vector Securities downgraded its rating on the developer of treatments for urological diseases to "attractive" from "buy." Shares in Spine-Tech (SPYN) leapt 6 to 51 1/2 on word that the company has agreed to be acquired by Sulzer Medica, a Swiss based medical device company, for $595 million in cash. The deal values each share of Spine-Tech at $52. Pepsico (PEP) fell 5/8 to 35 7/16 in heavy trading after being downgraded by Donaldson Lufkin & Jenrette to "market perform" from the firm's "recommended" list. US Office Products (OFIS) shed 1 7/16 to 15 1/2 in heavier-than-usual activity. RJR Nabisco Holdings (RN) was heavily traded as well after it announced a restructuring of its tobacco unit, but the stock didn't move too far, closing off 1/8 at 36 1/4. Fifth Third Bancorp (FITB) fell 2 3/4 to 79 7/8 after A.G. Edwards downgraded the stock to "maintain" from "accumulate." A downgrade from Salomon Smith Barney to "neutral" from "outperform" helped send shares of American Freightways (AFWY) down 4 9/16 to 10 1/16. Federal Mogul (FMO) gained 2 1/16 to 40 5/16 thanks to a new "buy" rating from BT Alex. Brown. Primark (PMK) shares climbed 4 to 41 5/8 on rumors the firm's financial information unit was going to be bought by Reuters Holdings (RTRSY). U.K.-based Reuters ended the day up 1 5/8 to 65. Carolina Power & Light (CPL) rose 1 7/16 to 39 1/2 thanks to an upgrade from Merrill Lynch to near-term "accumulate" from "neutral" and long-term "buy" from "neutral." Most major overseas markets closed higher. London: Britain's FT-SE 100 index rose for a third day, setting its highest close in two months as banks and insurers attracted yearend buying. The index closed at 5203.4, up 81.6 points or 1.6%. London: German shares, helped by the stronger US$, surged. The Dax index closed at 4083.97, up 23.93 points or 0.6%. Tokyo: Japanese stocks closed slightly higher, as most participants retreated to the sidelines ahead of the release of the ruling party's third batch of economic stimulus measures. The 225-share Nikkei average closed at 15,985.21, up 75.82 points or 0.5%. Hong Kong: Hong Kong stocks slumped to a weak close. The Hang Seng index closed at 10,346.38, down 88.77 points or 0.9%. Sydney: The Australian share market ended off its highs. The all ordinaries index closed at 2514.1, up 13.2 points or 0.5%.