STOCKS TO WATCH: Caere, E-Tek, Lockheed Martin, Microsoft, Motorola and Red Hat

Caere Corp. shares figure to rally Tuesday after ScanSoft Inc. (Nasdaq: SSFT) said it will buy the software developer for $140 million in stock and cash.

Under the terms of the transaction Caere shareholders will receive $4 in cash and $7.75 in ScanSoft common stock for each share of Caere they hold.

Caere shares closed unchanged at 7 7/16 Friday while ScanSoft was unchanged at 5 3/8.

Caere develops software for scanner and digital cameras.

The fiber optic equipment maker JDS Uniphase Corp. (Nasdaq:JDSU) said Monday it would take over rival E-TEK Dynamics Inc. (Nasdaq:ETEK) in an all-stock deal worth about $15 billion.

Under the agreement, E-TEK holders will get 1.1 shares of JDS for every E-TEK share. E-TEK, also a player in the world of fiber optic equipment, will become a wholly held unit of JDS.

JDS and E-TEK also said a mutual supply deal will let them immediately boost the supply of certain products to customers.

Lockheed Martin figures to move up Tuesday after announcing it received an order for 50 F-16 planes from Israel.

The defense giant said it'll begin delivery on the contract in 2003, adding it has a total value of some $2.5 billion. Israel has the option to bump up the total number of planes to 110, which could add another $2 billion in value to the order.

Lockheed shares closed off 1/4 to 20 1/2.

The software giant will report its second-quarter results Tuesday with analysts looking for a profit of 42 cents a share, up from the 36 cents a share it earned in the year-ago quarter.

Most analysts are projecting sales growth of 16 to 17 percent compared to the year-earlier period.

Anticipation rose for a strong quarter Thursday when, at the very instant Bill Gates was stepping down as Microsoft's chief, Intel Corp. (Nasdaq: INTC) was reporting better-than-expected, record earnings in results that confirmed robust demand for PCs and an outlook for more of the same.

Microsoft shares closed up 4 7/16 to 112 1/4 Friday, just shy of its 52-week high of 119 15/16 set in December.

Motorola should be on the rise Tuesday after topping analysts' estimates in its fourth quarter Monday, earning $514 million, or 82 cents a share, on sales $8.5 billion.

First Call consensus expected it to earn 81 cents a share in the quarter.

Revenue was up 2 percent from $8.3 billion in the fourth quarter a year ago. Motorola said it sold many businesses in the past year and that accounts for the anemic sales growth. Sales from continuing operations were up 7 percent compared to $7.9 billion a year ago.

Although Motorola's operating earnings beat consensus, the company's bottom line was dinged by the Iridium (NYSE: IRID) satellite venture, which now operates under the regulations of Chapter 11 of the U.S. Bankruptcy Code.

Mostly because of the Iridium woes, Motorola took a charge of $236 million, or 26 cents a share. Including charges, Motorola reported fourth quarter earnings of $349 million, or 56 cents a share. In the fourth quarter a year ago, Motorola reported earnings of $159 million or 26 cents a share.

Its shares closed up 12 7/16 to 151 Friday.

Red Hat will be interesting to watch Tuesday after announcing it had filed a registration statement with the SEC for a secondary offering.

The company will sell 2.75 million shares and certain stockholders will sell 1.25 million shares. Goldman Sachs will act as lead underwriter.

Its shares closed up 15/16 to 132 1/4 Friday.