Cisco on a Rampage
by Rob Landley
Austin, TX (July 20, 1998) -- Hi all, and welcome to the Cash-King Portfolio, a fat-free, hypo-allergenic, which contains no harsh abrasive cleansers, gets excellent gas mileage, folds neatly for convenient storage, and believe it or not is still beating both the S&P 500 and NASDAQ indexes. Life is good.
Of course it's not your managers individually who are beating the indexes, it's our companies doing the beating! As owners, our job is to appoint management, set broad policy, look at the financial statements once every three months, then sit in the yacht and eat caviar. (Or, in my case, mail in my proxy votes and sit in a plastic chair eating a can of tuna fish. But the principle's the same. And just wait -- I'll get there!)
Nobody at Fool HQ is surprised that a portfolio of highly profitable, consistently market-beating companies remains highly profitable and continues to beat the market. In our public markets, like in so many other open competitions, the best just keep getting better. Now, a few Fools who happen to know the Cash-King Portfolio founder personally are surprised that we managed to get Tom's money fully invested in less than a single year -- he works very hard, but he's disorganized! But, ah bliss, we're fully invested in common stock with only our long-term savings. We can just sit back now and let compounding work its magic -- eating tuna fish straight out of the can while we wait. It's part of the job.
Let's look at the numerical representation of the week that was:
Cash-King Last This Change Cisco $92.88 $99.69 + 7.3% T Rowe $40.06 $42.44 + 5.9% Microsoft $113.13 $118.00 + 4.3% Intel $79.75 $83.06 + 4.2% AmEx $116.81 $115.81 - 0.9% Coca-Cola $87.19 $86.13 - 1.2% Pfizer $118.00 $115.75 - 1.9% Gap Inc. $66.38 $65.06 - 2.0%
Fool Four Last This Change Kodak $73.56 $86.25 + 17.3% Chevron $81.88 $82.81 + 1.1% Exxon $71.75 $72.38 + 0.9% GM $71.19 $69.88 - 1.8%
S&P 500 1146 1187 + 3.6% Total C-K $23,797 $24,390 + 2.5%
We have to start off with a rare news mention of a Foolish Four holding: Eastman Kodak, which shot up $13 -- or 17.3% -- last week, upon release of its second-quarter earnings. Kodak posted $1.51 for the quarter, crushing Street estimates of $1.14 per share. The report included evidence of significant cost-cutting by our CEO George Fisher, with also some cutting of R&D expenses. Cutting R&D indicates one of two things -- getting rid of the fat at Kodak HQ, or mortgaging your future to get earnings up in the short-term. We'll keep our eyes posted -- but Kodak is now up 37% for us since our purchase in March.
Next up, we'd like to thank our Foolish community of Cash-King investors for voting us into our Cisco shares! Cisco is up 15.5% since we bought the stock in late June, which stacks up nicely against the 6.0% gains by the S&P 500 over that period. The stock rose on little news last week -- we only found CSCO announcing that it had taken a minority stake in Belle Systems, a leading Danish software producer specializing in advanced billing and management systems designed for larger Internet providers. The push of the 'Net into Europe continues.
Microsoft's legal soap opera continues. Microsoft is happy that the states suing it are reducing their claims and consolidating their case against our software giant (cf. States drop some claims from Microsoft suit). On the other hand, they seem to have personally annoyed Senator Orrin Hatch, chair of the Senate Judiciary Comittee (cf. Microsoft Not Off the Hook Yet), who has announced plans to hold more and broader hearings on "competition in the digital age" starting next Thursday. (Note to self: check C-Span listings, buy more popcorn.) C-K Manager Tom Gardner posited an interesting question in the Microsoft folder -- What if Orrin Hatch was a senator from the state of Washington?
You might also be interested in this Reuter's report released today, which details the story of Acer Computers software licenser, Ricardo Correa. Correa is leaving the business of computing because he believes Microsoft is strong-arming the industry. An interesting article: Former employee says Acer bowed to Microsoft.
Elsewhere in the Kingdom, while not strictly relevant, I noticed while reading news about Lehman Brothers analyst Michael Branca downgrading of Coca-Cola shares, that he was also changing his tune on Pepsi. A busy week for Branca. Simultaneous to upgrading Pepsi from "buy" to "outperform," Branca lowered his earnings estimate for the company. Fool paraphrasing: "We think they'll make less money, but we want you to buy more of the stock anyway." This morning Pepsi paid $3.3 billion to acquire Tropicana. All that activity by Branca has us wondering if he used his Pepsi shares today to buy more Coke. But it would be unprofessional to suggest that. So I won't.
Over in our semiconductor corner, Advanced Micro Devices (AMD) and Motorola announced a technology cross-licensing agreement, while AMD's K6-2 processor is seeing increased demand and widespread acceptance among PC manufacturers and consumers. Intel's strength continues to be in manufacturing, achieving higher volumes and lower costs for its chips.
Some say that Intel's insistence on maintaining a higher profit margin than its rivals is neutralizing that cost advantage and, right now, is allowing other chipmakers some growing room. It's certainly something anyone who owns Intel should keep an eye on. However, Intel is still clearly in control of the situation. It could, at any time, undercut AMD and flood the market with cheap chips. And it might just drive them out of business by doing so. Like it or not, AMD exists on Intel's sufferance.
In other not necessarily news items, Pfizer is being sued by various elderly men who are having heart attacks now that they can have sex again. Wake me when it's over. And for those of you who missed it, the Gap posted impressive sales figures last week. Watching the Gap post astronomical sales numbers is like watching Texas' reports of record heat: impressive, quite relevant to those of us involved, but not exactly surprising.
Our Cash-King companies continue to chug along. As for me, I have to explain to three different cats why I ate an entire can of tuna fish while writing this report, without giving them any. This may take a while, and will probably involve another can of tuna. Try back tomorrow...
- Rob Landley (Oak)
Day Month Year History C-K -0.68% 6.20% 21.12% 21.12% S&P: -0.22% 4.43% 18.26% 18.26% NASDAQ: +0.27% 6.31% 21.86% 21.86% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 117.00 49.48% 2/3/98 22 Pfizer 82.30 117.94 43.30% 5/1/98 37 Gap Inc. 51.09 62.88 23.07% 2/6/98 56 T. Rowe Pr 33.67 41.25 22.50% 2/27/98 27 Coca-Cola 69.11 84.56 22.36% 6/23/98 23 Cisco Syst 86.35 103.19 19.51% 5/26/98 18 American E 104.07 114.56 10.09% 2/13/98 22 Intel 84.67 81.63 -3.60% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 63.15 88.00 39.36% 3/12/98 20 Exxon 64.34 70.56 9.68% 3/12/98 15 Chevron 83.34 82.00 -1.61% 3/12/98 17 General Mo 72.41 69.13 -4.53% Cash-King Stocks Rec'd # Security In At Value Change 5/26/98 18 American E 1873.20 2062.13 $188.93 2/3/98 24 Microsoft 1878.45 2808.00 $929.55 2/3/98 22 Pfizer 1810.58 2594.63 $784.05 5/1/98 37 Gap Inc. 1890.33 2326.38 $436.05 2/6/98 56 T. Rowe Pr 1885.70 2310.00 $424.30 2/27/98 27 Coca-Cola 1865.89 2283.19 $417.30 6/23/98 23 Cisco Syst 1985.95 2373.31 $387.36 2/13/98 22 Intel 1862.83 1795.75 -$67.08 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 15 Chevron 1250.14 1230.00 -$20.14 3/12/98 20 Eastman Ko 1262.95 1760.00 $497.05 3/12/98 20 Exxon 1286.70 1411.25 $124.55 3/12/98 17 General Mo 1230.89 1175.13 -$55.77 CASH $94.76 TOTAL $24224.51 *The year for the S&P and Nasdaq will be as of 02/03/98