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Stocks For Mom
by TMF Jeff

America Online
(NYSE: AOL)
22000 AOL Way
Dulles, VA 20166
(703) 448-8700
http://www.aol.com

Dear Mom,

I tried to think of a company that plays an active part in your life, and if possible, in mine, too. Fannie Mae is one example of something you love, but I'm talking the chocolate, not the financial company. You receive the Chicago Tribune every day, but that company owns the Chicago Cubs, so do you really want to own the stock? Well... maybe. Grandpa has loved the Cubs for 80 years. But still... there had to be something better.

Then I saw you sign onto my AOL "buddy list" and the answer struck me, suddenly... Or, it struck me about two days later when I was pressed for an answer.

(Another thing, it wasn't you that signed on, it was Dad using your name -- but what the heck.)

AMERICA ONLINE (NYSE: AOL) is the stock for you, ma. Fast moving, unpredictable, a clear leader, and often very busy, the stock and company fit you to a tee. But mainly, AOL is about community, and therefore family, and it has become one of the key ways that we communicate these days -- through instant messages and through e-mail. It's easier than flying 700 miles, cheaper than a phone call, and much quicker than snail mail. And you can send colorful text. And I can ignore your instant messages when I don't want to talk.

The leading online company has 8 million other members, but none are as good as you, Mom. Except for me.

The company is making money. It just earned two cents per share last quarter -- which is a great coincidence, because you always say, "That's my two cents worth!" (You never say that, but roll with it...)

HERE'S WHAT WE'RE HOPING FOR: We hope the company will remain the industry leader over the next five years and beyond, with significantly increased sales as all of its revenue streams kick in, while margins also rise as expenses go down percentage-wise. Put those things together and we have a possible money-making machine over the next many years, as the company leads in a dynamic and fun new medium that makes talking to family easy again!

From your one son in Paris, to me in... in...

(Where did I tell you I worked? New York City -- as an attorney?... that's right...)

...to me in New York City as State's Attorney, to your other son and daughter... Aw hell, mom! That's what America Online and e-mail is all about... keeping us together. And the Fool. The Fool is a great meeting place. I hang out there quite a bit. I even ordered your flowers from the Fool's Web Site. But gee... I'm getting all teary-eyed. Don't you want to own a part of AOL so that whenever you sign on you feel some pride, and whenever you get a busy signal you don't mind so much, because it means business is good?

Well, why not?

HERE'S WHAT TO LOOK OUT FOR: The stock isn't at all cheap, Ma, on an earnings-basis. But with "new" companies you often aren't looking at earnings. You're looking at revenue growth and possible earnings down the road. Meanwhile, AOL turning a profit under its new accounting system is good news. Also, non-subscription revenue is jumping, which is great. That's ad dollars and online commerce. The stock trades at about 3.6 times sales, Mom (I'm sure you know the stock lingo), which isn't low but isn't all that bad. Heck, Microsoft trades at over 10 times sales and has a much slower growth rate.

But what to look out for: it's a volatile, high-risk stock. Nothing is certain. It could be hurt by the Internet, or by Microsoft -- speaking of that company. The longer you own the stock, though, very likely the lower the risk -- especially as long as AOL continues to lead its industry. But it is risky, mom. It may be as risky as a 16-year-old with a pocket full of M80 firecrackers. But that's a rush, isn't it? Which is why you enjoyed raising four kids.

Happy Mother's Day!

Love,

Jeff

(P.S. I blew up the neighbor's mailbox.)

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