Rule Breaker Portfolio

Fool Portfolio Report
Tuesday, June 10, 1997

by Jeff Fischer (TMFJeff)


ALEXANDRIA, VA, (June 10, 1997) -- Yikes. Volatile day for the Fool Portfolio.

More than a few Fool stocks moved sharply, as America Online gained about $3, KLA-Tencor dropped $5, and our short, Trump Hotels, rose $1 3/4 -- or a whopping 17%.

Ouch.

Nasdaq gave back everything it gained yesterday, and three more points for bad measure, falling 0.73%. The S&P gained 0.27%, while the Fool Port dropped 0.56% on the day. The Dow Jones Industrial stocks were the stars, rising 60 points to a new high of 7,359. Our Foolish Four stocks all made strong moves -- except for AT&T, which only gained twelve cents. (Not even enough for a phone call.)

What happened to the other Fool stocks?

Taking the winners first, so we can focus on our big losers for the rest of the recap, AMERICA ONLINE (NYSE: AOL) gained $3 1/8 to $60 1/2. It made a new 52-week high early in the day, which sometimes attracts momentum investors who buy stocks that are making new highs on the hope that more new highs will be made.

The company announced an online commerce partnership with CUC INTERNATIONAL (www.cuc.com) (NYSE: CU), a consumer services and online retailer. CUC's travel, international, and other online services will begin selling product on AOL's shopping channel. To boot, the company's Internet commerce Web site will be linked to AOL's eight million members, with special AOL-branded services. America Online is initially being paid $50 million for the three year agreement.

The marketing power of AOL is just beginning to show up in contracts of this kind -- another recent one being the Tele-Save phone services contract.

Elsewhere, 3M (NYSE: MMM) rose just shy of a new all-time high, while CHEVRON (NYSE: CHV) and LUCENT (NYSE: LU) mustered up the strength to actually hit new highs. Lucent has been a monster, rising 38% since October First.

Finally, the stock of 3COM (Nasdaq: COMS) fell a fraction, but we'll call it a winner anyway, because today the company shipped the world's fastest network PC card. 3Com's Fast Ethernet PC Card for notebook computers became available today. 3Com states that its PC Card performs at speeds up to 31% faster than the competition, while using less than half the power.

Chalk one up for our boy 3Com. In two months the company will need to offer new technology again, most likely, but at least it has the lead.

It's time to look at our:

                       LOSERS

KLA-TENCOR (Nasdaq: KLAC) fell $4 3/4 after an analyst downgraded the stock, along with other same-industry stocks, expressing concern about a slow-down.

Hambrecht and Quist analyst, Gus Richard, lowered ratings on three chip equipment companies, dropping all of them from a "buy" to "hold." He didn't change earnings estimates for any of the companies (Applied Materials and PRI Automation are the other two), and he stated the opinion that demand was strong in the current quarter, but that bookings would slow going into summer, and these stocks trade on their bookings.

He also felt that the companies had reached their peak stock prices going into summer, and that he didn't see the multiples going up in the near-term. Again, though, earnings estimates for the companies were not changed.

That's all fine. No big argument here. These are all short-term concerns, which don't concern a long-term investor.

TRUMP HOTELS & CASINO RESORTS (NYSE: DJT) rose $1 3/4 to $11 7/8 after a mention on CNBC from Mario Gabelli, a mutual fund guru and casino and telecom investor. Likely he already has a large position in Trump Casino, so he wasn't hesitant to go on the air and praise the stock to a nation of viewers, without really explaining his reasoning.

The beautiful (sic) thing about the Wise is that they can simply say things like, "That stock is looking ready to move, and is due to move," and often they'll make a stock move. He even went on to say that DJT could trade back up to $30 per share.

Why?

No substantial reasons, apparently. Just because?

Hmmm. With over $70 per share in debt, paying $30 for all that debt per share makes even less sense than paying $11 per share for it. Earnings estimates have been lowered in the past month, and Trump is expected to lose money for at least the next two years, after which more competition is likely rolling into town. Is this an attractive purchase? There are arguably no asset-based reasons to value the stock at a quarter of a billion dollar market-cap -- not even on expectations.

Would you pay $11 to buy your neighbor's $70 worth of credit card debt, at 14% interest? You're better off walking over and handing him $80 for no reason. Would you buy his debt because he has a mortgage on his house, and you see that as an asset?

In the message boards a few people have written that, "The stock is extremely undervalued," yet none have explained why. If some good Fool would explain why Trump stock is undervalued, we'll examine and share your reasons here. Just email it to me, por favor.

Gracias! Perhaps we'll all learn something more in the process. We're always game to debate, of course -- Foolishly.

Either way, more on Trump soon...

Fool on!

Fool Message Boards -- what are Fools saying?
Evening News -- Big movers, up and down.
Daily Double -- How can you find the next double?
Daily Trouble -- Is there value in this beaten down stock?
Boring Portfolio -- Bore is on the move.
Fool Four -- These giants are... almost too big.
Fribble -- A two minute, fun lesson from readers.


TODAY'S NUMBERS
Stock Change Bid -------------------- AOL +3 1/8 60.50 T + 1/8 36.25 ATCT + 1/16 6.00 CHV +1 1/2 73.38 DJT +1 5/8 11.75 GM + 7/8 57.75 IOM --- 20.50 KLAC -4 3/4 43.25 LU + 5/8 65.88 MMM +1 7/8 94.63 COMS - 7/16 45.44
Day Month Year History FOOL -0.56% 2.89% 5.55% 181.69% S&P: +0.27% 2.00% 16.81% 88.76% NASDAQ: -0.73% 0.10% 8.57% 94.63% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 60.50 732.19% 5/17/95 980 Iomega Cor 2.52 20.50 713.49% 8/11/95 125 Chevron 50.28 73.38 45.92% 8/12/96 110 Minn M&M 65.68 94.63 44.08% 10/1/96 42 LucentTech 47.62 65.88 38.35% 8/12/96 280 Gen'l Moto 51.97 57.75 11.12% 8/13/96 250 3Com Corp. 46.86 45.44 -3.04% 8/24/95 130 KLA Tencor 44.71 43.25 -3.27% 8/12/96 130 AT&T 39.58 36.25 -8.41% 4/30/97 -1170 *Trump* 8.47 11.75 -38.74% 10/22/96 600 ATC Comm. 22.94 6.00 -73.84% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 21477.50 $18895.63 5/17/95 980 Iomega Cor 2594.53 20090.00 $17495.47 8/12/96 110 Minn M&M 7224.44 10408.75 $3184.31 8/11/95 125 Chevron 6285.61 9171.88 $2886.27 8/12/96 280 Gen'l Moto 14552.49 16170.00 $1617.51 10/1/96 42 LucentTech 1999.88 2766.75 $766.87 8/24/95 130 KLA Tencor 5812.49 5622.50 -$189.99 8/13/96 250 3Com Corp. 11714.99 11359.38 -$355.62 8/12/96 130 AT&T 5145.11 4712.50 -$432.61 4/30/97 -1170*Trump* -9908.50 -13747.50 -$3839.00 10/22/96 600 ATC Comm. 13761.50 3600.00-$10161.50 CASH $49211.92 TOTAL $140843.67








Note
The Fool Portfolio was launched on August 5, 1994, with $50,000. It was renamed the Rule Breaker Portfolio in October 1998. The investing strategy began with the first investments of the Fool Port and has evolved with time and experience. In July 2001, the portfolio began adding $12,500 each quarter (We missed Jan. 2002, so we added $25,000 in April 2002). We skip a quarter if we have enough uninvested cash or cash available in stocks we would prefer to sell to make new investments. All transactions are shared and explained publicly before being made, and returns are compared in each week's column to the S&P 500 (including dividends where noted) and the Nasdaq composite. For a history of all transactions, please click here.