Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

@Home Returns Gains
eBay lifts off, 3Dfx downloading future sales

by Jeff Fischer (TMFJeff)

ALEXANDRIA, VA (April 8, 1999) -- Where have all the bears gone?

At Dow 4,000, bears ran rampant. At 7,000, magazine covers were screaming "Sell Now!" At 9,000, however, the talked turned to Dow 10,000. Now the market has crossed 10,000 and some pundits call 10,000 the market's new support level -- "if we break below 10,000, look out!" -- and other hodgepodge. Blah, blippity, blah.

When you have at least a five-year outlook, the daily banter of the Wise is daily banter. Scientists are now concluding that it might be one of the most pointless activities on the planet Earth. The only activity that may have less meaning (although this hasn't been concluded yet) is that of dogs chasing their own tails, or that of flies repeatedly bumping into glass.

But, oooh oh, mercy mercy me... where have all the beaaaars gone?

They'll return when the stock market declines again. In fact, be prepared to learn that you were forewarned about the coming decline, because that's what many bears will claim when a decline finally happens ("I told you so"), even though nobody wants to put their neck out now. When stocks later rebound, the bears will retreat to darkness again. And so the story goes. Bears come and go, but the stock market endureth forever. (A book of that title will be available from Harpee Littleson Publishers in 2001, assuming the world doesn't end in eight months.)

The Rule Breaker gained 2.6% as eBay (Nasdaq: EBAY) leapt 14.5% (up $21 3/4) apparently on the heels of an analyst upgrade from buy to strong buy. The stock closed $6 below its high. America Online (NYSE: AOL) was as low as $148 before ending above $160, up a few dollars on the day. Amazon (Nasdaq: AMZN) also roamed the giant plain, ranging from $166 to $184 before ending at $179. Promising new companies in a new industry grow volatile as interest (both long and short) increases for their stocks. A company has "arrived" on some level when it becomes a daily most active stock on its exchange, as we've seen happen to AOL and to a lesser extent Amazon. (Perhaps America Online will be part of the Dow Jones Industrial Average someday.)

@Home (Nasdaq: ATHM) returned some recent gains to investors, saying "This isn't what I wanted. Can I exchange it for a loss?" Investors had little choice but to accept the return. News didn't really account for the stock's action. @Home has been on an upward binge and maybe needed to tighten its belt a little. However, news did arrive that AT&T (NYSE: T) is loosening its control over @Home following a failure to meet subscriber objectives in relation to TCI for the recent period. AT&T will recommit to helping the service reach higher subscriber numbers and will maintain its 71% voting rights over @Home, but AT&T will likely relinquish some of its control over @Home's board of directors. @Home followers favor the motion. The company is estimated to be profitable by the final quarter of this year.

3Dfx (Nasdaq: TDFX) continued a recent ascent, gaining 7% to end above $16 following the Wednesday announcement that Voodoo3 2000 and 3000 boards are hitting the stores this month with demand already riding very high. Pre-order sales were strong even before the company's $20 million advertising campaign launched. "Customer response to the launch of Voodoo3 has been overwhelming," said Dan DeMatteo, president of Babbage's and Software Etc. "Not only have we surpassed our pre-sale response for Voodoo2, but our Voodoo3 campaign has outperformed every other video accelerator pre-sale program we've ever had. We expect Voodoo3 to be a blow-out product at retail."

Different performance levels of Voodoo3 will be offered, with prices ranging from $129 to $249. So many PC games run optimally on Voodoo technology and 3Dfx has almost been able to lower prices to an impulse buy level (which is widely considered to be $99 for a technology product of this sort). Meanwhile, the company's new business model (manufacturing its own boards) has positives and negatives. It now controls its own fate, though margins will be lower. 3Dfx is expected to earn $0.04 per share this quarter and $0.69 this year, putting it at 24 times the year's estimates.

Those estimates are far from certain, but maybe we'll have the reverse of last year. Last year the company had strong estimates and typically blew them out of the water (until the year end) and the stock fell. Maybe this year it'll have modest estimates, beat them by a small amount, and the stock will rise as a result. Who knows. The one certainty investors have now is that the company is a Rule-Breaking leader.

Amgen (Nasdaq: AMGN) continued to be strong and is nearly twice the price that it was when journalists were calling it overpriced (those journalists were a very small reason behind why we invested in the stock). Amgen is expected to report $0.44 in earnings per share this quarter, and $1.84 per share this year. Visit the March 22 Daily Double for some explanation as to why Amgen has been so strong.

As with most of our companies (Amazon, America Online, eBay, @Home, and others) we should see first quarter results from Amgen this month. We'll list each company's earnings release date soon, and then we'll watch for the numbers like a three-eyed hawk. Why? Because it's enjoyable. It's Foolish, too. And it'll be most interesting to see the results from the Big Three "overpriced hype stocks" that we own: AOL, Amazon, and eBay, naturally. They've been hyped and overpriced, according to many journalists, since they were born; it seems a pretty sweet life for a stock to have.

Trump Hotels (NYSE: DJT) continues to languish around $4 despite Donald's best efforts to look suave while selling Pizza Hut pizza on television. The post-real estate mogul compares himself to Napoleon while slurping down a piece of pizza and riding in the back of a limo. He claims that at $9.99 per pizza, "Pizza Hut has gotta be losing money." I guess Trump would know. Trump Hotels hasn't had a profitable year in its history. Donald. Ya gotta love him. Ya gotta raz him.

Woah. Only 8 days remain to file your taxes. No need to worry, however. Visit the Fool's tax area for help. If you have questions, hit the message boards. You'll typically have an answer promptly.

Fool on!

What's up with Harry Jones today?

04/08/99 Close
Stock  Change    Bid 
---------------- 
AMZN  +3 1/2  179.00
AMGN  +2 1/16  79.13
AOL   +4 1/4  160.50
ATHM  -3 3/8  162.44
DJT   +  1/4    4.00
CHV   +3 15/16 93.75
CAT   +  1/8   48.63
DD    +  7/8   59.38
GT    +  7/8   52.38
IOM   -  1/16   4.94
SBUX  +  7/8   31.88
TDFX  +1 1/16  16.13
EBAY  +21 3/4 171.75

 
                   Day   Month    Year  History  Annualized 
      R-BREAKER  +2.61%   7.66%  71.11% 1617.48%  83.75%
        S&P:     +1.29%   4.48%   9.65%  206.75%   27.10%
        NASDAQ:  +1.14%   4.53%  17.36%  257.33%   31.32%

    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    160.50   17559.68%
   9/9/97  1320 Amazon.com     6.58    179.00    2620.68%
  5/17/95  1960 Iomega Cor     1.28      4.94     285.62%
  12/4/98   450 @Home Corp    56.08    162.44     189.65%
 12/16/98   580 Amgen         42.88     79.13      84.55%
  2/26/99   300 eBay         100.53    171.75      70.85%
  4/30/97 -1170*Trump*         8.47      4.00      52.77%
  2/23/99   180 Chevron       79.17     93.75      18.42%
   7/2/98   470 Starbucks     27.95     31.88      14.02%
  2/23/99   290 Goodyear T    48.72     52.38       7.51%
  2/23/99   300 Caterpilla    46.96     48.63       3.54%
  2/20/98   260 DuPont        58.84     59.38       0.90%
   1/8/98   425 3Dfx          25.67     16.13     -37.18%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 353100.00  $351100.53
   9/9/97  1320 Amazon.com  8684.60 236280.00  $227595.40
  12/4/98   450 @Home Corp 25236.13  73096.88   $47860.75
  2/26/99   300 eBay       30158.00  51525.00   $21367.00
 12/16/98   580 Amgen      24867.50  45892.50   $21025.00
  5/17/95  1960 Iomega Cor  2509.60   9677.50    $7167.90
  4/30/97 -1170*Trump*     -9908.50  -4680.00    $5228.50
  2/23/99   180 Chevron    14250.50  16875.00    $2624.50
   7/2/98   470 Starbucks  13138.63  14981.25    $1842.63
  2/23/99   290 Goodyear T 14127.38  15188.75    $1061.38
  2/23/99   300 Caterpilla 14089.25  14587.50     $498.25
  2/20/98   260 DuPont     15299.43  15437.50     $138.07
   1/8/98   425 3Dfx       10908.63   6853.13   -$4055.50

                              CASH   $9924.87
                             TOTAL $858739.87
Note: The Rule Breaker Portfolio was launched on August 5, 1994, with $50,000. Additional cash is never added, all transactions are shared and explained publicly before being made, and returns are compared daily to the S&P 500 (including dividends in the yearly, historic and annualized returns). For a history of all transactions, please click here.

</THE RULE BREAKER PORTFOLIO>

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