Rule Breaker Portfolio

<THE RULE BREAKER PORTFOLIO>

Earnings Season Waning
Plus, Fortune's Rankings

By Paul Larson (TMFParlay)

CHICAGO, IL (April 30, 1999) -- On the last trading day of April, the Rule Breaker portfolio managed to post a gain versus a split market. In an interesting coincidence, the Nasdaq ended the day up 0.57% while the S&P ended Friday down 0.57%. The Rule Breakers, on the other hand, made up some ground lost earlier in the week and trotted to a 0.67% gain today.

Since today is both the end of a trading week as well as the end of the month, let's see how the Rule Breakers fared in the ever so slightly longer term:

                 Week      April
S&P 500:        -1.60%    +3.79%
Nasdaq:         -1.85%    +3.29%
Rule Breaker:   -6.90%    +2.17%

Needless to say, the daily, weekly and even monthly returns mean very little to the true Fool. It's the returns over the years and decades that really matter to us. We say this whether the near-term results are good or bad.

Today I thought I would quickly review how the individual Rule Breakers stood as far as their earnings releases. Slightly more than two weeks ago we had no clue what any of the companies actually did in the first quarter, and now we have nearly a dozen reports to analyze. Here's a table that compares how the companies fared relatively to what was expected of them when earnings season started:

Company     Estimate   Actual 
@Home       ($0.06)    ($0.07)
Amazon      ($0.29)     (0.23)
Amgen        $0.44      $0.46
AOL          $0.09      $0.11
Caterpillar  $0.42      $0.57
Chevron      $0.51      $0.43
DuPont       $0.59      $0.58
eBay         $0.02      $0.05
Goodyear     $0.94      $0.90
Iomega       $0.00      $0.00
Starbucks    $0.10      $0.10
3dfx         $0.02       ????
Trump       ($0.58)      ????

Let's now look at how some of the Rule Breakers have performed after reporting their earnings to see how the market has reacted to, among other things, the profit news. Below is the individual performances since April 12, the unofficial start of earnings season for the Rule Breakers.

Company       April 12     Today    % Change
Caterpillar   $51.38      $64.38     +25.3%
eBay         $176.63     $208.13     +17.8%
DuPont        $61.06      $70.63     +15.7%
Starbucks     $32.44      $36.94     +13.9%
Goodyear      $50.94      $57.19     +12.35%
Chevron       $95.50      $99.94      +4.6%
Iomega         $4.94       $4.88      -1.2%
Amazon       $184.44     $172.06      -6.7%
AOL          $157.75     $142.56      -9.6%
Amgen         $78.06      $61.44     -21.3%
@Home        $189.31     $143.94     -24.0%

There has been plenty of commentary here about each of the company's earnings, and we have another three months to mull over the numbers. However, I have some interesting news from two of the companies that have yet to report profits.

First, there is 3dfx (Nasdaq: TDFX). Before I go on, notice that the company has changed its name from "3Dfx" to "3dfx" (now with a small "d," thank you very much.) What is it with companies using funky symbols and capitalizations in their names these days?

Anyway, 3dfx held a special shareholder meeting today in order to approve the company's merger with STB Systems (Nasdaq: STBI). Alas, none of the Rule Breaker crew made it to the meeting, but we'll be swinging by the always active 3dfx message board to hopefully catch a message or two from someone who did. Either way, it appears the merger is essentially a done deal.

Another company that has yet to report earnings was Trump (NYSE: DJT). I made a prediction here a few weeks ago that if Trump delayed reporting earnings past May 1 that the numbers were probably below expectations. Well, May 1 is tomorrow, and I've got this suspicion that the numbers, when they are finally released, will be as anemic as ever. Time will tell if I'm right.

I also came across an article concerning Trump in a magazine this week. As a personal interest, one of the rankings that I like to keep tabs on is Fortune magazine's rankings of the country's most admired companies. This is an annual survey where Fortune surveys thousands of business folks around the country and asks them to "grade" companies on a variety of attributes. While the portfolio does not own this year's most admired company, General Electric (NYSE: GE), the Rule Breaker does hold a position in the company that was ranked dead last. Lucky for us, it is a short position! Out of 469 companies surveyed, check out Da Donald's rankings:

Trump Hotels & Casino Resorts
Category                 Rank   Score
Quality of Mgmt.          469    3.25
Quality of Products       463    4.56
Innovativeness            467    3.83
Investment Value          469    2.42
Financial Soundness       468    2.4
Talent                    469    2.87
Social Responsibility     469    3.5
Use of Assets             469    2.75

Overall Company Results   469    3.2
Total Companies ranked:   469

Notice that out of eight characteristics the survey ranked Trump dead last in five of them. Such stunning numbers are quite an accomplishment in my book. Even the "best" characteristic for Trump only managed to rank at 463 out of 469 companies surveyed. Is there any wonder remaining why Trump is held as a short position in this portfolio?

I also couldn't help but wonder if some of the other extremely low-ranking companies wouldn't make for good potential "buzzard bait" shorts. More on that thought in future recaps.

In any case, I went through the rest of the rankings to see where the other Rule Breakers happen to fall in the survey. Many of the Rule Breakers weren't even listed due to their relatively small size (the survey is heavily weighted towards large companies), but several of the Rule Makers such as Coke (ranked #2 overall) and Microsoft (ranked #3 overall) did extremely well. In any case, here's where the Rule Breakers stand in this year's rankings:

Company            Rank
DuPont               17
Goodyear             19
Caterpillar          34
America Online      103
Chevron             105
Iomega              407
Trump               469

Let's move on to the news of the day. Forget about Mike Tyson, the fight of the year looks like it may be AT&T (NYSE: T) taking on America Online (NYSE: AOL) and Microsoft (Nasdaq: MSFT) in a bidding war for Media One (NYSE: UMG). AOL and Mr. Softy aren't directly involved in the bidding, but they both have a strong interest in seeing Comcast's (Nasdaq: CMCSA) eventual offer topping Ma Bell's latest bid. Since AT&T owns a controlling interesting in Rule Breaker @Home (Nasdaq: ATHM), shareholders in @Home will be rooting for Ma Bell. This portfolio owns both @Home and AOL, and it is going to be tough "rooting" for one side or the other. In any case, we're staying tuned.

Finally, for some excellent reading regarding Amazon's earnings, allow me to suggest yesterday's Fool Plate Special. And for those interested in a Fribble about Vegas, gambling, and living a Foolish lifestyle -- this Fribble's for you.

Have a Foolish weekend, and see you Monday!

-Paul Larson

What's up with Harry Jones today?

04/30/99 Close
Stock  Change    Bid 
------------------ 
AMGN  -3         61.44
AMZN  +3 13/16  172.06
AOL   +1 13/16  142.56
ATHM  +1 11/16  143.94
CAT   -1 1/8     64.38
CHV   -3 5/8     99.94
DD    -2 1/8     70.63
DJT   -  1/16     4.44
EBAY  -6 7/8    208.13
GT    +  15/16   57.19
IOM     ---       4.88
SBUX  +1         36.94
TDFX  +  3/8     17.38


                  Day     Month  Year   History   Annualized 
      R-BREAKER  +0.67%   2.17%  62.38% 1529.77%  80.33%
        S&P:     -0.57%   3.79%   8.94%  204.83%   26.55%
        NASDAQ:  +0.57%   3.29%  15.97%  253.09%   30.54%


    Rec'd    #  Security     In At       Now      Change
   8/5/94  2200 AmOnline       0.91    142.56   15586.03%
   9/9/97  1320 Amazon.com     6.58    172.06    2515.23%
  5/17/95  1960 Iomega Cor     1.28      4.88     280.74%
  12/4/98   450 @Home Corp    56.08    143.94     156.66%
  2/26/99   300 eBay         100.53    208.13     107.03%
   7/2/98   470 Starbucks     27.95     36.94      32.13%
  4/30/97 -1170*Trump*         8.47      4.44      47.60%
 12/16/98   580 Amgen         42.88     61.44      43.29%
  2/23/99   300 Caterpilla    46.96     64.38      37.07%
  2/23/99   180 Chevron       79.17     99.94      26.23%
  2/20/98   260 DuPont        58.84     70.63      20.02%
  2/23/99   290 Goodyear T    48.72     57.19      17.39%
   1/8/98   425 3Dfx          25.67     17.38     -32.31%

    Rec'd    #  Security     In At     Value      Change
   8/5/94  2200 AmOnline    1999.47 313637.50  $311638.03
   9/9/97  1320 Amazon.com  8684.60 227122.50  $218437.90
  12/4/98   450 @Home Corp 25236.13  64771.88   $39535.75
  2/26/99   300 eBay       30158.00  62437.50   $32279.50
 12/16/98   580 Amgen      24867.50  35633.75   $10766.25
   7/2/98   470 Starbucks  13138.63  17360.63    $4222.00
  5/17/95  1960 Iomega Cor  2509.60   9555.00    $7045.40
  2/23/99   300 Caterpilla 14089.25  19312.50    $5223.25
  4/30/97 -1170*Trump*     -9908.50  -5191.88    $4716.63
  2/23/99   180 Chevron    14250.50  17988.75    $3738.25
  2/20/98   260 DuPont     15299.43  18362.50    $3063.07
  2/23/99   290 Goodyear T 14127.38  16584.38    $2457.00
   1/8/98   425 3Dfx       10908.63   7384.38   -$3524.25

                              CASH   $9924.87
                             TOTAL $814884.25

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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