Rule Breaker Portfolio Does Amazon Need Wal-Mart?

Rumor is that Amazon is looking to sign a pact with Wal-Mart that would have Amazon supplying Wal-Mart's online store in exchange for a cash investment, a percentage of sales, and a presence in Wal-Mart's stores. This shows how Amazon is winning the online war, but indicates that winning that isn't enough. It still needs more. Also, don't miss Tom and David Gardner in the new Motley Fool PBS television special.

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By Jeff Fischer (TMF Jeff)
March 5, 2001

Does the stock market have you feeling blue? Well, don't let it!

The stock market is a tool for building value that only works consistently over the long term. If you watch it too closely -- daily, weekly, even monthly -- it will probably make you manic. Up one day, down the next. It is only over several years that the stock market seems logical. Why? Because the prices of the best companies only rise smoothly, on average, over many years.

For example, the chart of  General Electric (NYSE: GE) looks blissful over a 10-year period. But most mere one-year charts tend to be ugly and volatile.

Money-Making, Life-Changing Special
Whether you're a new investor just beginning to put your long-term savings into the stock market today, or whether you've been investing for years, you'll enjoy seeing Tom and David Gardner on your local PBS television station this month in the new "Motley Fool Money-Making, Life-Changing Special." They're a dose of sunlight at the end of this long winter -- a tough winter for investors -- and they'll remind you what investing is about, if you've forgotten, or they'll help you to learn if you're a new investor. (See the link above for show dates across the country.)

If you are a new or returning investor who is wondering what to buy right now, here's a reiteration that rings true for most of us: Buy strong, profitable companies. Nobody knows how long the stock market will remain under pressure, but the longer that it is weak, the more difficult it becomes for profit-less companies that are hoping to raise more money. The result is many cash-strapped companies could run out of time. Cybercash (Nasdaq: CYCH), an online pioneer founded in 1994, announced bankruptcy last week. Many companies that aren't profitable now or in the near-term will be forced to shut down as well.

So, for investors who are wondering where to put new money today, we don't advise investing in the lowest-priced stocks (under $7 per share) hoping for an eventual homerun. Most "cheap" stocks stay cheap or get even cheaper. They're up against a wall. For most of us, buying profitable, strong leaders that will easily survive long market or economic downturns is the best way to invest, and a way that can more than fulfill one's long-term goals.

Buy strong, profitable companies, or buy an index fund! On average, the S&P 500 gains 11% annually, doubling once every 6.5 years, and beating 75% of all managed mutual funds in the process. To get started investing, visit the 13 Steps to Investing Foolishly.

For more aggressive investors, there are Rule Breakers to consider. Today we have news in our portfolio of young, rule-breaking, emerging companies.

Amazon courting Wal-Mart?
Amazon.com
(Nasdaq: AMZN) rose more than 22% this morning on rumor that the company is aiming to partner with Wal-Mart (NYSE: WMT) in a sweeping agreement. If this proves out, the agreement would be favorable for Amazon's long-term prospects, but at the same time it takes away from some of Amazon's independence and power. If Amazon were in a position of absolute strength today, it wouldn't look to Wal-Mart for, essentially, help. Amazon is winning the online retail battle, but that apparently isn't making the company healthy enough.

Allegedly, this deal would have Amazon becoming Wal-Mart's online product supplier, while Wal-Mart would gain access to Amazon's knowledge of online ordering and home delivery. That's valuable information. For this, Amazon would gain a presence in Walmart's 4,500 stores, a cash investment from Wal-Mart, and a percentage of the sales that it makes through Wal-Mart online -- according to rumors.

On Friday, we announced an investment change that calls for selling half of our stake in Amazon and adding -- for the first time -- to an existing holding, eBay (Nasdaq: EBAY). We have through Friday to make this change. For reasons listed last Friday, we believe that eBay has better long-term prospects as a Rule Breaker than Amazon.

Celera courting rats
Celera Genomics Group
(NYSE: CRA) will receive $21 million over two years from the U.S. National Institute of Health to sequence the DNA of a rat. The rat genome is thought to be the same size as the human genome, and rats are believed to have the same number and types of genes as humans. (Is that food for thought? No! Let's not think about that.) Most potential drugs are tested on rats well before humans, so data about rats is important to the drug industry, Celera's Dr. Craig Venter said.

Last week, Tom Jacobs and I interviewed Dr. William Haseltine, founder of Human Genome Sciences (Nasdaq: HGSI), about his company's direction. This interesting interview will be shared here this week.

Have a Foolish Monday! If you're snow-socked in the Northeast, get cozy and enjoy...

Jeff Fischer is all too happy to share that Fool Brian Graney used to keep a rat for a pet at his apartment. Of the stocks mentioned in this column, Jeff only owns eBay. The Motley Fool is investors writing for investors.

Rule Breaker Portfolio


3/5/01 as of ~8:30:00 PM EST

Ticker Company Price
Change
Daily Price
% Change
Price
AMGNAMGEN INC0.380.52%72.81
AMZNAMAZON.COM2.6326.25%12.63
AOLAOL TIME WARNER INC1.744.14%43.80
CRAAPPLERA CORP - CELERA GENOMICS(0.63)(1.48%)41.99
EBAYEBAY INC0.310.83%38.00
HGSIHUMAN GENOME SCIENCES(3.25)(5.76%)53.19
SBUXSTARBUCKS CORP(0.81)(1.71%)46.69
SPYS&P DEP RECEIPTS1.130.91%124.74

Overall Return -- total % Gained (Lost)
  Day Week Month Year
To Date
Since
Inception
(8/5/1994)
Annualized
Rule Breaker2.80%2.80%0.69%10.65%753.28%38.49%
S&P 5000.59%0.59%0.12%(5.97%)170.81%16.33%
S&P 500 (DA)0.56%0.56%0.11%(5.69%)185.07%17.24%
NASDAQ1.19%1.19%(0.41%)(13.26%)197.55%18.01%

Trade Date # Shares Ticker Cost/Share Price Total % Ret *
8/5/944020AOL0.4543.805021.27%
9/9/972640AMZN3.1812.63457.84%
12/16/981160AMGN21.4472.81239.54%
7/2/98470SBUX27.9546.6967.01%
12/17/991260CRA39.7641.995.62%
2/9/0141SPY132.89124.74(6.13%)
2/26/99600EBAY50.2638.00(24.40%)
9/22/00560HGSI80.0553.19(33.56%)

Trade Date # Shares Ticker Total Cost Current Value Total Gain *
8/5/944020AOL$1,816.44$176,076.00$246,852.00
12/16/981160AMGN$24,875.50$84,462.50$59,587.00
9/9/972640AMZN$8,408.40$33,330.00$50,745.70
7/2/98470SBUX$13,138.62$21,943.13$8,804.50
12/17/991260CRA$50,093.00$52,907.40$2,814.40
2/9/0141SPY$5,448.29$5,114.34($334.20)
2/26/99600EBAY$30,158.00$22,800.00($7,358.00)
9/22/00560HGSI$44,830.50$29,785.00($15,045.50)
 
Cash: 
Total: 
$70.81
$426,489.18
 

* Our long term totals include both our realized and unrealized gains. For instance, we have sold portions of AOL and Amazon in the past, and those realized gains are included in our total returns for these stocks.



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.