Fool Portfolio Report
Wednesday, October 25, 1995
The market sunk today, with across the board drops in all indices we follow. . . except the FOOL. Despite losses of .70% for the S&P 500 and 1.23% for the NASDAQ, Folly was in the money Wednesday, appreciating another .70%. That return brought us back over 70% historically, as we once again make an assault on our all-time high (73.89%, set September 22nd, the day that RIDE became a two-bagger for us).
The script reads much the same as yesterday. The one shining stock in the Foolfolio Wednesday was once again our kingpin, our ace-in-the-hole, our bullpen stopper: America Online. AMER shares rose another three bucks, creeping within $3/4 of five-bagger status. For perspective, consider that just 11 trading days ago AMER closed at $58 3/8, and the bears were a-barkin'. The close of $72 today is the highest in a month, and if AMER can rise $3 once again tomorrow, it'll crash through its all-time high of $74 1/2.
The Internet stocks (UUNet and Netscape) reported earnings yesterday, and beat estimates. That brought the whole group higher. Today, Merrill Lynch released a research update on our stock, showing earnings estimates of $0.92 per share this fiscal year (ended 6/96), $1.85 for 6/97, and $3.37 for fiscal 1998. That is huge growth several years out, more than justifying our ongoing bullishness here at Fool HQ. The company is due to release first-quarter earnings on November 7th, and the consensus is around 15 cents per share, vs. 3 cents in the first quarter last year.
Let's compare America Online with Netscape. Netscape, by the way, was up another $8 today to $87 3/4, and is now valued at $3.3 billion by market capitalization. Compare that to AOL's value at current prices of around $2.6 billion. Netscape is a great prospect, but remains a much smaller company with a more vulnerable competitive position. Netscape has revenues of $37 million through its first two quarters this year, and its quarter-over-quarter sales growth from first to second quarter was 25%. So let's give the company that same growth rate over the next two quarters, and we wind up with first-year revenues of $100 million. OK, America Online closed its 6/95 year with $394 million in sales, and is also growing at a strong pace---let's call it 20%, quarter over quarter. Its most recent quarter showed $152 million in revenues. If you take 20% growth each quarter off of that, you wind up with revenues by March (the close of Netscape's fiscal year) of $816 million. . . over 8 times that of Netscape. That means that at their current valuations, America Online is trading at 3 times March '96 revenues, and Netscape is trading at 33 TIMES March '96 revenues. You tell me for whom that's more bullish.
And if you had to rely on one for secure credit-card transactions, which would it be?
That's not to say we're bearish on Netscape, because we aren't. The reason that that small company has a market capitalization of $3.3 billion is because Wall Street is telling us these guys are an integral part of our business and cultural future. The online medium IS the future, and the Internet is obviously a great portion of that. BUT, we like America Online stock more than Netscape, and our money is where our mouths are.
KLA Instruments and Applied Materials took it on the chin with the rest of technology stocks today, off $1 1/2 and $1 3/4, respectively. Our August purchases of those stocks are now down 11% and 19%.
What really made the day was the relative imperviousness of our outstanding growth stocks Ride and Iomega. Ride was up $1/8, and Iomega was unchanged. With their fellow highfliers nosediving all around them Wednesday, neither of these Fool darlings gave an inch, and we outdid the NASDAQ by 2%. Now THAT's Foolish.
---David Gardner, October 25, 1995
AMER +3 AMAT -1 3/4 CHV - 3/8 GE - 1/8 GPS + 1/8 IOMG --- KLAC -1 1/2 RIDE + 1/8 S - 1/2 SNIC ---
Today's Numbers
Day Month Year History FOOL +0.70% 1.18% 53.94% 70.92% S&P 500 -0.70% -0.33% 26.83% 27.07% NASDAQ -1.23% -1.64% 36.51% 42.53% Rec'd # Security In At Now Change 8/5/94 340 AmOnline 14.55 72.00 394.99% 5/23/95 510 Ride Inc. 9.91 21.75 119.55% 5/17/95 335 Iomega Corp 15.11 24.88 64.58% 8/5/94 165 Sears 28.93 34.13 17.98% 4/20/95 155 The Gap 32.55 37.00 13.67% 8/11/95 95 GenElec 57.91 62.88 8.57% 8/11/95 110 Chevron 49.00 47.25 -3.57% 8/24/95 130 KLA Instrm 44.71 39.75 -11.10% 8/24/95 100 AppldMatl 57.52 46.50 -19.17% 12/23/94 340 SonicSol 14.48 9.50 -34.41% Rec'd # Security Cost Value Change 8/5/94 340 AmOnline 4945.56 24480.00 $19534.44 5/23/95 510 Ride Inc. 5052.44 11092.50 $6040.06 5/17/95 335 Iomega Corp 5063.13 8333.13 $3270.00 8/5/94 165 Sears 4772.65 5630.63 $857.98 4/20/95 155 The Gap 5045.25 5735.00 $689.75 8/11/95 95 GenElec 5501.87 5973.13 $471.26 8/11/95 110 Chevron 5389.99 5197.50 -$192.49 8/24/95130 KLA Instrm 5812.49 5167.50 -$644.99 8/24/95 100 AppldMatl 5752.49 4650.00 -$1102.49 12/23/94 340 SonicSol 4924.18 3230.00 -$1694.18 CASH $5969.86 TOTAL $85459.24
