Fool Portfolio Report
Thursday, February 15, 1996

by Tom Gardner (MotleyFool)

--(Alexandria, VA, Feb. 15)--In our ongoing effort to beat the Standard & Poor's 500, the market bellwether that has doled out 10.5% annually over the last six decades -- outperforming all other US investment vehicles -- today was a pleasure.

The Fool rose 1.14% as the S&P drooped 0.65%, bringing historical totals of 110.92% Foolish growth vs. market returns of 42.09%. We are also more than doubling the market's return of 5.75% here in 1996. Look out -- plug. . . our entire approach is laid out clearly, permanently and inexpensively in The Motley Fool Investment Guide. If you have enemies that are losing to the market year in and year out, do NOT give them a copy of the book! But everyone else probably should get one.

America Online pushed forward another $1 1/8 to $52 3/8 today (ho-hum), and the stock is now up 620.14% for Fools. Robertson Stephens analyst Keith Benjamin today said what Fools have been saying here for months (paraphrased): It's beginning to look like America Online will not only stand-up well against Web competition; it will be the key provider of access to the Web.

Hey, is it just me, or do we have some interestingly differing opinions on America Online? Consider the following:

In the corner to my right, the Bulls: The Motley Fool (up 620%), Morgan Stanley, Goldman Sachs, Merrill Lynch, JP Morgan, Robertson Stephens, et al.

And in the corner to my left, the Bears: The New York Times, The Wall Street Journal, Barrons, Business Week, Michael Murphy, et al.

Hmmm. Looking for patterns. Hmmm. Motivations. Hmmm. Studying subscription growth rates. Hmmm. Well, I won't speak for any of the other organizations, but I can state The Motley Fool's aim: To educate, inform, amuse, stick to the numbers, and maximize investment returns. We think it would be nice if that applied to all financial publishing and research, but we're Foolish.

Now to be sure, never before has AOL stock been valued so dearly. Here at $52 3/8, we're sitting at the richest pricing of this Company ever. With 105 million shares outstanding, the Company is capitalized now at $5.5 billion. With over 5 million subscribers, we're looking at an over $1,000 per-head valuation. Not cheap compared to past AOL valuations, but certainly cheap compared to other media.

Why might we be trending toward ever richer valuations of AMER? A few reasons:

a. Wall Street is finally recognizing this rapid growth in subscribers for what it is;

b. Wall Street is finally recognizing that the 90% of America that isn't yet online is more likely to come online as JoeP55312 or Huibs pht or OptionLosr or HotNSexy23 clicking a big colorful button with a Fool head on it than they are to come on as clacking out http// to get somewhere.

c. When reports of site activity have stricter standards, advertisers are going to be less swept up in Web talk and more drawn to the base of 5 million AOL subscribers and growing;

d. Those advertising revenues are going to significantly push up per-subscriber valuations on the service.

There are plenty of other reasons for, say, Goldman Sachs' target-price upgrade from $60 to $100 the other day, but the above four are near to the top of my list. Now, all of that said, we think the Web is going to be VERY important, once there's a serious shakeout of pages there, and once the enitre sign-symbol system is restructured for ease-of-use by novice computer users. But we also think America Online will actively participate in that rapid growth.

We reiterate a portion of our investment approach: Buy great and well-managed companies in booming industries once you've familiarized yourself with and enjoy their products and services. And if their competitors tell you they're overpriced, consider adding to your position!

Iomega had a nice day today, closing up $5/8 to $14 1/8. That was a $1 7/8 move before the 3-for-1 split. If you have trouble calculating any of that, please drop a note to Huibs pht. Iomega continues to sit in our group of great and well-managed companies in booming industries with products that we love.

We'll be watching the quarterly numbers roll through, and if past performance is any indication of future performance, we should continue to be very pleased with our IOMG investment. For our opinions on *short-term* activity in the valuation of IOMG, please refer to Bigfootmm's post today in the Iomega folder. A gem, it was. Like Bigfoot (whom I had the great pleasure of meeting in Portland), we don't pay much attention to the short-term price fluctuations.

Thankfully, our two semiconductor companies moved up today, Applied Materials up $3/8, KLA Instruments up $3/4. If anything, as a semiconductor investor, you do have to be a little disappointed that they haven't better explained their businesses to the Street, to consumers, to the millions that rely on their products to be digital every day. Before those explanations come rolling out, we at Fool HQ fully expect misinterpretations of the data to be the rage, rattling the short- and intermediate-term pricing of these stocks. Heck, we can survive that. . . in for the long haul. But it mightn't be a bad time for the likes of AMAT to launch a little consumer advertising campaign; Intel worked it nicely.

Beating the Dow absolutely wrecked us today. Sears down $1 3/4, General Electric off $5/8 and Chevron bucked the trend -- but not enough -- up $3/4. In the wake of a glossy-financial magazine's critical coverage of our application of high-yield investing, and with today's subpar performance, we're wracking our brains at Fool Global HQ. What to do, what to do. Maybe the 25 years of market demolition isn't enough proof for Fools going forward.

But then we stack it up against 3-, 5- and 10-year underperformance of the market by the majority of mutual funds on the market, and then study the ownership structure of that glossy financial magazine, and then remember that today is just a single day out of many, and that our Foolishly selected Dow stocks have crunched the market since last August---and for years previous. . . and. . . well, I think we'll be sticking close to high-yield, turnaround investing for some time to come.

Lastly, again, if you haven't had a chance to read through our Valentine's Day "Stocks to Love" section, accessible via our mainscreen listbox, please do. The short research done there is really extraordinary and provides a great jumping-off point for young investors and old looking to grow their savings aggressively and patiently in the years ahead.

Fool on,

Tom Gardner, February 15, 1995

Today's Moves

AMER +1 1/8
AMAT + 3/8
CHV + 3/4
GE - 5/8
GPS - 7/8
IOMG + 5/8
KLAC + 3/4
MDRX + 1/4
S -1 3/4

Today's Numbers

Day Month Year History FOOL +1.14% 6.53% 12.96% 110.92% S&P 500 -0.65% 2.41% 5.75% 42.09% NASDAQ +0.23% 2.90% 3.65% 51.42% Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 52.38 620.14% 5/17/95 1005 Iomega Cor 5.04 14.13 180.37% 8/5/94 165 Sears 28.93 44.88 55.14% 4/20/95 155 The Gap 32.55 49.38 51.69% 8/11/95 95 GenElec 57.91 78.00 34.68% 8/11/95 110 Chevron 49.00 56.13 14.54% 1/29/96 250 Medicis Ph 27.86 29.00 4.10% 8/24/95 100 AppldMatl 57.52 39.38 -31.55% 8/24/95 130 KLA Instrm 44.71 28.25 -36.82% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 35615.00 $30669.44 8/24/95 100 AppldMatl 5752.49 3937.50 -$1814.99 5/17/95 1005 Iomega Cor 5063.13 14195.63 $9132.50 8/5/94 165 Sears 4772.65 7404.38 $2631.73 4/20/95 155 The Gap 5045.25 7653.13 $2607.88 8/11/95 95 GenElec 5501.87 7410.00 $1908.13 8/11/95 110 Chevron 5389.99 6173.75 $783.76 1/29/96 250 Medicis Ph 6964.99 7250.00 $285.01 8/24/95 130 KLA Instrm 5812.49 3672.50 -$2139.99 CASH $12147.13 TOTAL $105459.01