Fool Portfolio Report
Thursday, April 18, 1996

by Tom Gardner (TomGardner)

ALEXANDRIA, Va., Apr. 18 -- There's a lesson here, at least one. No?

A flashflood of earnings came smashing through Fool HQ windows today, and after a short interview with the Discovery Channel -- subscriber-base construction, we're trying to get the word out to everyone -- now we've settled into rushing through analysis of corporate activity over the last three months at General Electric, Sears, Microsoft, McDonald's, Apple, and yes. . . Iomega.

Iomega announced earnings per share of 16 cents after the bell, sweeping past Hambrecht & Quist estimates of 11 cents for the quarter. Sales figures were startling. Iomega tossed up $221,988,000 in sales and that shows 49% growth over 4th quarter sales of $148 million. If you find yourself this evening singing and skipping past the front door of a big Manhattan investment firm that has been actively shorting this issue -- and often leveraging to do so -- please sprinkle the sidewalk liberally with Pepcid.

1996 is the year of the consumer investor.

A couple years back, you might have heard two or three high-fives in a tiny shack tucked away in Alexandria, Virginia. . . followed by something like this: "Hey, it looks like we're in before the institutions! Great company here." And similar slaps and celebrations in dens across the nation. Guess what? They're gradually all being linked together here in Fooldom. And a collaborative search and education, the likes of which has never before occurred, is thriving here.

Let's take a quick look at some of the numbers here, then look at the other three companies in The Fool Portfolio that all (hallelujah!) announced excellent earnings today.

Off those $221.9 million, Iomega reported earnings of $10.1 million and thus, profit margins of 4.5%. Gross margins slid downward to 26.8% from 31.2% last quarter. That the company was able to shoulder the advertising costs and manufacturing ramp, whilst pulling together the four figures above, is astonishing. Iomega also announced today that they'd inked a deal with Sony to provide Sony's Advanced Digital Systems Group with new Jaz drives and disks. The specifics of that deal are unknown, but like the Hewlett-Packard agreement, it solidifies Iomega's position. "Compete with us from within on margins because we have the market."

Iomega closed today up $2 1/2 to $34 1/4. With more than $500 million in trailing sales, Jaz sales on the way, Zip disks throwing up higher margins, and fair 1996 sales projections for Iomega above $1.1 billion, this stock looks undervalued. If Iomega, the Zip, and the Jaz are technology brands now, by year's end, 4-6x sales looks entirely reasonable. That prices the stock above $60 a share. We're enjoying making astro-predictions here at Fool HQ about tomorrow's opening and close for Iomega, but it's of absolutely no consequence to us.


Well, we've heard some kooky Wall Street sources speak through messengers with daily predictions like, "The stock will open in the single digits." We also heard the weaker Wise on Wall Street wheeze at us through a financial television commentator that Iomega's products are "yesterday's technology." We've heard so much silliness from an industry whose financial compensation model is in direct competition with their customers. . . that we're quite happy doing our own research, tracking our own results, holding our trading commissions down to a minimum, and focusing on companies with outstanding long-term prospects.

Not that you won't see The Motley Fool partner to bring you the very best here and in other mediums. . . but it's going to be on our and your terms, Fools. This entire industry is being turned over into a consumer-brand, service business which will return bad products at cost, add value to market-average growth, and teach. It's happening overnight, right in front of us. And we don't want to pull out of context anything that Iomega has achieved---their sales, earnings, cashflows and EPS figures. That's in Roy. And don't name folks here "Iomegans." We're Fools who want service and value in excess of cost.

We've got an Iomega auditorium event tomorrow, wherein we'll be jawboning about Iomega's earnings announcement and other relevant "stuff." We'll be inviting lots of Fools onstage to share their views, and the event promises to be a lot of fun.

Elsewhere, Medicis smashed our quarterly estimates, tossing up 36 cents for the quarter. Fool projections sat at $0.31. You'll note that we hit sales on the money, came in low on earnings---as we projected profit margins of 21%, not *25%*. With $1.01 in trailing quarterly figures, and projected growth of 50% in the year ahead, the stock looks prepped for a double from here. . . and that's the only reason we reach down into small-caps. Why leave Beating the Dow unless you believe you can beat it handily?

We will be sitting in on the Medicis conference call live tomorrow morning, and will report back on it immediately. An entire writeup on MDRX's report today can be found to your right in the listbox. Medicis closed unchanged on the day after touching $31.

It wasn't enough for just two of our companies to announce market-beating numbers. Sears beat estimates of 34 cents today, posting 36 cents for its first quarter. If you want to know how committed this company is to focusing its efforts on retailing, consider their comment as transcribed by our very own, MF Debit, about the ailing Prodigy service: "The company refused comment on specifics but insists that Prodigy is of no interest strategically and will be sold shortly." Anyone looking for $60 now? It is really going to hurt when we sell this company in August. . . but this is a prime example of what Dow Dividend investing is all about. Get in when your friends are laughing at you for buying, get out when they're shopping there every weekend. Sears closed today off $3/8.

General Electric met estimates of $0.91 cents this morning, and the stock rose $1 to $79 3/4. The stock is now up 37% for us since last August, smashing the S&P 500. Take a look at this comment from CEO Jack Welch and ponder on investing to close out this report with us. Welch: "The record first-quarter results once again demonstrate the ability of GE's diverse mix of leading global businesses to deliver top-line growth, increased margins and strong cash generation."

Fools, you have been led to believe that you cannot invest in stocks. That you can't understand this stuff. That you ought to pay a stiff load to get into funds, or that you ought to dole out heavy full-service brokerage commissions and annual management fees. . . and to not worry how you're doing. That's the Conventional Wisdom. And if you're like us, 75% of your friends still believe it. Many of them believe they can't get started investing with $1,000 in the bank. Still others feel certain they'd *lose it.*

Name me a Fool in that world. General Electric has sales of over $70 billion. They're managed by someone who is paid to increase profitability and service -- rather than being paid to pen legalese in a prospectus and lose to the S&P 500 over 1-, 3- and 5-year periods. General Electric has compounded 21% annual growth over the past five years. If you have friends who are heavily invested in mediocre funds, bombarded by the propaganda of the Wise, just get 'em to buy a bit of General Electric and follow along.

Maybe a little Microsoft, too. After they swept past estimates today. Oh, and, did you see America Online up another $2 3/8 to $58 3/4? And The Fool Portfolio was up 3.4% versus S&P growth of 0.31%. That puts us up 41% for 1996 versus 4.5% growth for the S&P. And our investment book is still generally thought of by the Wise as "not a serious investment guide." And this service as. . . zzzzzz.

But our aim isn't to get you to bring all your friends into Fooldom now. Our business is going to thrive. And we'll reach them in every way possible. . . that's our challenge, not yours. Your challenge is just to get them thinking about stocks, investments -- not gambles, long-term capital growth in excess of S&P 500 growth. That means they're going to have to learn to abandon most of the mutual funds in their portfolio, any advisor who is losing to the market, and to get them into the index fund, Beating the Dow, maybe a consumer-growth giant or two, maybe one stock from their industry or tied to their favorite hobby.

Good luck, Fool.

Transmitted: 4/18/96 7:26 PM

Today's Numbers

Day Month Year History FOOL +3.37% 10.94% 41.00% 163.29% S&P 500 +0.31% -0.29% 4.49% 40.40% NASDAQ +1.38% 3.17% 8.00% 57.78% AMER +2 3/8...AMAT + 1/2...CHV - 1/2...GE +1 ...GPS - 3/8...IOMG +2 5/8...KLAC +1...MDRX ---...S - 3/8 Rec'd # Security In At Now Change 8/5/94 680 AmOnline 7.27 58.75 707.80% 5/17/95 1005 Iomega Cor 5.04 34.25 579.84% 8/5/94 165 Sears 28.93 51.88 79.34% 4/20/95 310 The Gap 16.28 28.25 73.58% 8/11/95 95 GenElec 57.91 79.25 36.84% 8/11/95 110 Chevron 49.00 55.50 13.27% 1/29/96 250 Medicis Ph 27.86 28.00 0.51% 8/24/95 100 AppldMatl 57.52 37.13 -35.46% 8/24/95 130 KLA Instrm 44.71 26.63 -40.45% Rec'd # Security Cost Value Change 8/5/94 680 AmOnline 4945.56 39950.00 $35004.44 8/24/95 100 AppldMatl 5752.49 3712.50 -$2039.99 5/17/95 1005 Iomega Cor 5063.13 34421.25 $29358.12 8/5/94 165 Sears 4772.65 8559.38 $3786.73 4/20/95 310 The Gap 5045.25 8757.50 $3712.25 8/11/95 95 GenElec 5501.87 7528.75 $2026.88 8/11/95 110 Chevron 5389.99 6105.00 $715.01 1/29/96 250 Medicis Ph 6964.99 7000.00 $35.01 8/24/95 130 KLA Instrm 5812.49 3461.25 -$2351.24 CASH $12147.13 TOTAL $131642.76