Fool Portfolio Report
Thursday, June 13, 1996
Thursday, June 13, 1996 [Editor's Note: In advance, I apologize for the length of this report. There was just a basketful of important news. I hope I've rendered it half-eloquently.]
(FOOL GLOBAL WIRE)
by Tom Gardner (TomGardner)
ALEXANDRIA, VA, June 13, 1996 -- In a major development for electronic publishers and online-service providers yesterday, a triumvirate of federal judges in Philadelphia unanimously dismissed the Communications Decency Act as an unconstitutional violation of free speech.
In his assent, Federal Judge Stewart Dalzell wrote:
"Just as the strength of the Internet is chaos,
so the strength of our liberty depends upon
the chaos and cacophony of the unfettered
speech the First Amendment protects. . .
"The Internet may fairly be regarded as a
never-ending worldwide conversation. . . the
government may not interrupt that
This decision will have repercussions that range far beyond matters of "decency" on the Internet into forums or communities like the one in which your presently trapped: Fooldom. Hey, we know you may not have chosen to click through into The Motley Fool, but now that you're here, we're not letting you out. Stock chatter is jumping up at you. And we may be forced to require you to trade stocks that you hear about online. (Jest kidding.)
Now any time basic freedoms are protected as they were in Philadelphia yesterday, a Fool donning motley tosses his bells into the air and gleefully shouts. Why?
Well, consider Medicis.
On January 28th of this year, after extensive research on the company carried out in its entirety by David Gardner, The Fool Portfolio announced its intention to purchase 250 shares of Medicis Pharmaceuticals, traded on the NASDAQ under the ticker symbol: MDRX.
At that point, the marketer of over-the-counter and prescription dermatological products was trading at an asking price of $25 3/4. The next day---whoosh---the stock opened a few points higher and The Motley Fool Portfolio landed its shares that afternoon at a bid of $27 3/4, and a post-commission cost basis of $27.86 per share.
That might be termed "disadvantaging" ourselves. But the Pre-Announcement Policy has always been in place at Fool HQ, dating back to the halcyonic days of Ye Olde Printed Foole. We have never considered pre-announcing our investments a disadvantage, but rather the best way to serve our readership.
In the ensuing weeks and months, our Medicis stock folder whirred with additional research, news reports, analysis of the financials, a variety of opinions from bankers, dermatologists, product-users, Arizonians, greenhorn and veteran investors.
Then on April 18th, Medicis announced its eleventh consecutive profitable quarter, sweeping past Street estimates of 27 cents by posting 36 cents per share in profits. Sales were up 40% and earnings up more than 460% over year-ago figures. Cashflows rose smartly and the company paid down most of what were nothing more than trivial debt obligations.
That evening, Dave raised his estimates for fiscal 1997 to $1.67, up two cents. Trailing twelve-month earnings were $1.01. With the end of fiscal 1997 a year-and-a-quarter off, we revved up our calculators for 1.25 roots. Let's run the Fool Ratio on Medicis together now:
A. $1.67 / $1.01 = 1.6534
B. 1.6534 ^ 1.25 = 1.495
C. 49.5% is our growth rate and thus P/E multiple
D. 49.5 x $1.01 = $49.95
E. Present fair price: $50/share
The day of the earnings announcement, the stock wobbled and closed down. In the following week, Medicis traded as low as $24 a share. Gradually, MDRX traded up into the low-$30s, right about where it closed yesterday at $32 1/4.
This morning, Robertson Stephens healthcare analyst, Dr. Donald Ellis, initiated coverage of Medicis Pharmaceuticals with a "Buy" rating. Ellis estimated earnings-per-share (EPS) of $1.18 for this year, $1.53 for fiscal 1997, and $1.97 for fiscal 1998. Dr. Ellis also generated a 12-month price target of $50-$54 a share, adding that his estimates are "a fraction of what they will be when Medicis brings in new drugs."
In the wake of the announcement, Medicis broke into a sprint, paused for a few minutes, burst forward again, relaxed around the delivery of our Lunchtime News, then rallied strong into market close. MDRX finished bidding $45 1/4---up $13 a share, or 40.3% on the day.
Medicis has now risen 62.42% for The Fool. Today's tour de force shot this stock into fifth place in our portfolio. I actually think it's time for their corporate communications squad to give a call over to General Electric in Fairfield, Connecticut (Phone: 203-373-2211) and start talking trash. We're number 5!
IN NOW GAIN
Medicis Ph 27.86 45.25 +62.42%
GenElec 57.91 85.75 +48.06%
Now I began this review of Medicis with that lead-in about the judicial trammeling of attempts to regulate information flows on the Internet. In this case, they liberated the medium from subjective delineations of and restrictions on "indecency"---an unbinding that will free up individuals (and parents) to define "decency" on their own terms, and one which will open the market for software tools designed to block out certain material. And would we want it any other way? Can you imagine your local art historian borrowing $150,000 to cover her $250,000 fine and packing her duffle for a two-year stint in the slammer. . . all for digitizing Francisco Goya's "La Maja Des Nuda"? I don't expect so.
So what does this all have to do with Medicis Pharmaceuticals and The Motley Fool?
Well, without this new medium, without an unrestricted flow of information and that uninterrupted conversation, how many of us would have ever heard of Foolish investing? Who of us would have stumbled across David's research on Medicis and been able to hold it up alongside the considerations of hundreds of other investors in a message folder here, then been able to work through the quarterly financials together, and ultimately have profited---whether monetarily or intellectually---from today's rapid ascent?
Quite possibly, I wouldn't have heard about Medicis until around 7 PM mountain-standard time tonight, with my telephone ringing me in from a barbecue in Missoula, Montana. . . and David crowing about some marketer of acne creams in Arizona that he invested in. The beauties of this medium are thus plainly evident: a national conversation, a collaborative education, a digital history of all records, and frankly. . .a helluva lot of Foolishness out here.
To close this talk of Medicis' move today: In the end, the short-term fluctuation in the pricing of stocks isn't of any concern to us. The day we purchased our shares of Medicis, the stock was down $1/4 for us. Today, Robertson Stephens illustrated the power of the offline investment firm, and whether or not that had played to our favor, we'd be defending the rights of anyone to publish research reports, to consider them in private or in a public forum, to formally respond to praise or criticism, and to do it all on any Street---digital or otherwise.
I'd like to close tonight with a note that we received via email last night from a private investor in Escondida, California. These are the sorts of stories that are coming out of this unrestricted flow of ideas, this online enterprise. And I can assure you that, internally, we're very well-aware of the fact that most of the research and analytical work in The Motley Fool is done by you, our readers. This note from Andy Granger is, then, more a "Thank-You" to you than to us. Please consider it in that light:
"I wanted to thank you tremendously for your educational efforts. I'm 25 years old. I started investing 3 years ago. I had only $250 to my name
My portfolio now sits at over $45K.
Not to brag mind you, but it still amazes me to think I could come so far in such a short period of time---by saving and investing. I didn't know before what percentage my investments were making me; I never kept track. But I do now. I also clung to mutual funds like an infant, but now I don't even own one.
Fools, I have forty years until my retirement, do you know what my $45,000 will grow into by then if it compounds 20-25% annually? Do the math out forty years, and you'll know how grateful I am to The Fool Online! And you know what---those returns assume I'll never add another penny to my investments. Not likely.
By the way, I have a small barber shop in Southern California. I now share my investment experiences with my customers and they with me. I mimick your concept there by posting my weekly gains (and losses) on the wall for all to see and I always compare my returns to the appropriate indices. I've sold no less than a dozen of your books and have given several away myself. I honestly believe it's the single best investment I've ever made, even better than my Iomega investment. . . in at $6 3/4!
You guys have made me a wealthy man---though not for the money but for the pure enjoyment of Foolishness."
Andy Granger (aka BarberAndy)
If that isn't the most spirited barbershop in all of California, show me the one that is. We're mailing a thank-you to Andy. Why not mail him some stuff for his wall? Or drop by for a snip if you're in the area. [Sadly, I won't be.]
Andy's Barber Shop
123 W. Grand Ave.
Escondido CA 92025
Tom Gardner, June 13, 1996
OTHER FOOLISH STUFF: Oh, by the way, what would that $45,000 turn into 40 years from now (not factoring in taxes):
$45,000 growing at 25% for 40 years equals $338.5 million.
$45,000 growing at 20% for 40 years equals $66.1 million.
$45,000 growing at 15% for 40 years equals $12.1 million.
And that's if he doesn't add ANY money monthly, quarterly, annually. Use the stock market as a savings vehicle, beat the Dow, and buy profitable companies. Oh, and have fun at it.
Day Month Year History
FOOL -0.98% -7.00% 87.78% 250.64%
S&P 500 -0.17% -0.18% 8.44% 45.71%
NASDAQ -0.79% -1.43% 16.49% 70.19%
*Scroll down or expand screen for full portfolio accounting
AMER + 1/8 ...CHV ---...GE + 1/2 ...GPS - 3/8 ...IOMG -2 1/2 ... KLAC - 1/8 ...MDRX +13...S + 1/4 ...
Rec'd # Security In At Now Change
5/17/95 2010 Iomega Cor 2.52 39.13 1453.21%
8/5/94 680 AmOnline 7.27 47.00 546.24%
4/20/95 310 The Gap 16.28 33.50 105.84%
8/5/94 165 Sears 28.93 51.63 78.48%
1/29/96 250 Medicis Ph 27.86 45.25 62.42%
8/11/95 95 GenElec 57.91 85.75 48.06%
8/11/95 110 Chevron 49.00 59.63 21.68%
8/24/95 130 KLA Instrm 44.71 25.88 -42.13%
Rec'd # Security Cost Value Change
5/17/95 2010 Iomega Cor 5063.13 78641.25 $73578.12
8/5/94 680 AmOnline 4945.56 31960.00 $27014.44
4/20/95 310 The Gap 5045.25 10385.00 $5339.75
1/29/96 250 Medicis Ph 6964.99 11312.50 $4347.51
8/5/94 165 Sears 4772.65 8518.13 $3745.48
8/11/95 95 GenElec 5501.87 8146.25 $2644.38
8/11/95 110 Chevron 5389.99 6558.75 $1168.76
8/24/95 130 KLA Instrm 5812.49 3363.75 -$2448.74