Fool Portfolio Report
Monday, August 26, 1996

(FOOL GLOBAL WIRE)

by David Gardner (MotleyFool)

ALEXANDRIA, VA, August 26, 1996 -- The market sold off to start the last week of August, and the Fool sold off some more. With pretty much everything but Medicis losing ground Monday, I find little to contribute to the "Internet chatter" and "cheerleading" that Wise journalists are convinced occurs so rampantly online.

So instead, we'll just continue along with our normal Foolish analysis and Foolish reporting.

AT&T led the list of Fool losers today, surrendering $1 1/8. I personally am delighted to see these shares in the Fool Portfolio for the next 12 months (at least). Following the free-market legislation of this year's Telecommunications Bill, it'll be fascinating watching how Big T tries to gobble up the local telephone service market while at the same time defending it's long-distance biz. USA Today featured an article on how America's phone companies are gearing up to spend record-breaking amounts on fall advertising campaigns, as AT&T and its competitors (like MCI and Sprint and now WorldCom, which announced a merger with MFS Communications today) try to grab local market share, while Ameritech, Bell Atlantic, and the rest of the regional Bells go after the long-distance market. You've got everything from Sprint's new relationship with the NFL, putting NFL team logos on prepaid phone cards and pagers, to Muggsy Bogues and Daisy Fuentes (the MTV "VJ") taking $30K-$50K for BellSouth.

Will this work? I'm a sports fan who generally thinks that athletic advertising tie-ins are smart. But your New York Giants pager? Your Seahawks prepaid phone card? "People who are into sports are passionate about it, and they might buy a telecommunications service because a company has sponsored an event," an analyst told USA Today. The more I reread that line, the lamer it looks.

Every single one of these companies is aiming to be your single source for local, long-distance, wireless, pager, Internet, and international communications services. Who's going to win? I have no idea whatsoever. Clearly, the market doesn't like AT&T's chances, which is why the stock continues to flirt with its yearly low. And of course, T has been a dog for years.

But at some point, gargantuan companies like AT&T can become so disliked by the market that their shares become undervalued. That may be the case for this stock right now. The Foolish Four approach suggests as much, anyway, and it has a pretty passable long-term record. AT&T, now off a point and a half from our buy, is a company that investors just don't like at the moment. At the moment.

Speaking of AT&T, we had one of those "unholy alliance" press releases today, in which one of our FoolPort holdings ganged up with another. (Gotta love it when this happens, and no, it's not Medicis and General Motors.) AT&T and America Online announced that AOL could now be reached through the Internet at prices 20% below standard rates, via AT&T's WorldNet service. So how'd you like to pay $7.95 a month (rather than $9.95) for your first five hours and $2.35 (rather than $2.95) for every hour after that? If you don't mind receiving two separate bills each month, you can now do this by signing up with a local Internet service provider and accessing AOL through WorldNet. Phone queries can be directed to 1-800-297-1392.

Is this bad news for AOL shareholders? A quick talk with Randy Befumo (MF Templar), who knows AOL about as well as any Fool I know, suggests not. Insofar as AOL doesn't have to build the network infrastructure to deal with these sign-ins, they will probably have higher margins on these customers as opposed to ones who use America Online's dial-up network to access the service. AMER stock declined right along with AT&T and the market today, though, off $1/2 to $30 7/8.

Iomega lost $3/4. Hewlett Packard announced three new additions to its Pavilion line of computers Monday, one of which (the $2599 Pavilion 7275Z) comes with an internal Zip. This occurs less than a month after the Packard Bell OEM announcement (and fellow Fool BColl23145 today posted that he saw this very model in Sears, of all places). Two ways of looking at this, as usual: the first is that Iomega landed yet another computer in which its drive is standard. The second is that IOMG managed to get its drive into only one of HP's three new computers.

For my part, I expect that today's announcement will sell more Zip drives and disks. That's a plus.

Rumors continue about Iomega's possible relations with Nintendo, thinking of its upcoming 64DD machine and its storage requirements, and about IOMG's possible buyout interest (the name some toss around is Cisco). Just so you know our official take, we discount stuff like this. From an investor's point of view, I'd say it's great if stuff like this happens, but extremely unlikely. So let us be pleased by potential upside surprises... let us never depend on such to keep us interested in a stock. My feeling is close to BarbPayne1's, who opined in the IOMG folder tonight: "The latest rumor I heard is ValuJet taking over IO. They said they need to Jaz up their image, and like the fact that the Zip 'flies' off the shelf." Good one.

It's the same reason you'll never see us add a stock to the Fool Portfolio because we think it'll be bought out. Hey, that's nice if and when it happens (buyouts usually occur at pleasingly profitable premiums), but nothing individual investors should count on to sway their investment decisions.

Separately, MF Raleigh posted an interesting comparison today between the stock "everybody on the Street loves," Ascend Communications (NASDAQ:ASND), and the stock that "everybody on the Street hates," Iomega. Just a quick numbers comparison. To wit:

IOMG

P/E....51.7

ROE....15%

Debt....6%

Price/Sales....2.6

R&D....$48 million

Institutional ownership....10%

Insider ownership and closely held: 21

5 year growth forecast....Analyst coverage too narrow

Past 5 years....Not available

ASND

P/E....84.4

ROE....18%

Debt....nil

Price/Sales....18.2

R&D....$26.8 million

Institutional ownership....41%

Inside ownership and closely held....11%

5 year growth forecast....45%

Last 5 years....132%

The Iomega board is getting fewer posts these days... a fine sign. It's good to see many readers not obsessing on this one stock, when there are so many great investment opportunities out there. And from as a superficial sentiment reading, maybe it even suggests Iomega is cheap. Who knows? MF Boring did announce last week that he'd bought shares in his own personal account (NOT the Boring Portfolio) at $14; a "Boring stock at $14," he called it....

Final followup in today's report is a dollop of wit from Fool reader Golfrep, who provided his opinion on Medicis's upcoming secondary offering. (Medicis continued its recovery from the recent bout of profit-taking, up $3/4 to $39 3/4.) "If Jonah can do Beating the Dow with that new $60m, I'll be a happy long," he wrote. No truth to the rumor that Medicis rose today on that weekend post!

Fool on.

--- David Gardner, August 26, 1996

Today's Numbers


Day Month Year History FOOL -1.71% 1.90% 25.15% 133.69% S&P 500 -0.47% 3.74% 7.78% 44.83% NASDAQ -0.34% 5.43% 8.27% 58.18% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 15.00 495.48% 8/5/94 680 AmOnline 7.27 30.88 324.52% 1/29/96 375 Medicis Ph 18.57 39.75 114.02% 8/11/95 125 Chevron 50.28 59.25 17.83% 8/12/96 110 Minn M&M 65.68 66.13 0.68% 8/12/96 280 Gen'l Moto 51.97 50.63 -2.59% 8/12/96 130 AT&T 54.96 53.50 -2.66% 8/13/96 250 3Com Corp. 46.86 43.75 -6.64% 8/24/95 130 KLA Instrm 44.71 20.50 -54.15% Rec'd # Security Cost Value Change 5/17/95 2010 Iomega Cor 5063.13 30150.00 $25086.87 8/5/94 680 AmOnline 4945.56 20995.00 $16049.44 1/29/96 375 Medicis Ph 6964.99 14906.25 $7941.26 8/11/95 125 Chevron 6285.61 7406.25 $1120.64 8/12/96 110 Minn M&M 7224.44 7273.75 $49.31 8/12/96 130 AT&T 7144.99 6955.00 -$189.99 8/11/95 280 Gen'l Moto 14552.49 14175.00 -$377.49 8/13/96 250 3Com Corp. 11714.99 10937.50 -$777.49 8/24/95 130 KLA Instrm 5812.49 2665.00 -$3147.49 CASH $1379.61 TOTAL $116843.36 Transmitted: 8/26/96