Fool Portfolio Report
Wednesday, September 18, 1996
(FOOL GLOBAL WIRE)
by David Gardner
ALEXANDRIA, VA, September 18, 1996 -- Superb day for the Fool Portfolio, as strong gains in our biggest holdings continue to spur an unWise mid-September rally. Geez, lemme see, 3Com up another $1 3/4? Iomega bumping up after having earnings estimates cut, AT&T starting to look like a ten-ton-gorilla stock, and America Online cracking $30 (though unable to hold at market close)?
OK, so let's start with Trois Com. This networking equipment manufacturer and marketer blew through its 52-week high today on heavy volume of 5.6 million shares. At the Networld + Interop industry trade show today, 3Com unveiled 29 networking "solutions" under its Transcend Networking framework. Summarized, "These new solutions make it simpler and more cost-effective for organizations of any size to scale the performance, extend the reach, and manage the growth of their networks." The products meet the standard full suite of office networking needs: local access network management, remote access applications, Web-productivity apps, the list goes on and on. And on. For one of the longer press releases you'll ever read, do a News Search for COMS and check out today's announcements.
A prominent part of the release includes a focus on smaller business solutions, a market that 3Com has made a real point of going after based on its new corporate strategies unveiled in the past several weeks.
Now, mere coincidence yesterday, my friends, that the San Francisco Giants just so happened to outdo the San Diego Padres 9-7 last night at 3Com Park? I think not, dear Fools, I think not.
Are we detecting a new forward indicator, a new daytrader's special... check the Giants when they're at 3Com and buy buy buy or sell sell sell at market open the next day? Like many such "indicators," the answer is no: that's one of the reasons we continue to counsel long-term investing, where rationality and logic and hard work are rewarded. The Giants snapped a six-game home losing streak with last night's win, whereas 3Com is on a five-day winning streak, having hit new highs for five consecutive days.
So what is it with this stock? Since our purchase one month ago, the Big Trois is up 21.91%. The day we bought, we had a few readers drop us e-mails: "Hey guys, what the heck are you doing owning 3Com when you could've bought Cisco, the greatest computer networking company in the world, instead?" A student at Harvard Business School firmly disagreed with the decision to sell Gap in order to move the money to 3Com. Our initial buy writeup was unconvincing.
OK, since August 13th:
Then Now Change COMS $46 7/8 $57 1/8 +21.91% CSCO $56 7/8 $59 7/8 +5.27% GPS $34 5/8 $30 5/8 -11.55%(What... you think I'd be telling this story if it didn't reflect brilliantly on our decision-making?!)
Just to refresh our collective memory: Quelles sont les trois commes? COMputers, COMmunication, COMpatibility. 3Com: "Networks That Go The Distance." That's their marketing jingle. I might be inclined to try out "17 Percentage Points Ahead of Cisco" instead, but that's just me.
AT&T shareholders: our company has officially set its terms for the September 30th Lucent Technologies spinoff. We'll each get .324084 (no, NOT .324083, but .324084) shares of Lucent for each AT&T share we have. AT&T shareholders will then own approximately 82 percent of Lucent. Lucent, for those who haven't yet seen its light, is the gigantic networking equipment company formerly known as Bell Labs.
Iomega rose $3/8 today, following J.P. Morgan analyst Daniel Kunstler's third-quarter earnings downgrade (from 12 cents to 7 cents per share) yesterday. What was missing from our brief account yesterday was a mention that he had reiterated his BUY rating. The market has since bid the stock up... the market is all-seeing (compared to you and me), and has more foresight than any truckload full of gurus. The reduced expectations for this company that J.P. Morgan announced yesterday had been priced into this stock for more than a month. Excelsior.
America Online continued to rise on the floors of the New York Stock Exchange. It truly looks as if a new wind is rushing through the company's corporate headquarters over in Dulles. Analysts continue to concentrate on the December quarter as the make-or-break period for the company's aggressive new marketing initiative.
I wrote in this space Monday of my displeasure with the Washington Post front-page article that day, quoting me on exclusively negative thoughts about the company. I appreciated a follow-up effort made by David Hilzenrath, the author of the article, which he asked me to share with our readership. David's letter, and my response, follow below.
From: [email protected]
To: [email protected]Dear David:
I'm sorry you felt mistreated by my Sept. 16 article on America Online.
I quoted your views on the AOL user experience because I believe you speak with unusual authority. You are an AOL partner, a shareholder with a vested interest in the company's success, a respected commentator, and one of the most successful content providers in all of cyberspace. Given your considerable stake and stature, I thought it significant that you see AOL "losing its grip on . . . a good member experience."
I tried to convey your continued confidence in AOL by noting the most eloquent testimonial of all -- that the Motley Fool is holding onto its stock despite such misgivings.
You're absolutely correct when you say you explained the rationale behind your investment. It's right there in the July 8 Fool Portfolio Report, beginning with your faith in AOL's chief executive. "We believe in Steve Case -- he's a brilliant, engaging business thinker, a great guy, and the primary figure who's sold America on this medium . . . . ," you said.
If you take another look, I think you'll see that the reasons you cited made it into my story, either in my own voice or in statements attributed to multiple sources, not just the Motley Fool. For example, I wrote, "More than any other firm, AOL is responsible for making on-line connections a mass-market phenomenon in American households in the 1990s." And I added, "Even AOL critics say it would be a mistake to underestimate the vision and agility of the company's management."
I didn't mean to cast you as "Mr. Critical," David, but let's face it -- you gave America Online a mighty scathing review. I couldn't help but notice.
Respectfully,
David Hilzenrath
P.S. If you think it's appropriate, please share this note with your readers. Thank you.
From: [email protected]
To: [email protected]David,
I appreciate your note. My objection remains that my two quotes -- the two explicit mentions of me, and representations of my opinion -- were both extremely negative. As I wrote, I did indeed write those very words. However, the overall tilt of my arguments was missing... and thus whatever "unusual authority" I might have was brought to bear on an opinion quite specifically contrary to my own.
I will certainly work with you on future articles, if you're interested. I just hope I won't have to go out of my way to react publicly to correct what I consider misleading.
Thanks again for taking the time to write and clear this up.
David Gardner, Fool
--- David Gardner, September 18, 1996
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