Fool Portfolio Report
Friday, September 20, 1996

by David Gardner

ALEXANDRIA, VA, September 20, 1996 -- "And DOWN the stretch they come! It's FOOL, followed by Nasdaq, followed by S&P 500. S&P 500 nosing up now, as Nasdaq sells off a bit at the end of the day. But still FOOL, running well and the jockey needing no whip, then Nasdaq, then S&P 500. Seven lengths back, Mutual Fund. Annnnnnnnddddd..... it's FOOL easy at the wire, with a photo finish for Nasdaq and S&P 500... Mutual Fund is still trying to finish."

Thank you, Don Pardoe.

No, no, it's not Don Pardoe, it's that guy who calls all the horse races with the signature line: "And DOWN the stretch they come!"

The sixth race at Fool Downs ended the way the previous five had. It's been a great six-day market whoopin', with our Foolish portfolio racking up its sixth consecutive 1%+ return. You think we're satisfied? Hey, Joe D racked up 56 in a row a few summers ago (OK, a few decades ago, now) wearing Yankee pinstripes. We wear motley, but we have similar aspirations.

OK, so let's open our racing forms:

FOOL S&P 500 NASDAQ 9/13 3.15% 1.40% 1.96% 9/16 1.62% 0.51% 0.44% 9/17 1.17% -0.15% 0.78% 9/18 1.18% -0.22% 0.20% 9/19 6.37% 0.22% 0.53% 9/20 1.03% 0.59% 0.62% Total 15.31% 2.36% 4.61%

Oops, I omitted the line for Mutual Fund. For Mutual Fund, you can pick any one of the following:

(a) -0.17%

(b) 0.33%

(c) 0.21%

(d) 0.99%

(e) 0.00%

Made your choice? OK, well I don't know which one of those it is either (if any), but that's not the point. The point is, you pretty much know it's basically one of those.

(Can we teach our friends about the stock market, people? Can we ask the guy next to us at work whether he's ever bothered to go back and compare his funds' returns to the market averages? Can we begin to RAISE some consciousness out there?)

No real news today on our stocks. It was triple witching day, as you may have noticed. Options expiration. Volatility. People cutting out of investments that may expire worthless one minute later. That sort of thing.

Iomega, as it so often has in the past, provided the options players with plenty of volatility on this, their day. IOMG opened with about 3 million shares traded (its average overall daily volume) within the first 10 minutes. Zooming up as high as $19 7/8, the stock was making us feel very nostalgic and almost smug as it rocketed the Fool Port into the plus category. Glory be, it was May all over again! But as the shares flew, so did the profits eventually. That last hour was bewitched as usual, Iomega closing unchanged at $17 7/8. The stock traded in excess of 18 million shares, 15% of its total capitalization. Eighteen million shares, my fellow Fools, without a speck of news.

If there were any doubt about Wall Street shenanigans at play in the fields of IOMG, this latest example would seem to disperse it. The most heavily shorted shares on the Nasdaq, Iomega's certificates (and valuation) have often taken on a life of their own apart from fundamentals. Earlier this year, the market erred on the upside; today, we believe the market has erred on the downside. That's even after the stock's 40% rise over the past few weeks.

You wanna talk valuation? Fellow Fool Patrick Keeler did so earlier this week in the Iomega folder, and for those who know how to calculate the Fool Ratio (you can read about this in our Fool's School), here's the numerical work (I've updated the numbers to reflect today's closing price). PKeeler wrote:

Here is Iomega's updated PEG (Fool Ratio) using the revised estimated (H&Q) earnings for 1997 of $0.77.

Present 12-month trailing EPS = $0.29 Present Price = $17 7/8 Present PE = 17.875/0.29 = 61.6 Annualized Growth = ((0.77/0.29)^.67-1)*100 = 92.3% Note: .67 = 1/1.5 PEG = Present PE/Annualized Future Growth = 61.6/92.3 PEG = 0.67 Fair Value: PEG = 1.0 = $26 3/4

Sounds about right to me, given the current expectations. These expectations will rise or fall based on further news coming out as we go forward. Time, generally a great ally to the patient investor, is (I believe) a strong ally to IOMG shareholders today. Time and patience.

So what did go right for the Foolfolio today, enabling us to just barely squeak past the 1% return mark? AOL, for starters. The guys over in Dulles did it again, also on no material news. The market continues to react to upgraded expectations put forth by a Merrill Lynch analyst yesterday, calling for earnings per share of 16 cents for this quarter, up from a previous expectation of just 12 cents per share. AOL stock rose fully 37% this week. In fact, you have to go back seven Fridays to find the beaten-down stock at similar heights. "The New AOL," as Steve Case is terming it, is starting to look a bit like the Old AOL when we talk about share price appreciation.

Trois Com popped back $1 1/8. No news there, so we have to fall back on what's playing at 3Com Park this weekend. The 49ers are on the road at "Western rival" Carolina, but the Giants are staying in town to play the Colorado Rockies. The Giants are 62-91 this year; 3Com's relative strength (the past performance measure reported every day in Investor's Business Daily) used to rank similarly, before the market woke up a few weeks ago and rediscovered this sleeping networking giant. Maybe the Giants can get hot and stay hot, too.

3Com closed bidding $57 1/4... a new all-time closing high!

Speaking of San Francisco, let's talk Chevron. CHV, as one may often forget, is actually based in SF. Friday, our company continued its recent strength. Better yet, its 87-cent gain cracked through the ol' 52-week high. In fact, a quick check of the history books shows that's an all-time closing high for Chevron as well.

Hold yer horses, here, maestro! Hold on! Do these terms seem incongruous, placed so near each other?

"all-time high"

I think so. You really do have to kind of cock your head sideways, look twice, and ponder for a minute or two... can such things be?

But hey, you buy these stocks when no one likes them, and then if you hold them long enough, they jump up and bite you, generally causing you to pay cap gains taxes. A generally good thing; you made money. All-time closing highs are just cream.

OK, enough for now. Let us perish all thoughts of markets, and options expirations, and trading volumes, and all the rest. Fool HQ sends you best wishes to you and yours for a closing high of a weekend. It is absolutely beautiful here in Alexandria. Stay Foolish!

--- David Gardner, September 20, 1996

Today's Numbers

Day Month Year History FOOL +1.03% 9.38% 38.36% 158.35% S&P 500 +0.59% 5.37% 11.54% 49.87% NASDAQ +0.62% 6.85% 15.92% 69.35% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 17.88 609.62% 8/5/94 680 AmOnline 7.27 34.13 369.21% 8/11/95 125 Chevron 50.28 62.75 24.79% 8/13/96 250 3Com Corp. 46.86 57.25 22.17% 8/12/96 110 Minn M&M 65.68 70.00 6.58% 8/12/96 130 AT&T 54.96 57.00 3.71% 8/12/96 280 Gen'l Moto 51.97 49.13 -5.48% 8/24/95 130 KLA Instrm 44.71 21.25 -52.47% Rec'd # Security Cost Value Change 5/17/95 2010 Iomega Cor 5063.13 35928.75 $30865.62 8/5/94 680 AmOnline 4945.56 23205.00 $18259.44 8/13/96 250 3Com Corp. 11714.99 14312.50 $2597.51 8/11/95 125 Chevron 6285.61 7843.75 $1558.14 8/12/96 110 Minn M&M 7224.44 7700.00 $475.56 8/12/96 130 AT&T 7144.99 7410.00 $265.01 8/11/95 280 Gen'l Moto 14552.49 13755.00 -$797.49 8/24/95 130 KLA Instrm 5812.49 2762.50 -$3049.99 CASH $16258.37 TOTAL $129175.87 Transmitted: 9/20/96