Fool Portfolio Report
Thursday, October 3, 1996

by David Gardner

ALEXANDRIA, VA, October 3, 1996 -- Today was one of those rainy-day, all-alone, head-hanging, living-in-regret, sing-the-blues-all-day days for The Fool Portfolio, as it dipped back 2.12%. The market was essentially flat. The longer view back shows 46.06% returns for 1996, and two-and-half-year growth of 172.73%, both well ahead of stock-market growth. And the longer view ahead shows much promise, as we train our eyes on motion and being ten, twenty, thirty years forward.

But enough on superior past performance and the apparent healthy growth available over the next few decades to everyone Foolish enough to spend a few moments per year over the balance sheets of great companines -- the island of today was lonely, wind-swept and cold, like the colorless houses when things turn gloomy in a Bergman film. No songs to ease discomfort, no games in the den, no memory of old love or glory to cool heart pangs. Only sternness and silence, empty walls and water running down the windowpane.


Market underperformance tread over the fields of Folly today. It squashed belled-caps under foot, bulldozed short-term memories of sensational growth, and left our frontyard bare. And night comes next. We can expect no candles lighting dinner, none of the inconsequential banter that Fools so love. Everyone will go to bed early; everyone will turn over ten times before sleep; everyone will wake thrice before sunrise. The house of The Fool Portfolio tottered today and is creaking tonight. At a rate of 2% depreciation per day, our savings account won't much be here come the new year.

What brought on all this one day misery?

To begin, Iomega Corporation (NASDAQ:IOMG) fell $1 1/4 to $22. There were no significant news releases today and the company traded 6.7 million shares, right in line with average daily volume over the past thirty days. Zacks Analyst Watch consensus of Wall Street estimates show that Iomega is projected to generate earnings per share of $0.44 in 1996 and $0.80 in 1997. Thus, the PEG fairly prices the stock at $27 3/4 today. And if estimates don't change and Iomega meets 1996 projections, the PEG model prices the stock at $36 per share at year end. There's a big if in the latter price, which is why The Foolish Investor waits on quarterly earnings reports. We're looking forward to the 4th quarter. I think the market is, too.

3Com Corporation (NASDAQ:COMS), up $4 yesterday, gave back $1 1/2 of it today. Appearing at a Montgomery Securities technology conference in San Francisco, our executive vice president Bob Finocchio offered that 3Com is willing to deal away a bit of bottom-line growth for top-line growth in the year ahead. Investors loved the news yesterday, but profit-takers traded in their stubs for shekels today. It bears noting that 3Com is not proposing to compromise profitability for spectacular sales growth in the year ahead. Wall Street expects more than $425 million in earnings from COMS in the year ahead. And, Mr. Finocchio went on to maintain that 3Com "...will behave within our model of targeting gross margins in the 52 percent to 54 percent range."

Chevron Corporation (NYSE:CHV) fell $3/8 to $64, even though good news continues to pour out of Eastern Europe. Kazakhstan, which has scored $1.8 billion in foreign oil investment to date, has another $40 billion in opportunities on the negotiating table. "There are grounds to say you may be able to compare us to Iraq or Kuwait," Kazakh Oil and Gas Minister Nurlan Balgimbayev told an international energy conference today. Chevron is a major player in Kazakhstan. The stock is up 27.27% for us.

General Motors gave back $1/4 today, closing the day at $49 5/8. More than half of the union workers at GM plants in Canada went on strike today with the remaining 12,000 workers slated to join the picket line in a week. Analysts are projecting that GM stands to lose from $100-$150 million per week. With $36 million in the bank, the Canadian Auto Workers union (CAW) estimates it can afford to strike anywhere from eight to sixteen weeks.

The CAW is seeking mirrored, or highly similar, terms to the deal they signed with Chrysler Corporation on September 17th. Asked if he expected a one- or two-day standoff, GM Spokesman Stew Low said, "No, I don't think so. There's still a lot of talking to do to try to get things back on track." General Motors has fallen 4.5% for The Fool Portfolio. We hope these negotiations over issues of outsourced non-union labor can be completed expediently and productively.

Elsewhere in our house, there was no news. All but two of our stocks fell today, and the two that rose twined up but one-eighth each. The two winnahs? KLA Instruments and America Online.

I have been particularly interested in the discussions going on lately in our America Online stock folder, regarding the company's 10-k filing. The debate over AOL's negative working capital and negative cash-flow -- both items that make competitors drool -- is an important one, and one painted mostly in greys. There's little that's black or white right now with America Online, their business model, and the Street's evaluation of it. I expect most of you are doing as I do, clicking past the ranting few and studying very closely the ideas, opinions, and mathematical models of the intellectually curious situated there.

Best wishes for a Foolish Thursday night to you. We can't wait for tomorrow. We really can't wait for the year 2000. Live video conferencing across the planet is going to be great in fifteen years. Life on Spacestation Englebert in twenty years is going to be incredible. We can't wait for what American enterprise has to offer over the next three decades, in creativity, service, and investment profit. To get there, though, we'll have to endure days like these... sometimes weeks like these... a 30% decline in equities over a few years even. All told, it'll be well worth the endurance.

Tom Gardner, Fool

OTHER FOOLISH STUFF: Hey, Lucent Technologies spin-off information follows. try this scenario on for size, courtesy of Lucent's investor relations department:

"Assume you own 100 shares of AT&T common stock with a tax basis of $30 per share for a total tax basis of $3,000. You would have received 32 whole shares of Lucent common stock plus a cash payment in lieu of the .4084 fractional share of Lucent common stock. You would allocate 72.01% of your $3,000 tax basis or $2,160.30 to the tax basis of your 100 pre-distribution AT&T shares ($2,160.30/100 = $21.60 per share), and you would allocate 27.99% of your $3,000 tax basis or 839.70 to the tax basis of your 32.4084 Lucent shares ($839.70/32.4084 = $25.91 per share). The basis in the fractional share of Lucent stock that was sold on your behalf would be $10.58 ($25.91 x .4084)."

Wow, that's a mouthful. But the numbers are all there! :)

Transmitted: 10/3/96

Today's Numbers

Day Month Year History FOOL -2.12% -4.31% 46.06% 172.73% S&P 500 -0.18% 0.79% 12.48% 51.13% NASDAQ -0.24% 0.51% 17.20% 71.22% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 22.00 773.37% 8/5/94 680 AmOnline 7.27 30.38 317.65% 8/13/96 250 3Com Corp. 46.86 63.00 34.44% 8/11/95 125 Chevron 50.28 64.00 27.27% 8/12/96 110 Minn M&M 65.68 70.13 6.77% 9/27/96-890 Quarterdck 7.08 6.75 4.71% 8/12/96 130 AT&T 39.58 39.00 -1.46% 8/12/96 280 Gen'l Moto 51.97 49.63 -4.52% 10/1/96 42 LucentTech 47.62 43.00 -9.69% 8/24/95 130 KLA Instrm 44.71 20.75 -53.59% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 44220.00 $39156.87 8/5/94 680 AmOnline 4945.56 20655.00 $15709.44 8/11/95 125 Chevron 6285.61 8000.00 $1714.39 8/12/96 110 Minn M&M 7224.44 7713.75 $489.31 9/27/96-890 Quarterdck -6304.75 -6007.50 $297.25 8/12/96 130 AT&T 5145.11 5070.00 -$75.11 10/1/96 42 LucentTech 1999.88 1806.00 -$193.88 8/11/95 280 Gen'l Moto 14552.49 13895.00 -$657.49 8/24/95 130 KLA Instrm 5812.49 2697.50 -$3114.99 8/13/96 250 3Com Corp. 11714.99 15750.00 $4035.01 CASH $22563.12 TOTAL $136362.87 Transmitted: 10/3/96