Fool Portfolio Report
Thursday, October 24, 1996
by David Gardner
ALEXANDRIA, VA, October 24, 1996 -- The Fool Portfolio drifted lower Thursday, sunk by selloffs in Iomega and AT&T. A $7/8 drop in IOMG and yet another $1+ lambasting of T stock put us off 1.06%, losing to the Nasdaq (off 0.07%) and the S&P 500, respectively. That's a shame, because we had some nice performances overall, Thursday.
Take Lucent Technologies, which we acquired via a spinoff of LU shares to AT&T shareholders. The company hit a new all-time high of $51, before closing up $1 5/8 at $50 even. LU reported better-than-expected earnings this morning. Net income reached $255 million, 40 cents per share, vs. First Call consensus expectations of 37 cents per share. The company's revenues grew a whopping 25%. Why do I write "whopping"? Because when you're putting up quarterly revenues of $6 billion, 25% growth is darned impressive.
A Reuters new story pointed out that Lucent may be benefiting from its newfound independence from AT&T. It should now be able to attract significantly more business from the Baby Bells. The Bells, the thinking goes, were less likely to purchase equipment from Lucent/AT&T (their new arch-competitor), but now that AT&T has sold off its remaining 82% Lucent ownership, the "former Bell Labs" is now better positioned than ever before to land regional sales.
Last month, Lucent landed its biggest deal ever, $1 billion for products and services to non-Bell ICG Communications. And this month, Lucent has launched its first acquisition as an independent company: Agile Networks, a network switch company. And even names like Bay Networks are now getting batted around as additional new acquisition possibilities.
I like being a Lucent shareholder. These guys could own the Great TeleNetwork of the Future.
On the other hand, AT&T has been getting beaten up this week, following the announcement yesterday of its new CEO. It dropped another $1 5/8 today, following yesterday's $2 shellacking. The company named John Walter its new CEO. Walter's previous meal ticket came from being chairman and CEO of R.R. Donnelley & Sons, the world's largest printing company (they print The National Enquirer, Reader's Digest, lotsa other stuff). Concerns have been expressed about his ability to manage a company 10 times that of his current one. However, the concern may instead by that current chairman Robert Allen isn't allowing this transition to occur until January 1998. (Walter starts as a company president effective November 1, but is a "lame duck" until 1998.)
This is what I'm thinking: how would you like to be that guy? Company announces YOU are the new leader, and the stock gaps down at the open the next day. Ouch. Down another couple bucks the next day. Somebody slap a sign on his back: "Walking Human Short." It isn't really fair, but there it is.
I've always thought that management of these multibillion-dollar monstrosities is overrated, anyway. Sure, with a small cap you need somebody who's entrepreneurial, smart, aggressive, and visionary. But with AT&T? Things like AT&T run themselves, seemingly, like the U.S. government. These bureaucracies make the rest of us feel powerless and far away.
AT&T is now the lowest-priced stock among the Dow high-yielders, though. For some of us, that's all we need to know. Interesting to note: While the traditional Foolish Four approach shuns this stock, recent research by MF DowMan suggests the lowest-priced has been worth purchasing, historically, when it was not the highest yielder. The thinking here is that a low-priced highest yielder is indeed an extremely troubled company (Woolworth a few years back, for instance). But a low-priced non-highest yielder ain't nothing to cry about. If you're interested, you can read his fine Fribble on the subject.
ATC Communications, speaking of phone technology, made another strong move on large volume today (1.4 million shares), hitting an impressive new high before backing off up $5/8 to bid $24 5/8. Some of our readers have speculated this is a continued and exaggerated "Fool Effect" ever since our purchase announcement last week. Geez, we must be powerful; $35 million traded through the stock today. A more likely explanation is that this stock has been hitting new highs on successively higher volume for, oh, about 18 months, rising from less than $1 on tiny volume to now greater than $20 on increasingly large volume. Sticking our Foolish oar in the water doesn't mean there aren't any other boats, my friends. There are lots of 'em.
Then again, maybe institutions are beginning to mimic the Fool Portfolio. After all, anyone can read our Foolish stuff -- no barrier to entry, except perhaps a modem. That's the way we designed it, totally open, no-holds-barred accountability. Maybe the big-money managers are signing in and playing ball in Fool Park. If so, que sera, sera. Our interest is in serving our readers, and the purpose of this portfolio is to demonstrate that average investors who don't get to sit down with company CEOs can beat the market.
Hey, in the end, valuation always outs in the long term. Stock prices are tied to corporate destinies, not to opinions expressed by market commentators. Those may make a difference over a short-term period, but the long term is the only thing that really concerns this Fool, and every other.
Quarterdeck? The stock drifted down with the overall market, closing at an ask of $5 5/8. That $5 1/2 quote on the bid is a new low. QDEK represents a 20% gain on our short sale, at present. The company announces earnings in early November, which we'll be interested to see.
Finally tonight, an extraordinary event occurred in our fonix (that's right, lowercase "f") folder today. The company (Nasdaq:FONX) sued a guy whose screen name was WillyTRa, who'd been flaming management in our message folder for the last couple of months. Meeting out of court, and offline, fonix caused Trent Ridd (the poster, who's a broker at a national firm) to retract his statements in the message folder, and actually purchase its stock (to be sequestered away in a voting trust). In other words, crow was eaten in our message folders today, and it's terribly interesting to me. Click into the fonix folder and read the posts, then read the company's press release via Company News (search for ticker symbol FONX).
What occurred, that is, is accountability. Someone was mouthing off falsehoods in one of our message folders and got a call from the company he was talking about. The company confronted the person head on, as we've always encouraged companies to do. Not only did fonix disprove his claims, it compelled him to apologize publicly to our national online readership, and to make financial reparations by becoming a shareholder. This is history in the making, and affords us the opportunity of a glimpse at the future.
As we've always contended, what is said on our message boards is the personal responsibility of each person who speaks. And though certain abusive members think they're posting under anonymous screen names (WillyTRa or whatever), they're not anonymous. Their credit card resides somewhere in AOL's headquarters, and their actions will redound back upon them, for better (which is the case in most situations) or worse (the case here... it appears this broker's job is now at risk). The Motley Fool serves as a popular forum for national expression about the financial markets, but we are not publishing your posts, you are. (Those interested in learning more should read our Disclaimer if they haven't already.) In future, I expect more companies to crack down on abusive inaccuracy. Thanks to fonix, The Motley Fool is today a little better off. Truth and accountability have silenced a Wise contributor, as they will continue to do.
As fonix's chairman and chief executive Stephen Studdert stated in today's release, "The freedom to communicate -- and even more the freedom now to communicate to a worldwide audience via on-line services -- brings with it certain responsibilities. Those who would violate the public trust, notwithstanding presumed anonymity, must be put on notice that their actions are not without consequence."
That's as Foolish a statement as I can imagine, and exceptionally insightful for a company CEO who's not even in this business. Bravo, Mr. Studdert! As always, we will cooperate to whatever extent possible in prosecuting wrongdoing, because with our position in the financial community comes many responsibilities. The Motley Fool champions truth, accountability, honesty, and openness, and we clap our hands loudly at Wednesday's development.
Online communication benefits individual investors and this country for about a hundred different reasons, which many of you know already. But in every good is mixed a little bad: people can lie on message boards if they like, or insult, or attempt to injure. What fonix demonstrated for many of us today is that what goes around, comes around. What you say in our message folders has real-world implications. This is not meant in any way to shackle or intimidate readers. On the contrary, freedom of speech is well in evidence. Freedom of conduct, however, is not... and never will be. You are responsible for what you say and how you treat people. This is a wonderful reminder to us and once again, we thank you, Mr. Studdert and fonix.
--- David Gardner, October 24, 1996
Stock Change Bid ------------------- AOL + 3/8 26.25 T -1 5/8 36.25 ATCT + 5/8 24.63 CHV - 3/4 66.50 GM - 1/8 54.25 IOMG - 7/8 22.50 KLAC + 1/8 23.88 LU +1 5/8 50.00 MMM - 3/8 71.25 QDEK - 1/4 5.63 COMS -1 1/8 63.00
Day Month Year History FOOL -1.06% -2.71% 48.51% 177.30% S&P 500 -0.70% 2.18% 14.02% 53.20% NASDAQ -0.07% 0.01% 16.62% 70.37% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 22.50 793.22% 8/5/94 680 AmOnline 7.27 26.25 260.93% 8/13/96 250 3Com Corp. 46.86 63.00 34.44% 8/11/95 125 Chevron 50.28 66.50 32.25% 9/27/96 -890 Quarterdec 7.08 5.63 20.60% 8/12/96 110 Minn M&M 65.68 71.25 8.49% 10/22/96 600 ATC Comm. 22.94 24.63 7.36% 10/1/96 42 LucentTech 47.62 50.00 5.01% 8/12/96 280 Gen'l Moto 51.97 54.25 4.38% 8/12/96 130 AT&T 39.58 36.25 -8.41% 8/24/95 130 KLA Instrm 44.71 23.88 -46.60% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 45225.00 $40161.87 8/5/94 680 AmOnline 4945.56 17850.00 $12904.44 8/13/96 250 3Com Corp. 11714.99 15750.00 $4035.01 8/11/95 125 Chevron 6285.61 8312.50 $2026.89 9/27/96 -890 Quarterdec -6304.75 -5006.25 $1298.50 10/22/96 600 ATC Comm. 13761.50 14775.00 $1013.50 8/12/96 280 Gen'l Moto 14552.49 15190.00 $637.51 8/12/96 110 Minn M&M 7224.44 7837.50 $613.06 10/1/96 42 LucentTech 1999.88 2100.00 $100.12 8/12/96 130 AT&T 5145.11 4712.50 -$432.61 8/24/95 130 KLA Instrm 5812.49 3103.75 -$2708.74 CASH $8801.62 TOTAL $138651.62 Transmitted: 10/24/96