Fool Portfolio Report
Tuesday, November 12, 1996


by Jeff Fischer (MF BudFox)

ALEXANDRIA, VA., November 12, 1996 -- Mozart was definitely Foolish. Bach probably was as well. Bach's favorite saying was, "All things must be possible." With that statement in mind, I'm going to take you on a quick journey tonight -- away from the computer, away from your home, away... like a modern day Mary Poppins, but with a magic Fool cap instead of a stupid umbrella.... So off, up, and away we go...

You rise from your chair and float peacefully in the air -- not the least bit surprised -- then you swoop forward and zip out the front door, out into the crisp November air. Your Great Aunt Mabel is in the front yard raking leaves. She's surprised to see you flying. You float over her head, waving calmly, and tell her you'll be home soon. Then you take to higher altitudes.

Rising quickly, clothes flapping in the wind, all Fools float and rise tonight, soaring above their respective towns, cities, villages, prisons -- all the world growing tiny, small and gone. Flying higher, 20,000 feet, 35,000 feet (hello Air France flight 55 to Paris, you wave to passengers in the windows -- "Bonjour Trois Com!" you shout). Higher now, above the planes, you pass through the atmosphere effortlessly (who needs NASA), and the stunning blue world is drifting now, spinning beneath you, casting off a radiant blue glow, bright and pleasant. Even from this lofty height, you can see the largest "living" thing on the Earth -- no, not Great Aunt Mabel, but the Great Barrier Reef, stretching larger than Europe, sprawling and always growing and changing -- much like the stock market.

Still you continue higher, and pass by Shirley MacLaine.

Now you float at such a distance from the solar system that you can see it all, and can cover it with your hand. You look, amazed. Then you pull out your laptop computer. Ahhh... the beauty of wireless modems, you think to yourself. You sign on using AOL's Astral ProjectNet, and navigate to the Fool.

You move to the message boards, and go to Cisco System's folder. The first post reads, "CISCO IS DOWN ONE DOLLAR A SHARE RIGHT NOW!!!!!" You glance at the solar system below you. You read the next post: "CISCO JUST UP-TICKED!! IT UP-TICKED!!"

Ugh. What a waste, and your battery is dying. Nevertheless, so inspired by the cosmos are you that the need to post is overwhelming. You look down over the solar system and then you start to write. The words, where do they all come from? They flow freely, generously: "Cisco is the leading company in its industry and is poised to dominate the market in the coming years, and represents a great opportunity for the long-term investor... " and you go on and on to explain The Big Picture.

Your battery dies just as you send the message. As you float through space, you think to yourself of those random bad posts, "Well, those people were just sitting too close to their monitors."

Let's return to earth now. Hello. The chair is beneath you again. The monitor is right in front of you. All Fools have returned to earth now. (Though if there are any people that you happen to dislike, you can imagine they're still out there in deep space). Meanwhile, we're going to move on (but at the end of this recap, I myself will return to deep outer space).

Posts such as those parodied above appear from time to time in various stock folders -- some folders more than others, it seems. While it seems obvious to many of us that these posts tracking price movements are unFoolish, perhaps these people are at least trying to be Foolish. Lucky, this is a great place to learn how to invest long-term, and there are many Foolish investors on the boards helping other investors -- reminding each other when they are "sitting too close to their monitors," or if they are thinking too short-term. (After all, everyone needs some reminding now and again).

After the Cisco Systems folder recently had such "uptick-downtick" posts, contributor JOHKGUN wrote a great response along the lines of: "You bought a position in the leading networking company in the world, not an infatuation with tick by tick price movements."

I thought that statement was excellent. It was exact, straight-forward, and to the point. Hemingway would be proud. Many great posts serve as reminders of what you bought and why, and how investments need time to grow.

Speaking of good posts, the ATC Communications (NASDAQ: ATCT) folder has an impressive collection of long-term investors looking at the company's prospects over the coming years. This Foolish outlook has been needed even more than usual -- soon after the Fool purchased the stock it fell sharply, falling from a recent high of $26 1/4 to as low as $14 1/4 today. The fall began after earnings (announced on Halloween) failed to beat estimates.

Today, ATC Communication's stock rose, in the end, up $1/2 to $15 1/2. The Fool liked the stock enough to buy it above $20, but how does it look now, and what is Foolish about this company?

ATC Communications is considered one of the best-positioned companies in its industry. The company operates six call centers with a total of about 3,400 seats. The outsourcing of phone services is an industry estimated to be growing more than 40% per year, and ATC Communications is growing more quickly than that, with about a 54% annualized growth rate. The stock currently trades at 34 times the consensus estimate of 45 cents per share for this fiscal year ending in June of 1997.

The stock is inexpensive compared to peers such as APAC Teleservices, as the initial buy report and also Q1 earnings thoughts illustrate. But is there a reason for this? Sales growth at APAC is extremely impressive, but ATC's sales growth is nothing to hang up on. Revenues grew 47% last quarter, to $26.5 million. Earnings grew 125%.

ATC Communications currently trades at a price less than 4 times its sales, while competitor APAC sports a lofty price/sales ratio of 10. Indeed, some who follow the industry feel the main risk in ATC Communication's stock lies in the high-flying stocks of the competition: if pricey stocks in the industry suffer a correction, ATCT, even though it isn't nearly so richly valued, could fall as well. Lately, though, APAC and others have been outperforming our ATCT.

Looking forward, though, the business model of ATC Communications is ahead of most of its peers. The peers, in a nut-shell, are working to put into place business practices which ATC is already using. Close to 70% of ATC's revenues derive from inbound customer service calls for Fortune 500 clients. Outbound telemarketing is not nearly as important to the company, and shouldn't be. Outbound calling can be considered a commodity, while inbound calls build business/client relationships -- something which lasts, and gives ATC more underlying value.

While competition is working to switch from non-recurring business (outbound telemarketing) toward ongoing business (inbound customer service, for example), ATC is already focused on this and operating on this principle. Competition also is working to further its services by "blending" inbound and outbound offerings in order to meet all their clients' needs; and most competition also aims to expand the range of services they offer. Again, ATC has had these respective initiatives and their details in place for some time. And the changes the competition needs to make will take at least a few crucial years, in most cases.

There are many more good things to consider regarding ATC, in time, but for now we must end. Suffice to say, the stock is currently at 34 times the year's estimate while growing over 50% annually -- and the estimates for the coming year are conservative. ATC earned nine cents per share last quarter, and is estimated to earn ten cents per share next quarter, reported the end of January.

The Fool lost to the market today, mainly on a drop from Iomega (IOM), which fell $3/4 to $23. On the other side of the equation, KLA Instruments (KLAC) rose again, rising a whole $1 3/8 to $28 5/8 bid in today's trading. The stock has rebounded sharply since summer, and today moved on news of a stronger than expected book-to-bill ratio for October, which was reported last night. The Fool offers a full special on the book-to-bill report.

Now I must return to deep outer space. From there I can watch the universe unfold, and be reminded that time is a monster that moves without effort. But investing is one of those instances where time is actually a great benefit to you, and can even be considered your best friend. In fact, when it comes to investing, long amounts of time should be considered as musical; time is music for investments. So play on, maestro...

Be Foolish....

TODAY'S NUMBERS


Stock Change Bid ------------------- AOL - 1/4 24.75 T +1 1/4 38.38 ATCT + 1/2 15.50 CHV - 1/4 65.25 GM + 5/8 55.13 IOMG - 3/4 23.00 KLAC +1 3/8 28.63 LU - 5/8 47.50 MMM + 1/8 81.38 QDEK - 3/16 4.75 COMS -1 1/8 70.88
Day Month Year History FOOL -0.89% 1.79% 47.70% 175.80% S&P 500 -0.32% 3.44% 18.45% 59.15% NASDAQ -0.48% 2.87% 19.43% 74.48% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 23.00 813.07% 8/5/94 680 AmOnline 7.27 24.75 240.31% 8/13/96 250 3Com Corp. 46.86 70.88 51.25% 9/27/96 -890 Quarterdec 7.08 4.75 32.95% 8/11/95 125 Chevron 50.28 65.25 29.76% 8/12/96 110 Minn M&M 65.68 81.38 23.90% 8/12/96 280 Gen'l Moto 51.97 55.13 6.06% 10/1/96 42 LucentTech 47.62 47.50 -0.24% 8/12/96 130 AT&T 39.58 38.38 -3.04% 10/22/96 600 ATC Comm. 22.94 15.50 -32.42% 8/24/95 130 KLA Instrm 44.71 28.63 -35.98% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 46230.00 $41166.87 8/5/94 680 AmOnline 4945.56 16830.00 $11884.44 8/13/96 250 3Com Corp. 11714.99 17718.75 $6003.76 9/27/96 -890 Quarterdec -6304.75 -4227.50 $2077.25 8/11/95 125 Chevron 6285.61 8156.25 $1870.64 8/12/96 110 Minn M&M 7224.44 8951.25 $1726.81 8/12/96 280 Gen'l Moto 14552.49 15435.00 $882.51 10/1/96 42 LucentTech 1999.88 1995.00 -$4.88 8/12/96 130 AT&T 5145.11 4988.75 -$156.36 8/24/95 130 KLA Instrm 5812.49 3721.25 -$2091.24 10/22/96 600 ATC Comm. 13761.50 9300.00 -$4461.50 CASH $8801.62 TOTAL $137900.37 Transmitted: 11/12/96