Fool Portfolio Report
Thursday, December 12, 1996

by Jeff Fischer (MF BudFox)

ALEXANDRIA, VA, December 12, 1996 -- This morning I stopped at the convenience store and bought a bottle of Gatorade for breakfast. While paying I said, "Thank you." The man behind the counter responded, "No, thank YOU." I exited and walked down the street while looking at the price atop the lid, and thought, "Thank me, indeed." The store probably earned 150% margins on the sale of that single bottle. As it turns out, that store earned more money on my ten second, $2 purchase than the $140,000 Fool portfolio did all day (or the stock market as a whole, in fact). Stocks lost value today.

The market was not pretty. The S&P 500 dropped another 1.54% and the Nasdaq fell 0.85%. Meanwhile, the Fool, bless her aching heart, gave up a big 4.45%, mainly falling victim to the $2 drop in Iomega. So, yup, it was an ugly day. (Of course, only once a person recognizes beauty is there the possibility of ugliness, but that's another story...).

IOMEGA (NYSE: IOM) fell on comments from J.P. Morgan. The firm lowered its fourth quarter earnings estimate from 19 cents per share to 17 cents, while keeping its buy rating and maintaining the 82 cent estimate for 1997.

Interestingly, estimates for Iomega were lowered last quarter, too. Hambrecht & Quist cut their estimate to 6 cents before Q3 earnings, only to have Iomega post 9 cents soon after. Now First Call consensus for this quarter will be about 17 cents per share, when they averaged 18 cents per share before J.P. Morgan's revision. Is lowering consensus estimates one cent per share (actually less than one cent per share, but we'll average up) worth a 10% drop in price, or worth shaving $250 million from Iomega's market cap? Hmmm.... You may not think so. The market thought otherwise today, but the market has been known to change its mind.

J.P. Morgan's impetus for the trimming the estimate boils down to, they say, "decreased traffic in computer stores simply means few people to dangle a Zip in front of." Also, the revision was driven by "consumers' posture towards home computer purchases." Their analysis suggests that people are waiting for new technologies and price cuts before buying computers. Sound argument. But try telling that to Dell Computer, IBM, or even Hewlett Packard, all of which have seen strength in sales and expect continued strength this season. While direct-mailing firms such as CDW Computer (Nasdaq: CDWC) are also experiencing strong sales.

How much J.P. Morgan knows, from research or from talking to Iomega, and how much they're simply extrapolating, we can't know. But the Iomega board claims that Zip sales appear strong across the country, and of course buying a $149 Zip is very different from buying a $1,500 computer. So if J.P. Morgan lowered expectations based on their perception of computer sales in general, their reasoning may be flawed.

Either way, what does a slight revision from one analyst mean? Does it mean that Iomega is underperforming expectations, or does it mean that the analyst had set expectations too high? The firm of H.D. Brous has been following Iomega for a long time, since the time of BZ (Before Zip), and their estimate already stands at 17 cents for this quarter. And last quarter, while other firms were lowering their estimate from 8 or 9 cents to 6 cents, H.D. Brous held steady at 7 cents. How does such estimate disparity exist? All analysts have the same information available to them, so either some firms do poor research, or...? Or what? What other explanation is there? That they "don't mind" causing volatile price movements on large volume? Maybe they don't, and so they let their estimates float around.

Anyway, here's the summary, see if it makes sense: one firm cut quarterly estimates by two cents, bringing their estimate in line with other firms, and bringing the consensus estimate down about one cent. Meanwhile, that firm maintains a target price of $38 per share, a buy rating, and continues to expect the same 82 cents in 1997. On that, the stock fell nearly 10% on four times average volume of 12 million shares. Interesting action in the Iomega pit today.

Elsewhere in Fooldom was not pretty either. America Online crashed $1 3/8, 3M posted down $2 7/8, 3Com routed a $2 3/4 loss, and Chevron burned off $1 1/2. There was no news on anybody. (All you kids okay out there? Trios Com, you okay? Good. 3M, okay? Good.) They're just taking a rest, apparently. Still it hurts when your stocks fall, doesn't it? You feel a little more vulnerable, less secure, uncertain, until you remember: it's the long haul that matters! But, in the short-term, if your investments don't work for you, you're not making money on the market.

Not true for everybody, though. Some people have found a magic formula, and no matter how their stocks perform, they make money. Good money.

Granted, Fidelty cut its Magellan's management fees by a third, but the fund still just raked in $127 million in fees for the six months ended in September. $127 million in management fees for underperforming the S&P 500. Not bad. I'd hate to see their fee for overperforming the averages.

And to think, Jeffrey Vinik left that job. Wow. But he still must be doing okay. He's started a new fund. It's recognizable, too. He's getting the word out.

On Monday, November 18th, the fund Vinik managed announced it held a 8.9% stake in Innovex (Nasdaq: INVX), which the fund had bought between $23 and $29 a share, "for investment purposes." The stock rose sharply on the news. It's above $45 today. But beginning that same Monday, November 18th, the fund began to sell those shares. The fund has since sold 171,000 shares (27% of its stake) between about $39 and $41. Nice market timing. Start selling the same day you announce your stake. Odd.

Whatever that's about, it's getting too hot in here. In fact, the Fool had a first today: the fire alarm went off this evening. It was a false alarm. There were a few false alarms today, perhaps. Maybe Iomega was the first one.

There's a Foolish special this evening... details below!

Stay Foolish!


Stock Change Bid ------------------- AOL -1 3/8 35.63 T + 1/8 38.63 ATCT - 3/8 13.88 CHV -1 1/2 61.38 GM -1 56.88 IOM -2 20.00 KLAC + 5/8 36.13 LU + 1/2 48.13 MMM -2 7/8 80.25 COMS -2 3/4 76.00
Day Month Year History FOOL -4.45% -3.99% 50.17% 180.41% S&P 500 -1.54% -3.66% 18.41% 59.10% NASDAQ -0.82% 0.44% 23.40% 80.28% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 20.00 693.98% 8/5/94 680 AmOnline 7.27 35.63 389.83% 8/13/96 250 3Com Corp. 46.86 76.00 62.19% 8/12/96 110 Minn M&M 65.68 80.25 22.19% 8/11/95 125 Chevron 50.28 61.38 22.05% 8/12/96 280 Gen'l Moto 51.97 56.88 9.43% 10/1/96 42 LucentTech 47.62 48.13 1.07% 8/12/96 130 AT&T 39.58 38.63 -2.41% 8/24/95 130 KLA Instrm 44.71 36.13 -19.20% 10/22/96 600 ATC Comm. 22.94 13.88 -39.51% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 40200.00 $35136.87 8/5/94 680 AmOnline 4945.56 24225.00 $19279.44 8/13/96 250 3Com Corp. 11714.99 19000.00 $7285.01 8/12/96 110 Minn M&M 7224.44 8827.50 $1603.06 8/11/95 125 Chevron 6285.61 7671.88 $1386.27 8/12/96 280 Gen'l Moto 14552.49 15925.00 $1372.51 10/1/96 42 LucentTech 1999.88 2021.25 $21.37 8/12/96 130 AT&T 5145.11 5021.25 -$123.86 8/24/95 130 KLA Instrm 5812.49 4696.25 -$1116.24 10/22/96 600 ATC Comm. 13761.50 8325.00 -$5436.50 CASH $4291.89 TOTAL $140205.02 Transmitted: 12/12/96