Fool Portfolio Report
Monday, August 18, 1997
by Jeff Fischer (TMF Jeff)

ALEXANDRIA, VA (August 18, 1997) -- "Honey."


The man enters the den after a long day at work. "I sold all of our stocks today." Wife looks up from her law book.

"What? We're thirty-four years old. Why did you do that?"

"Um. They were going down?"


The market was down this morning, but ended the day much higher. It would be Wise of us to go into much detail, so we won't. Tomorrow the Fed meets, and then they meet again on September 30th, and then again later this year, and so on and so forth; interest rates will fluctuate, seasons will change, birds will migrate, rivers will flow, and stocks will swim on a sea of their own will. It's the business model that you invest in, not the short-term stock price.

Today the Fool Port gained 0.61%, enough for a second place finish behind the S&P, which won by a nose, a head, a body, and a tail, and actually lapped the Fool en route to a 1.30% gain. The Nasdaq lagged, up 0.48%. On Friday the S&P had fallen 2.5% and many expected a disaster today, but no balloons were popped, no noisemakers silenced, no kids shuffled off to bed without an ice cream dessert. The festivities appear ready to continue. Should we rejoice?

More on that in a minute. First, some Fool stock news.

KLA-TENCOR (Nasdaq: KLAC) hit another new high today and closed above $67. The stock trades at 54 times trailing earnings while expected to grow 20% annually.

Some Fools have written asking us to address the stock's valuation, citing the YPEG value of $60 on fiscal 1999 earnings. But YPEG isn't a very useful measure on a "cyclical" stock. Two months ago the stock's "YPEG fair value" was $48. Twelve analysts have increased earnings estimates over the last thirty days, but going forward, investors are more interested in the semiconductor "cycle" than in the current earnings estimates because the cycle will drive estimates. The cycle for semiconductor equipment may be a long one because many plants need to retool to get to 0.25 submicron capability.

At $67, the stock trades at 28 times estimates for fiscal 1998 ending next June and at 22 times fiscal 1999 estimates. There are no plans to sell the stock here at Fool HQ. Hopefully estimates will continue to rise, while over the long term KLA-Tencor is an industry leader, and its industry is expected to grow 19% annually.

3COM (Nasdaq: COMS) fell $3/8 as analyst firm Furman Selz lowered quarterly estimates two cents per share to $0.46, decreasing 1998 estimates to $2.33 from $2.35. Consensus 1998 estimates stand at $2.43 per share. Furman Selz was the lowball estimate initially and is now lower still.

In the last month, three analysts have lowered 3Com's estimates and three have increased estimates -- so nobody knows what's going on, really. It's a matter of pennies either way. The stock trades at 22 times May 1998 estimates and the company is expected to grow 30% annually.

One analyst has increased estimates for INNOVEX (Nasdaq: INVX) in the last thirty days, but the mean estimates are the same. At $31 1/4 the stock trades at 12 times estimates for the year ended in September and 10 times 1998 estimates of $2.97 per share.

To close: has your neighbor recently gotten vanity license plates that read, "I Luv Stox," or have you found yourself walking down the street wanting to celebrate the stock market because in two years, at this pace, you'll never need to work again?

A birthday party, an anniversary, your first, second, and sixth child... these things should be celebrated, and celebrated each year. But the stock market? No.

The last thirty-two months have been otherwise, though. The last two years have been a non-stop fiesta, and as Tom and David have said in this space before, we may never see anything like this again in our lifetimes. Indeed. Far from celebratory, stocks on a daily basis are usually somewhat boring. Dull. Lethargic.

S --- L --- O --- W.

And they even go down for years at a time. Fools know this. Even the stocks of leading companies get ahead of themselves -- like the passing wake of a speedboat when its engine is suddenly cut and the boat sinks in the water. Stocks often need time, sometimes years, of "floating" before they can start to move again.

Coca-Cola was flat for most of the 1970s and for all of 1991 to 1994 until it suddenly moved up with other industry leaders the past few years. Fools shouldn't be surprised if the stock and others like it calm down and drift for a few years again. If you're buying a business rather than a mere stock price, you'll likely understand what is taking place, and you'll be Foolish about it.

The way the Wise respond to stock market declines, it's apparent that they don't understand them yet. The Wise don't understand that market drops are natural and to be expected -- and are no more of an event than a thunderstorm on a hot August afternoon. If you're investing Foolishly, for years, market declines merit no more concern on your part than do large market advances, or, shall we say, "volatility," as we had today.

Fool on!

--Jeff Fischer, Fool

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Stock Change Bid ---------------- AOL - 11/16 66.38 T +1 9/16 40.50 ATCT - 1/16 4.56 CHV + 7/16 77.63 DJT + 1/16 9.75 GM +1 5/16 61.00 INVX + 5/16 31.31 IOM + 1/2 23.00 KLAC + 13/16 67.25 LU - 5/16 82.25 MMM + 3/4 91.75 COMS - 3/8 53.75
Day Month Year History FOOL +0.61% 1.16% 16.91% 212.02% S&P: +1.30% -4.38% 23.19% 99.06% NASDAQ: +0.48% -1.52% 21.57% 117.93% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 66.38 813.00% 5/17/95 980 Iomega Cor 2.52 23.00 812.70% 10/1/96 42 LucentTech 47.62 82.25 72.74% 8/11/95 125 Chevron 50.28 77.63 54.37% 8/24/95 130 KLA-Tencor 44.71 67.25 50.41% 8/12/96 110 Minn M&M 65.68 91.75 39.70% 8/12/96 280 Gen'l Moto 51.97 61.00 17.37% 8/13/96 250 3Com Corp. 46.86 53.75 14.70% 6/26/97 325 Innovex 27.71 31.31 13.00% 8/12/96 130 AT&T 39.58 40.50 2.33% 4/30/97 -1170 *Trump* 8.47 9.75 -15.13% 10/22/96 600 ATC Comm. 22.94 4.56 -80.11% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 23563.13 $20981.26 5/17/95 980 Iomega Cor 2594.53 22540.00 $19945.47 8/11/95 125 Chevron 6285.61 9703.13 $3417.52 8/24/95 130 KLA-Tencor 5812.49 8742.50 $2930.01 8/12/96 110 Minn M&M 7224.44 10092.50 $2868.06 8/12/96 280 Gen'l Moto 14552.49 17080.00 $2527.51 8/13/96 250 3Com Corp. 11714.99 13437.50 $1722.51 10/1/96 42 LucentTech 1999.88 3454.50 $1454.62 6/26/97 325 Innovex 9005.62 10176.56 $1170.94 8/12/96 130 AT&T 5145.11 5265.00 $119.89 4/30/97 -1170*Trump* -9908.50 -11407.50 -$1499.00 10/22/96 600 ATC Comm. 13761.50 2737.50-$11024.00 CASH $40625.59 TOTAL $156010.40