Fool Portfolio Report
Wednesday, October 1, 1997
by David Gardner (DavidG@fool.com)


ALEXANDRIA, VA (Oct. 1, 1997) -- Rumor has it that the market went up today, but as we look over the Fool Portfolio we have to discount that rumor as mere, well, rumor.

Rumor, we tell you!

There's no WAY the market went up today. I'm looking over the Fool Portfolio:

Amazon down $3 15/16 AOL down $2 1/2 Innovex down $1 KLA-Tencor down $2 5/8 3Com down $3/4

... and I'm telling you that clearly and obviously -- even a Fool can tell this -- the market didn't go up today.

Had the market in fact risen by the margin claimed by the wire services -- S&P up 0.86%, Nasdaq up 0.27% -- we would've underperformed the broadest measures by more than two percentage points. In one day. Because that obviously coudn't have happened, we're ignoring the wire services.

We think we beat the market today.

In fact, the market may have -- we say MAY have -- crashed. We are investigating the possibility that the wire services have formed some unholy alliance with the various markets to hide the actual percentage drop of the indices today, for reasons so nefarious that only those with the most suspicious and devious minds could possibly ascertain. I'll try to let you know by the end of this recap what our crack staff has come up with.

Meantime, we can investigate some of the newsworthy events driving our stocks down.

Amazon.com (Nasdaq:AMZN) dropped $3 15/16 today. A glance at those suspicious wire services reveals no evident news to have moved the stock. Then again, AMZN yesterday rose $3 15/16, on a similarly suspicious lack of news. One firm, Everen Securities, began coverage of the stock yesterday with a "long term market outperform" rating. Would that alone send the stock soaring in the "short term" world of the Wise? We're doubtful. Anyone with actual explanations of these bizarre fluctuations should e-mail our investigative staff.

Our Lunchtime News did include a squib on pseudo-competitor Barnes & Noble (NYSE:BKS), which rose $2 1/4 today. The Times of London reported on some BKS expansion into that country. Separately, Merrill Lynch made BKS its focus stock of the week. (We can hear those brokers on the phone now.)

Go Barnes & Noble. It's a great company. While many people view (mistakenly) the book retail industry as a zero-sum game, we believe that the more highly Barnes & Noble is valued, the more highly you'll wind up seeing Amazon.com valued. Go BKS.

America Online (NYSE:AOL) dropped $2 1/2 today. Could this somehow be related to the intended buyout of MCI by WorldCom, rocking the business world this morning (and reported on in our FoolAudio)? Great question. Logic would dictate that WorldCom's tight relationship with AOL (offering AOL sweetheart rates on network usage over the next few years) combined with MCI's resources would only help AOL even more. But then again, perhaps WorldCom is getting so big that all of its recent moves will come under Justice Department scrutiny. The closest insight into AOL's move today comes from our own TMF Nico, who posted this:

<< I'm confused. After hearing of the WCom/MCI deal, I expected to see AOL up on the news, instead it's down. XCIT and YHOO are both up. What gives. >>

Any WorldCom-MCI deal will come under scrutiny by the government, as will/is the WorldCom-CompuServe-America Online deal. This adds uncertainty to all calculations. And uncertainty is... uncertainty. The deal, on top of the AOL deal and other previous deals, means that WCOM would own a huge portion of the Internet itself.

Keep in mind that the WCOM-CSRV-AOL deal will take several months to be approved, as no doubt will the MCI deal. Both deals need to be seen in each other's light.

As for Yahoo and Excite... Yahoo announced they will be registered on Japan's over the counter market starting in November.

XCIT announced today that it will be a premier Active Channel partner for the new Microsoft Internet Explorer 4.0 browser, which will enhance Excite's brand visibility in the browser and on the PC desktop. That could account for XCIT's boost today.

OTOH, AOL Studios announced that it will provide original content for the MSIE 4.0, including Thrive, Hecklers Online and Extreme Fans. This is another brand enhancing move, a fairly significant and telling one for AOL I think, yet AOL stock is down.

Who knows what makes these things move on any given day. It's an averaging effect... perceptions...

TMF Nico

Then again, perhaps the market is reacting to a suit against AOL for unfair competitive practices by online game company Kesmai. But that was announced early yesterday morning, so I don't see why it would matter today.

KLA-Tencor (Nasdaq:KLAC) has been weak recently, and sat around skinning cats in the Hall of Losers once again today. The September 9 announcement that the stock would be added to the S&P 500 tipped the shares up to $75. Since then, we've seen a 10-point drop in KLAC. So, you're looking for some news to explain the drop? Hmmmm. Well, industry peer and former Fool Port holding Applied Materials (Nasdaq:AMAT) announced yesterday that it was filing a "shelf registration" for debt up to $400 million, including $194 million of previously existing debt. In other words, AMAT may be looking to borrow another $200 million. I mention this because I can't find anything else particularly relevant -- not that that is. (But hey, Fool Portfolio writeups aim always to make even marginally important news an educational and Foolish read, no?)

Through its June 1997 fiscal yearend, KLA has trailing earnings per share of $1.78. That's slated to rise to $3.04 by June 1999, according to our Foolish Snapshot. Annualize that growth (read Fool's School Step #10 if you don't know how to do that yet) and you obtain a figure of 31%. With a current P/E of 36, KLA is looking fully valued. I think the reason the company trades at a premium to its growth rate is that the market expects analysts to hike their estimates. The semiconductor equipment industry is notoriously cyclical and unreliable -- about the only thing you can count on for companies like KLA-Tencor is long-term growth. Anyway, perhaps the recent 10-point drop makes some sense.

OK, our crack staff has returned and insists that the wire services are apparently correct and we are not. Wrong-way Fool Portfolio crushed by market, the headline should read.

We fired the lot of them.

Fool on!

-- David Gardner, October 1, 1997

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TODAY'S NUMBERS
Stock Change Bid ---------------- AMZN -3 15/16 48.13 AOL -2 1/2 73.06 T --- 44.25 ATCT - 1/16 4.00 CHV +2 1/16 85.13 DJT - 1/16 10.25 GM +1 67.94 INVX -1 31.25 IOM - 1/4 25.88 KLAC -2 5/8 64.88 LU +1 1/2 82.88 MMM +1 15/16 94.38 COMS - 3/4 50.50
Day Month Year History FOOL -1.36% -1.36% 24.17% 231.38% S&P: +0.86% 0.86% 28.98% 108.42% NASDAQ: +0.27% 0.27% 30.93% 134.71% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 25.88 926.79% 8/5/94 355 AmOnline 7.27 73.06 904.59% 10/1/96 42 LucentTech 47.62 82.88 74.05% 8/11/95 125 Chevron 50.28 85.13 69.29% 8/24/95 130 KLA-Tencor 44.71 64.88 45.10% 8/12/96 110 Minn M&M 65.68 94.38 43.70% 8/12/96 280 Gen'l Moto 51.97 67.94 30.72% 9/9/97 290 Amazon.com 38.22 48.13 25.91% 6/26/97 325 Innovex 27.71 31.25 12.78% 8/12/96 130 AT&T 39.58 44.25 11.81% 8/13/96 250 3Com Corp. 46.86 50.50 7.77% 4/30/97 -1170 *Trump* 8.47 10.25 -21.03% 10/22/96 600 ATC Comm. 22.94 4.00 -82.56% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 25937.19 $23355.32 5/17/95 980 Iomega Cor 2594.53 25357.50 $22762.97 8/12/96 280 Gen'l Moto 14552.49 19022.50 $4470.01 8/11/95 125 Chevron 6285.61 10640.63 $4355.02 8/12/96 110 Minn M&M 7224.44 10381.25 $3156.81 9/9/97 290 Amazon.com 11084.24 13956.25 $2872.01 8/24/95 130 KLA-Tencor 5812.49 8433.75 $2621.26 10/1/96 42 LucentTech 1999.88 3480.75 $1480.87 6/26/97 325 Innovex 9005.62 10156.25 $1150.63 8/13/96 250 3Com Corp. 11714.99 12625.00 $910.01 8/12/96 130 AT&T 5145.11 5752.50 $607.39 4/30/97 -1170*Trump* -9908.50 -11992.50 -$2084.00 10/22/96 600 ATC Comm. 13761.50 2400.00-$11361.50 CASH $29541.35 TOTAL $165692.41