Fool Portfolio Report
Friday, October 3, 1997
by Paul Larson (TMFParlay@aol.com)
CHICAGO, IL (Oct. 3 , 1997) -- It's a beautiful Indian Summer day here in the windy city. The sun is shining and the temperature is just about perfect at 80 degrees -- definitely "bonus round" weather around here for this late in the season. Chicago was not the only place the sun was shining today as the Fool Portfolio soaked up a little energy itself on the way to a 0.76% glide forward. Good enough to best the S&P, but a nose shy of outpacing the red hot Nasdaq.
There really was not a whole heck of a lot of news from the companies in the portfolio on this lazy Friday. GENERAL MOTORS (NYSE: GM) announced a bundle of press releases that essentially said that September sales of their Pontiac, Chevrolet, and Oldsmobile lines were quite strong. Nevertheless, the stock managed to drop $3/8. Go figure. As a Foolish Four holding, we don't pay much attention to the stock's daily news anyway.
As I scanned down the Fool port's historical numbers this afternoon, I noticed that only two of the thirteen stocks in the portfolio are currently showing a paper loss. Not too shabby, no? I did find it quite humorous that Jeff Fischer (who is currently penning the DRiP portfolio update) just happened to ask me to say something today about the portfolio's only two losers. Coincidence or conspiracy? The truth is out there.
First, let's tackle ATC TELECOMMUNICATIONS (Nasdaq: ATCT). I think I'm going to have to side with what David Forrest (TMF Bogey) opined in the update yesterday. ATC has been an absolute dog that has been performing almost as poorly as the Chicago Bears. The company for the last couple quarters has been long on excuses and short on profits. In this past quarter's case, it was ten cents per share below expectations with the ink flowing a lovely shade of bloody red just in time for Halloween.
I've got to wonder how much longer the head honchos of this portfolio are going to believe ATC's song and dance. I'm not certain when (or if) ATC will be making an exit from the portfolio. But if it were my call to make, I would shoot this dog and put it out of its misery as soon as possible. Even if the stock somehow manages to stick around in the portfolio, it is important to note that ATC makes up less than 1.5% of the portfolio's current value. Tuesday Jeff promised to write more about the stock following the conference call. He had this to share today:
"Following a disappointing loss in its fourth quarter on a 30% decline in revenue, ATC Communications held a less than inspiring conference call. The strong labor market in Texas actually hurt ATC, as the company finds it more difficult to hire inexpensive labor. Management is interested in opening new tele-services centers, one in New Mexico.
"The company wasn't detailed in the length of its new contracts, and it wasn't able to commit to a dollar amount for the new contracts, either. It reiterated that AT&T really harmed the company's performance towards the end of this year, cutting back on certain businesses and negotiating lower prices on others. Management also stated that AT&T can turn on and off its business "like a faucet." AT&T accounted for about 30% of sales, down from over 40% the year prior. Management is working to diversify its client base, and the several new contracts are a good step in the right direction (though the details of the contracts would help in learning how substantial they really are).
"ATCT is still in a transitional period. It's still working to develop long-term, value-added telephone business (in-bound), while moving away from the commoditized side of the business (outbound). It sounds like the company is still very much in the beginning of these changes, which have been taking place for less than a year. Many stocks in the industry have been crunched after failing to meet high expectations, and competition is possibly lowering prices and leading to lower earnings at many companies that are fighting for long-term business.
"At $4, ATCT trades at a multiple below one times trailing sales (the market cap is about $88 million, and trailing sales are $97 million). The revenue run rate, though, with $21 million in the last quarter, is $84 million. Analysts haven't moved their earnings estimates yet, but almost certainly will. The current five cents per share expected this quarter may be too high, considering the recent loss and that the revenue from several new contracts shouldn't begin to appear on the income statement until the next quarter. At the moment, the stock doesn't appear that it wants to go anywhere -- which makes sense. There's a lot up in the air."
So, apparently Fool HQ is up in the air about the stock right now, too.
The other stock that has been a loser for the portfolio has been the portfolio's only short, TRUMP HOTELS (NYSE: DJT). Although, today was a good day for the shorts and not such a sunny day for Trump's stock. Early results from the month of September in Atlantic City showed some rather weak comparisons. Unofficially, the September gaming win for Atlantic City as a whole was down 6.8% from a year ago. Trump's Taj Mahal booked $47 million in gaming win last month, which is below the roughly $50 million posted in August and far below the $57 million put up in September of last year. There is little doubt that these numbers were behind today's tumble.
To Trump's credit, the company has done quite well in Atlantic City thus far in 1997 (sans the early results from September). However, it appears that one of Trump's cash cows is not yielding nearly as much milk as it once was. Trump Indiana has been in a tailspin the past several months, and things are only looking more bleak for the rest of the year. Check out these numbers:
TRUMP INDIANA MONTHLY GAMING WIN
March $14,392,758 April $13,471,152 May $11,803,837 June $10,411,184 July $10,782,725 August $10,269,725
The trend here should be obvious. The reason for the declining numbers has been a rather large increase in the number of slot machines elbowing for gambling dollars on Lake Michigan. Mid-April saw a large and quite impressive SHOWBOAT (NYSE: SBO) casino open across the harbor from Trump. Late August had a brand new privately held casino boat open around the bend in Michigan City, Indiana. While the September Indiana numbers have not been released yet, it is expected that having the Michigan City boat open a full thirty days could drop Trump below the mystical $10 million a month level. Furthermore, the boat Trump shares mooring facilities with, the Majestic Star casino, will be shelving their current temporary boat later this fall in exchange for a brand new and much larger facility. Which means, yes dear Fool, more competition for Da Donald and company in the Hoosier State.
While Indiana really does not mean much to Trump's top line, it has in the past brought significant dollars to the EBITDA and bottom lines. Are declining Indiana numbers the sole reason the Fool Port managers decided to short the stock? No way. The reason they shorted the stock was because they felt that Trump's debt load was going to break the company's back. Also, they felt that, on balance, Trump would have a difficult time growing or maintaining revenues given the new competition Trump is and will be facing across the board. Indiana is just a part of this bigger picture. Time will tell whether this bet against Trump was the right one.
For more discussion concerning Trump, I highly recommend checking out the Trump message board and the gaming industry board. There you will find an active discussion putting forward compelling arguments for both betting with or against Da Donald.
Enjoy the weekend, everyone!
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Stock Change Bid ---------------- AMZN --- 47.75 AOL +1 1/4 75.38 T - 5/16 43.25 ATCT + 1/32 4.09 CHV +1 7/16 85.88 DJT - 7/16 9.81 GM - 3/8 67.81 INVX - 1/4 30.88 IOM + 1/16 25.31 KLAC +1 1/16 67.69 LU + 15/16 86.25 MMM - 3/16 94.94 COMS + 7/16 51.00Day Month Year History FOOL+0.76%-0.62%25.09%233.85% S&P:+0.48%1.87%30.28%110.52% NASDAQ: +0.79% 1.79% 32.90% 138.25% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 75.38 936.39% 5/17/95 980 Iomega Cor 2.52 25.31 904.46% 10/1/96 42 LucentTech 47.62 86.25 81.14% 8/11/95 125 Chevron 50.28 85.88 70.78% 8/24/95 130 KLA-Tencor 44.71 67.69 51.39% 8/12/96 110 Minn M&M 65.68 94.94 44.55% 8/12/96 280 Gen'l Moto 51.97 67.81 30.48% 9/9/97 290 Amazon.com 38.22 47.75 24.93% 6/26/97 325 Innovex 27.71 30.88 11.42% 8/12/96 130 AT&T 39.58 43.25 9.28% 8/13/96 250 3Com Corp. 46.86 51.00 8.83% 4/30/97 -1170 *Trump* 8.47 9.81 -15.87% 10/22/96 600 ATC Comm. 22.94 4.09 -82.15% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 26758.13 $24176.26 5/17/95 980 Iomega Cor 2594.53 24806.25 $22211.72 8/11/95 125 Chevron 6285.61 10734.38 $4448.77 8/12/96 280 Gen'l Moto 14552.49 18987.50 $4435.01 8/12/96 110 Minn M&M 7224.44 10443.13 $3218.69 8/24/95 130 KLA-Tencor 5812.49 8799.38 $2986.89 9/9/97 290 Amazon.com 11084.24 13847.50 $2763.26 10/1/96 42 LucentTech 1999.88 3622.50 $1622.62 8/13/96 250 3Com Corp. 11714.99 12750.00 $1035.01 6/26/97 325 Innovex 9005.62 10034.38 $1028.76 8/12/96 130 AT&T 5145.11 5622.50 $477.39 4/30/97 -1170*Trump* -9908.50 -11480.63 -$1572.13 10/22/96 600 ATC Comm. 13761.50 2456.25-$11305.25 CASH $29541.35 TOTAL $166922.60