Fool Portfolio Report
Monday, April 7, 1997
by David Gardner (MotleyFool)

ALEXANDRIA, VA, April 7, 1997-- Beautiful spring day today in Alexandria. Warm and sunny. Icky green-yellow pollen oozing on everything. (A-choo! A--, a--, a--CHOO!) Sapphire sky. A gentle northerly breeze. What were we all doing in an office?!

But as I prepared to write today's report, I just wasn't in an upbeat spring mood. Maybe it was AOL's four-point drop, following reports it's going to pitch for Compuserve. Maybe it's our portfolio's underperformance for '97 (we dropped below the Nasdaq, following AOL's drop). Maybe's it's just that I didn't get enough rest over the weekend.

But then I came across this headline over at USA Today's sports site (where I go for my sports news, most of the time):

HARNISCH BATTLING WITHDRAWAL FROM CHEWING TOBACCO

And you know what? I realized that whatever feelings of less-than-total satisfaction that I was having, life could be a lot worse. The article goes on to explain that New York Met starting pitcher Pete Harnisch was unable to take the mound on Sunday, following his efforts to beat a 13-year chewing habit. I don't mean to make light of this at all... the guy has been unable to sleep much, waking up with alternating chills and sweats. And nicotine is a nasty addiction. That said, I'd be lying if I didn't find at least a modicum of humor here, as well. Maybe that's because I once worked spring training as batboy for the Minnesota Twins. It was great fun except for the part about constantly having to toe one's way over a two-centimeter-high residue of chaw and expectorant, the dugout long. Can't you smell that SMELL?

So far as Harnisch goes (and speaking of puns): ''There could be some residue from spring training, but it may be systemic," says Joe McIlvaine, the Mets' general manager.

Ah well, misery loves company. Get better, Pete. Get better, Fool Portfolio.

What do you make of this idea that AMERICA ONLINE (NYSE:AOL) is going to buy out Compuserve (Nasdaq:CSRV)? That's what The Wall Street Journal wrote in today's edition, saying AOL was negotiating to fork over more than a billion bucks ($11-$14 per CSRV share). I still don't know what to make of it. So as usual, I go to our message boards to understand things. I found some good ideas from a fellow named JustAndy in our AOL folder on the Web (which I often use these days, as we ramp up the discussion on our Web site -- AOL users may still prefer our AOL folder on America Online, as it's currently more active).

The discussion really sizes up this way:

Pros: "This is a perfect strategic fit."
America Online has traditionally been valued off of its subscribers. In acquiring Compuserve, it would be buying several million more subscribers. And as a more successful enterprise than CSRV, AOL could probably convert those subscribers into a more valuable asset. Also, AOL would grab a stronger, quicker foothold on Japan, where Compuserve has a bunch of customers. And finally, by purchasing Compuserve, AOL would ensure that none of its other competitors did so. You know, guys like Microsoft.

Cons: "Would you spend $1 billion for that?"
Compuserve is a fading giant... once the top name in online services, now a company having a hard time creating an identity and a profit. CSRV has been trying everything: a new online service called WOW which flubbed, a conversion to the Web, you name it. But the upshot was that in the Jan. '97 quarter just reported, the company's revenues were flat with the January quarter of a year ago, with losses of 24 million (a negative net profit margin of 10%). This in an industry experiencing dramatic growth. Did AOL too successfully kill the new object of its wooing?

On TV, you'll generally find that most of the talking heads play either Pro or Con, exclusively. This was the case last week when I watched a very humorous sparring match between analyst Ulric Weil of FBR (pro-AOL) and short seller David Rocker (anti-AOL), on CNBC. Well, I can't go pro or con on this one. I see the positives and negatives. It's important for anyone to see and recognize both, whichever way you fall. The media too often conditions us to think either/or.

On the surface, the market weighed in with its opinion today. AOL stock was sacked in NYSE trading, dropping an unceremonious $4 1/8 from the 10-month high it'd just hit on Friday. But that's on the surface. Last week, when rumors of a Compuserve deal first appeared, the stock rose $5 plus. So in the overall context, this one's been a wash.

My worry is that AOL becomes a traditional media company like Time Warner (NYSE:TWX), where the bottom line was temporarily forgotten in a seemingly insatiable quest for sales growth. Time Warner stock, which I'm glad to see has hit a recent updraft (Ted Turner has probably helped, there), had languished for several years through a great bull market largely for this reason. AOL needs to keep its eyes on growth in profits... not just growth. Being huge isn't necessarily being good...in fact, it can often preclude it!

KLA INSTRUMENTS (Nasdaq:KLAC) helped us from losing 2% today. The stock bounced up another $2 5/8, right in keeping with its recent volatility. These shares have been very "Nasdaq-sensitive" recently. By that I mean that when the Nasdaq rises, this stock seems to fly, and when it drops, KLAC keels over. These shares are now just $3/4 below our purchase price two years ago. It's been a hairy ride.

Outside of those two significant moves, little happened today. Oh sure, LUCENT TECHNOLOGIES (NYSE:LU) announced it had developed the world's longest-range cordless phone (works about a mile from its base), and that it had just created a full-featured voice-and-text mailing system compatible with Microsoft Exchange. But hey, what's new? And did I mention that LU stock rose $1/8 on this news? Next up... a new Lucent robotic-enabled cybercerebral communications center that costs under $100, that boosts the stock a quarter....

--- David Gardner, April 7, 1997

TODAY'S NUMBERS
Stock  Change    Bid
--------------------
AOL   -4 1/8   44.25
T     +  3/4   34.75
ATCT  -  1/8   5.63
CHV   ---      65.00
GM    ---      54.00
IOM   +  1/8   17.38
KLAC  +2 5/8   44.00
LU    +  1/8   54.50
MMM   -1 1/8   82.13
COMS  -  1/8   34.13


  

      
      
                   Day   Month    Year  History         
        FOOL     -1.81%   2.53%  -4.85% 153.93%
        S&P:     +0.56%   0.66%   2.89%  66.26%
        NASDAQ:  +1.18%   2.43%  -3.07%  73.76%


    Rec'd   #  Security     In At       Now    Change
  5/17/95 2010 Iomega Cor     2.52     17.38   589.77%
   8/5/94  680 AmOnline       7.27     44.25   508.42%
  8/11/95  125 Chevron       50.28     65.00    29.26%
  8/12/96  110 Minn M&M      65.68     82.13    25.04%
  10/1/96   42 LucentTech    47.62     54.50    14.46%
  8/12/96  280 Gen'l Moto    51.97     54.00     3.90%
  8/24/95  130 KLA Instrm    44.71     44.00    -1.59%
  8/12/96  130 AT&T          39.58     34.75   -12.20%
  8/13/96  250 3Com Corp.    46.86     34.13   -27.18%
 10/22/96  600 ATC Comm.     22.94      5.63   -75.48%


     Rec'd   #  Security     In At     Value    Change
   8/5/94  680 AmOnline    4945.56  30090.00 $25144.44
  5/17/95 2010 Iomega Cor  5063.13  34923.75 $29860.62
  8/11/95  125 Chevron     6285.61   8125.00  $1839.39
  8/12/96  110 Minn M&M    7224.44   9033.75  $1809.31
  8/12/96  280 Gen'l Moto 14552.49  15120.00   $567.51
  10/1/96   42 LucentTech  1999.88   2289.00   $289.12
  8/24/95  130 KLA Instrm  5812.49   5720.00   -$92.49
  8/12/96  130 AT&T        5145.11   4517.50  -$627.61
  8/13/96  250 3Com Corp. 11714.99   8531.25 -$3183.74
 10/22/96  600 ATC Comm.  13761.50   3375.00-$10386.50


                             CASH   $5240.09
                            TOTAL $126965.34