Fool Portfolio Report
Wednesday, April 16, 1997
by David Gardner (MotleyFool)


ALEXANDRIA, VA, (April 16, 1997) -- The S&P 500 continued its strength during turbulent times, Wednesday, as it showed another strong gain in the face of yet another Nasdaq decline. The Fool Portfolio outdid them both, pleasingly, turning in a gain of 2.04%. That outran the S&P (up 1.17%) and well surpassed the Nasdaq's drop of 0.22%.

If you enjoy following the relative performance of the indices (as I do), 1997 has provided passable entertainment. The S&P 500 pulled away from the Nasdaq in February for good; as of February 4th, the two were still neck-and-neck, the S&P 500 up 6.55% for '97, the Nasdaq up 6.41%. But big-cap stocks have trampled the smaller technology companies ever since. The Nasdaq has dropped from 6.41% that day to a loss of 6.26% for the year, with the S&P 500 only giving away a few percentage points.

And the sheer number of former technology mid-cap stars -- big stars -- that have been cut in half over the past 6-12 months is amazing. Just look at some of these names: Ascend, Broderbund, Glenayre Technologies, Intuit, Netscape, PictureTel, 3Com (and its sister U.S. Robotics!). And that's a greatly abridged list. All of these have strong products, excellent brand-name recognition in their dynamic industries, and all are sporting witheringly bad relative strengths.

I don't know what to make of this. Intel and Microsoft are frequently cited as the source of many other companies' woes. And this is probably true. Netscape is certainly feeling the pain of the Microsoft Internet Explorer's increasing market share. PictureTel is suffering the slings and arrows of price reduction based largely on Intel's plans for videoconferencing.

My question is: Are Microsoft and Intel really going to just crush everything everyone else is doing? Are we moving into a new international business climate in the 21st century where the world massively consolidates, business along with it, and small-company innovation becomes impossible due to economies of scale enjoyed by their titanic competitors?

I don't know. I don't think so. But the S&P 500's continued charge in the face of Nasdaq growth-company woes is suggesting to me in some way that maybe the future belongs to the 500, and not to the 5000 (Wilshire 5000, that is). Sure, we're only really talking about a two-month phenomenon, in regards to the outperformance of big companies. But the indices understate what's really happened. What's really happened is that Microsoft and Intel continue to swim against the tide, while dozens and dozens of their competitors have lost a ton more value than the Nasdaq itself.

As a capitalist, I've always believed that even small-time enterpreneurial innovation can overcome substantial competitive strengths from huge companies. But somebody needs to tell that to the market right now! Perhaps these really are the early stages of a long-term global business trend: consolidation... consolidation occurring primarily to stay competitive with "da big guys." We shall see; you can bet the Fool will be watching and reporting. And trying to make a buck or two in the markets, as well.

Pretty much all of our stocks, great and small, rose today. The exception was 3COM's (Nasdaq:COMS) drop of $1 1/4 to a new 52-week low ($29 3/4). COMS was reacting to ratings and earnings reductions for CISCO SYSTEMS (Nasdaq:CSCO). A Salomon Brothers analyst reduced Cisco's earnings estimates yesterday, then Alex, Brown went on to downgrade its rating on the stock today. All the networkers followed suit... down again! (Y'know at some point we're going to start seeing some pretty darn good bargains in this industry.) I'll repeat again... are networking stocks beginning to look like shares of semiconductor companies last summer? Many of those, like KLA INSTRUMENTS (Nasdaq:KLAC) are now back up 100% from those doldrums.

GENERAL MOTORS (NYSE:GM) rose another $2 1/4 today, following a good earnings report on Monday and a strong move with the Dow yesterday. It appears to be making its move back into double-digit gains for the Foolfolio.

ATC COMMUNICATIONS (Nasdaq:ATCT) rose $3/4, on almost four times normal volume. No news, as usual. People want us to write as much as we can about the company, but it's tough when ATC communicates little for periods of time. Anyway, it does seem that whenever the bottom drops out in the $5 area, people wake up and recognize we're still talking about a profitable company in a decent business. Our biggest loser ever, ATC continues to claim a spot in the Fool Portfolio. The stock is being treated exceptionally rudely, given the company's $100 million in sales and 29 cents in profits.

Finally, we're announcing tonight that we're selling roughly half our positions in AMERICA ONLINE (NYSE: AOL) and IOMEGA (NYSE: IOM). The reason is simply because we want to put some new ideas into play in the portfolio over the next few months, and those are the primary places to get the cash. Both AOL and IOM have appreciated so much that they represent 52% of our overall holdings as of market close today. We continue to hold very bullish feelings about both stocks, and both will still be our top two holdings ever after the sale. But as all of our work is done in the context of managing a portfolio -- a real portfolio (none of this STRONG BUY stuff -- these aren't ratings, these are real moves) -- we have to pull money from somewhere to do new things.

The rest of the details are in that writeup, if you're interested. It's brief and to the point, because there's little else to say. Please give it a read. Also, our own Jeff Fischer (the former MF BudFox, and now TMF Jeff) will be in our Fool Port chat room on AOL from 8 PM to 10 PM ET tonight to field any questions.

On a personal note, I have to say that if these stocks drop tomorrow -- ostensibly because of this announcement -- we'll have to laugh. We'll also shed a quick tear, because they're still our top two holdings. But the reason we're making this move is pure PORTFOLIO MANAGEMENT, aiming to diversify out of two stocks that have successfully grown to make up the majority of our money!

Finally tonight, a very happy birthday to my brother Tom, who just turned 29 today.

--- David Gardner, April 16, 1997


TODAY'S NUMBERS
Stock Change Bid -------------------- AOL + 3/8 45.63 T + 1/8 33.63 ATCT + 3/4 6.00 CHV + 7/8 65.00 GM +2 1/4 56.50 IOM + 5/8 17.75 KLAC - 1/8 39.63 LU +2 3/32 54.50 MMM + 3/4 83.88 COMS -1 1/4 29.75
Day Month Year History FOOL +2.04% 3.33% -4.11% 155.93% S&P: +1.17% 0.85% 3.08% 66.56% NASDAQ: -0.22% -0.94% -6.26% 68.05% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 17.75 604.65% 8/5/94 680 AmOnline 7.27 45.63 527.33% 8/11/95 125 Chevron 50.28 65.00 29.26% 8/12/96 110 Minn M&M 65.68 83.88 27.71% 10/1/96 42 LucentTech 47.62 54.50 14.46% 8/12/96 280 Gen'l Moto 51.97 56.50 8.71% 8/24/95 130 KLA Instrm 44.71 39.63 -11.38% 8/12/96 130 AT&T 39.58 33.63 -15.04% 8/13/96 250 3Com Corp. 46.86 29.75 -36.51% 10/22/96 600 ATC Comm. 22.94 6.00 -73.84% Rec'd # Security In At Value Change 8/5/94 680 AmOnline 4945.56 31025.00 $26079.44 5/17/95 2010 Iomega Cor 5063.13 35677.50 $30614.37 8/12/96 110 Minn M&M 7224.44 9226.25 $2001.81 8/11/95 125 Chevron 6285.61 8125.00 $1839.39 8/12/96 280 Gen'l Moto 14552.49 15820.00 $1267.51 10/1/96 42 LucentTech 1999.88 2289.00 $289.12 8/24/95 130 KLA Instrm 5812.49 5151.25 -$661.24 8/12/96 130 AT&T 5145.11 4371.25 -$773.86 8/13/96 250 3Com Corp. 11714.99 7437.50 -$4277.49 10/22/96 600 ATC Comm. 13761.50 3600.00-$10161.50 CASH $5240.09 TOTAL $127962.84