Fool Portfolio Report
Tuesday, June 17, 1997
by Tom Gardner (TomGardner)

ALEXANDRIA, VA, (June 17, 1997) -- The Fool Portfolio rose a market-thrashing 1.72% today, and a cry was heard from across the office, "Finally!" It seems longer than it's actually been that we've had occasion to mock the S&P 500 and the index fund, to cruelly mock them. The S&P 500 rose 0.06% and the Nasdaq was up 0.78%. Foolishness won, loudly.

Iomega Corporation (NYSE: IOM) rose $1 7/8 to $22 3/8, after announcing a few new initiatives today. The Company announced:

a. The introduction of the Ditto Max tape
drive ("With unprecedented speed, the
Ditto Max drive can back-up as much
as 1 Gigabyte of stuff on a personal hard
drive in as little as 30 minutes -- four
times faster than existing drives.")

b. That Hitachi will offer the Zip Drive as an
optional feature in its laptops ("We are
committed to offering leading-edge
technology, and, as a result of listening
to our customer needs, we feel it is
essential to offer the integrated Zip drive
in our new notebook computers," said Mark
Yahiro, vice president of marketing and
business development for Hitachi PC.

c. The Buz multimedia producer for audio/video
and photo capture ("Buz multimedia
producer allows the PC to become a
personal multimedia entertainment
studio," said Maury Domengeaux, director
of Jaz product marketing.)

A nice day for Iomega, up 28% over the past four weeks.

KLA-Tencor (NASDAQ: KLAC) rose $1 7/8. No news on the wires, so I asked our news guy Dale Wettlaufer (TMF Ralegh), "Hey Dale, any news on the semiconductor-equipment companies today?" In between handfuls of chocolate caramels, he offered this, "Those crazy fund managers looking for a place to park cash. There's gotta be other explanations to go along with that. Ahhh... let's see... "

(I stopped listening.)

Lucent Technologies (NYSE: LU) rose $2 to $70 after announcing a joint venture with Philips Electronics in consumer telephony. Lucent will own 40% of the business, Philips 60%, and the two expect sales of $2.5 billion in the year ahead.

3M Corporation (NYSE: MMM) gained $2 1/4 to $100 per share. No news today, after they announced the birthing of an adhesives division yesterday. MMM is now up 52.26% for Foolish Four investors on the August rotation.

The Donald's (NYSE: DJT) $3/8 drop helped as well, but pretty much the four stocks above carried Touchstone across the finish line today. The Fool Portfolio has risen 5 1/2% this month right alongside the S&P 500. The market has now doubled over the last three years. And many investors are wondering what to do with new cash... and whether to leave what's there, there.

It's a good thing that investors are wondering about market valuation. A Foolish take follows below.

What a market.

The S&P 500 has now risen from 440 to 894 over the last thirty-six months. That marks 103% total growth, or 26.7% growth per year. Over the past ten years, the index has risen from 238 to its perch today at 894, for total growth of 276%, or 14.2% growth per year.

What a market.

Naturally, the investment community is now abuzz with talk about the top-level valuation. Are U.S. stocks more overpriced today than at any point in the history of our markets, as Beating the Dow author Michael O'Higgins has proposed? Or are values not outta whack given the global growth opportunities for American business today, as people like phenom Abby Cohen at Goldman Sachs have suggested?

This debate has even found its way into Fool Global Headquarters, over games of ping-pong.

Ping: "The summer doldrums will smash
this market. Coke trading at 47x
earnings? Gillette at 54x earnings?
I betcha Buffett is hedging his

Pong: "The market is simply beginning to
discount forward the value of multi-
national greatness. Coke-rosoft-zer-lette
should always have traded at a premium,
priced off earnings a few years in the
future.This is a natural trend toward value."

Of late the market agrees with Pong.

Every day has been looking a lot like today. Cisco Systems up $1 1/4, Intel up $2 1/2, Microsoft up $2 3/4, Dell Computer up $5 1/2 a share. Greatness in America is growing. Our richest corporations are gaining momentum. The Justice Department is being forced to work as hard as twentysomething programmers in Silicon Valley. And shareholders are feeling like angels blessed.

Take Dell Computer, one of the greats. The stock has risen on a split-adjusted basis from $0.75/share to $120/share since January 1, 1990. And most of that positive momentum has come since the summer of 1994. In its most recent quarter, Dell averaged turning over all of its inventory in less than days, en route to $2.6 billion in sales for the quarter. Almost unthinkable. They've dramatically lightened the process of selling personal computers.

In similar fashion, other top-tier businesses are blasting sales higher but driving earnings ahead even more rapidly. And they're justifying rich valuations -- through greater girth, efficiency, and momentum. Dell's $5 1/2 rise to above $120 comes because the market believes in management's ability to smartly allocate its funds, to coordinate its enterprise around the globe, and to preach the profit motive to its employees.

The market doesn't believe right now in Apple Computer, no matter how wonderful their machines and operating systems are. That may change at Apple in the future, but today, the market is tracking down proven expertise -- not searching for the turnaround. They're buying Dell, Intel, Microsoft, Sun Microsystems, Cisco Systems -- and outside of technology, Gillette, Johnson and Johnson, Pfizer, and Coca-Cola.

But how rich a valuation is too rich -- how high is high enough? Might even Foolish investors want to pull money out of the market? And if so, at what point? Buffett did it over twenty-five years ago.

There aren't any easy answers there. Each portfolio is a world unto its own. We all have different mindsets, different thresholds for pain, different time horizons, different aims. My Dad and I chatted on the phone for a half hour about this on Father's Day. Dad asked whether I thought the small investor with $5,000, who would need that money in five years, should be in stocks today.

Silence and hissing from a bad phone connection followed.

I could only then offer this: "Ten years is ideal."

Tom Gardner, Fool

Oracle's Earnings (a Boring Port stock)
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Daily Trouble -- Is there value in this beaten down stock?
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Fool Four -- These giants are... almost too big.
Fribble -- A two minute, fun lesson from readers.

Stock Change Bid -------------------- AOL - 1/4 60.75 T - 3/8 37.88 ATCT - 1/8 5.31 CHV - 3/4 76.13 DJT - 3/8 11.75 GM - 3/8 57.00 IOM +1 7/8 22.38 KLAC +1 7/8 48.56 LU +2 1/8 70.00 MMM +2 1/4 100.00 COMS --- 47.25
Day Month Year History FOOL +1.72% 5.65% 8.37% 189.22% S&P: +0.06% 5.44% 20.75% 95.12% NASDAQ: +0.78% 3.06% 11.78% 100.38% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 22.38 787.90% 8/5/94 355 AmOnline 7.27 60.75 735.63% 8/12/96 110 Minn M&M 65.68 100.00 52.26% 8/11/95 125 Chevron 50.28 76.13 51.39% 10/1/96 42 LucentTech 47.62 70.00 47.01% 8/12/96 280 Gen'l Moto 51.97 57.00 9.67% 8/24/95 130 KLA Tencor 44.71 48.56 8.61% 8/13/96 250 3Com Corp. 46.86 47.25 0.83% 8/12/96 130 AT&T 39.58 37.88 -4.30% 4/30/97 -1170 *Trump* 8.47 11.75 -38.74% 10/22/96 600 ATC Comm. 22.94 5.31 -76.84% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 21566.25 $18984.38 5/17/95 980 Iomega Cor 2594.53 21927.50 $19332.97 8/12/96 110 Minn M&M 7224.44 11000.00 $3775.56 8/11/95 125 Chevron 6285.61 9515.63 $3230.02 8/12/96 280 Gen'l Moto 14552.49 15960.00 $1407.51 10/1/96 42 LucentTech 1999.88 2940.00 $940.12 8/24/95 130 KLA Tencor 5812.49 6313.13 $500.64 8/13/96 250 3Com Corp. 11714.99 11812.50 $97.51 8/12/96 130 AT&T 5145.11 4923.75 -$221.36 4/30/97 -1170*Trump* -9908.50 -13747.50 -$3839.00 10/22/96 600 ATC Comm. 13761.50 3187.50-$10574.00 CASH $49211.92 TOTAL $144610.67