Fool Portfolio Report
Thursday, June 19, 1997
by Jeff Fischer (TMF
Jeff)
ALEXANDRIA, VA, June 19, 1997 -- Like a hot air balloon rising into an empty sky, the market continues to ascend. The balloon climbs, slows until more weights are pitched over the side, and then continues to rise higher. This doesn't matter when an investor is focused on years from now -- hopefully decades from now. The day-by-day deflates in importance.
The market could fall 20% and it would only mean that we were back to 1996 levels. Where we end up twenty-five years from now wouldn't be materially changed. If you can trade out at "the top" and get back in at "the bottom," more power to you. But nobody can do it. You can't even define a top or bottom until they're long gone. And even then the definition is tenuous and destined to change.
Watching the market daily is like watching the sun rise and fall. In the end, the sun still rises and falls every day, but where you finally watch it from depends on what you've done over the past few decades.
Luckily, this single, isolated day was interesting for a few stories, so we'll tackle that news.
The Fool gained 0.76% as 3Com, Lucent, and KLA-Tencor all rose more than one dollar (Lucent two dollars, and 3Com a buck and three quarters). The Fool was also helped by a one dollar decline in its short, Trump Hotels. Today Trump's stock lost 8.5%, or $24 million in market value.
"Earnings" projections for TRUMP (NYSE: DJT) were lowered by an analyst, Mr. Turner, at Salomon Brothers. He dropped his numbers significantly, and more was written about it in the Fool's Evening News (linked below, in the Foolish Sea O' Links).
Salomon now expects Trump to lose $0.85 per share this year, from a previous estimate of $0.65. For 1998 the firm now expects Trump to lose $1.05 per share, compared to a previous estimate of only $0.30 in the red.
What gives?
The loss projections were increased in light of the recent operating performance at Trump properties, and because of new competition entering Trump's markets in Indiana and Atlantic City. Showboat Casinos began competing with Trump in East Chicago during April, and Hilton Hotel's plans to open a Wild Wild West casino in Atlantic City in July. (Horse required for admittance.)
The analyst also increased his 1997 interest expense estimate to $209 million from $203 million, while keeping a hold rating on the stock.
Quite frankly, it can be boring to talk about Trump Hotels. It's a losing business model -- to date -- that doesn't have any sense of humor about itself. If the company lost in stride as the Cubs do, it might be fun to discuss. But it takes itself too seriously.
Trump now hopes to move into the Detroit market, too. This news was greeted with smiles at Fool HQ. Another casino means more debt on Trump's books. Trump Hotels currently holds only $188 million in cash and equivalents (with $225 million in current liabilities). Trump is currently seeking the license to develop and operate its Detroit casino, and everyone should know the status by mid-July. The press release from Trump waxed eloquently about "Improving the lives of the citizens in Detroit, and rebuilding their beautiful city."
Reminds me of the Bat Man movies.
We're comfortable sitting on this short. Estimates are dropping, competition is growing, Trump's debt is likely to grow -- all told, the business is going just as we had hoped, thus far. That the stock has risen since our short is a function of volatility, not improved business prospects. Heck, Quarterdeck gasped with life several times during its cascade from $30 to the current $2 7/8. That stock hasn't been above $10 for the past year, now.
I called ATC COMMUNICATIONS (Nasdaq: ATCT) to chat today -- to see how they're doing. The company's current investor relations number takes you to a recording that only allows you to request information by leaving your name and address. No other options.
I need to dig up another number and call them next week. There are direct lines to some great people there -- a kind lady that I've talked to before. I'd like to see how business with AT&T is going, and how the company now feels about current estimates. Only two analysts are covering the stock.
ATC Communications is expected to earn $0.03 in the current quarter, which ends this month. ATC's fiscal year also ends this month, though earnings for the year won't be reported until mid-August. If the quarter's estimates are met, ATC will earn $0.17 for the year. The stock trades at 32 times that estimate. For 1998, $0.26 per share is expected, implying 52% growth in earnings year-over-year. The stock trades at 21 times that estimate.
That 1998 number is probably about as reliable as a Tarot card reading, though. The company is too small and the industry too flux, in my opinion, to imagine that someone can realistically project what ATC will earn. Investors like us appreciate the analysts' efforts, though, and their number is what we'll quote for now. After seeing how the current quarter goes, perhaps we'll form our own estimates as was done here with Medicis, if we disagree with the two analysts.
We'll check up with ATCT next week. Ring... ring...
As for other earnings, 3COM (Nasdaq: COMS) is expected to announce results June 24th. $0.48 per share is expected. The company recently closed its fiscal year (which ended in May), and the stock trades at 23 times the year's estimate of $2.05, and 19 times the 1998 estimate of $2.47. These numbers don't take into consideration the recently completed merger with U.S. Robotics, though. The growth rate of the two combined companies is estimated at about 30% annually.
There was an interesting press release about IOMEGA (NYSE: IOM) yesterday. ORACLE (Nasdaq: ORCL), the second-largest software company in the world, announced that Iomega is a new client. Iomega is going to use Oracle software and servers to build a global management and data system.
Would Oracle have shared this information two years ago, when Iomega was a little $150 million company? Heck, no. It wouldn't have even happened, actually.
What Iomega has done is still astonishing to me. As it should be. No other company has grown sales so quickly. But more important than that, I don't know of any that grew sales as quickly while also having a solid foundation and business in place with which to continue growing in a like fashion. For one, as fast as Netscape grew, already concerns are surrounding the solidity of its future growth.
Iomega had news today, too.
PictureWorks Inc. announced that its new digital imaging technology will be bundled with Iomega's new Buz multimedia producer, a product that Iomega announced only Tuesday. The bundle is meant to allow users to save home movies, photos, and music from laser disks and videocassette recorders onto a personal computer, and then publish the images in hard copy and email.
Iomega announces earnings in mid-July, and trades at 24 times this year's estimates.
Fool on!
-Jeff Fischer, Fool
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Stock Change Bid -------------------- AOL - 1/4 60.63 T + 3/8 37.88 ATCT - 1/4 5.00 CHV + 1/8 74.38 DJT -1 10.75 GM - 3/4 56.00 IOM - 7/16 22.19 KLAC +1 5/8 49.88 LU +2 1/4 72.50 MMM --- 99.88 COMS +1 3/4 48.69Day Month Year History FOOL +0.76% 6.59% 9.34% 191.81% S&P: +1.00% 5.86% 21.23% 95.90% NASDAQ: +1.03% 3.34% 12.09% 100.94% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 22.19 780.46% 8/5/94 355 AmOnline 7.27 60.63 733.91% 10/1/96 42 LucentTech 47.62 72.50 52.26% 8/12/96 110 Minn M&M 65.68 99.88 52.07% 8/11/95 125 Chevron 50.28 74.38 47.91% 8/24/95 130 KLA Tencor 44.71 49.88 11.55% 8/12/96 280 Gen'l Moto 51.97 56.00 7.75% 8/13/96 250 3Com Corp. 46.86 48.69 3.90% 8/12/96 130 AT&T 39.58 37.88 -4.30% 4/30/97 -1170 *Trump* 8.47 10.75 -26.94% 10/22/96 600 ATC Comm. 22.94 5.00 -78.20% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 21521.88 $18940.01 5/17/95 980 Iomega Cor 2594.53 21743.75 $19149.22 8/12/96 110 Minn M&M 7224.44 10986.25 $3761.81 8/11/95 125 Chevron 6285.61 9296.88 $3011.27 8/12/96 280 Gen'l Moto 14552.49 15680.00 $1127.51 10/1/96 42 LucentTech 1999.88 3045.00 $1045.12 8/24/95 130 KLA Tencor 5812.49 6483.75 $671.26 8/13/96 250 3Com Corp. 11714.99 12171.88 $456.89 8/12/96 130 AT&T 5145.11 4923.75 -$221.36 4/30/97 -1170*Trump* -9908.50 -12577.50 -$2669.00 10/22/96 600 ATC Comm. 13761.50 3000.00-$10761.50 CASH $49631.21 TOTAL $145906.84