Fool Portfolio Report
Tuesday, July 15, 1997
by Jeff Fischer (TMF Jeff@aol.com)
ALEXANDRIA, VA, (July 15, 1997) -- This is somewhat unreal.
Since April, the Nasdaq has risen 29% from the low of 1,194 to the current perch of 1,542 -- another record. Over the same time, the S&P has gained 26%, climbing from 733 at the low to 925. What a run.
Hey, wait a minute!
Has anybody noticed that we're smack dab in the middle of ice cream meltin' July? Stocks are supposed to be stuck in the "summer doldrums" right now.
Instead of having to witness a slow, lazy summer market, we're watching stocks boil. So naturally it's a good thing that Fools never try to time the market, let alone attempt to time the market based on popular generalizations. For kicks, some of those generalizations being:
1. Stocks languish in summer
2. Stocks do poorly after election years (this year)
3. October is always a horrible mess
4. The "Holiday Rally" is a given
5. Small stocks rise in January (Oh, really?)
6. Fool Port stocks always do well (Hmmph)
The popular perception that stocks languish during the summer should be put on ice, thrown in the meat locker, and forgotten. When was the last time that summer was a slow, boring dance of low volume, inactive doldrums?
Do you remember Intel clicking down 1/64 on total volume of 12 shares on August 5th, 1994? Twelve shares all day. Someone in Louisiana sold from their DRIP account. Remember?
No. Of course not.
On the contrary, 1994 was a wild ride downward for stocks going into and beginning summer, resulting in a high volume back-and-forth summer see-saw competition. Next, stocks soared in the summer of 1995, especially tech stocks. Semiconductor companies were going to conquer the world. Finally, last year we saw wild volume in the opposite direction: DOWNWARD. Last summer, though I only witnessed the "horror" (tongue in cheek) of the stock market every week or so through a haze of drunken... er... in the International Herald while sitting alongside a tranquil river in Switzerland.... Well, let's just say that last summer was anything but "tranquil and slow" for stocks.
This summer, this is stocks: an egg on blistering pavement. Sizzle. Hot. Smokin'.
In general, generalizations are not Foolish. Be they generalizations about companies, stock market behavior, or even mother-in-law generalizations -- they just don't hold up. Let's hope that every summer can be as boring as the last four, and the Wise will continue to "check out" at all the wrong times if they care to be Wise (i.e., "tech stocks are weak, so sell them," as has been stated many times in the past months, or "Intel is in a down cycle..." (now Intel is mere dollars from its all-time high), etc, etc.) What's the point of making short-term calls in a long-term world?
You do want your world to be long-term, no?
(That was a very natural lead-in to today's daily update, no?)
Today the Fool Portfolio gained 0.81%, just nudging out the S&P. The Nasdaq continued to soar, rising 1.2% to another record. The Fool was helped most by a $3 5/8 rise in INNOVEX (Nasdaq: INVX), to a bid of $34. The stock is up 22% for the Fool since June 26th.
We hypothesized on Friday that if Innovex met estimates (it beat them by $0.02) it would need to trade between $35 and $38 to reach its typical trailing multiple of 17 to 18 times earnings. The stock has risen from $28 to $34 and now trades at 16 times trailing earnings. The company had stated that it was comfortable with estimates and the math wasn't rocket science, so we can't really brag. But we want to. But we won't. But we want to.
Whip out ye olde PEG calculator and let's see how it looks going forward. On current estimates of $2.93 five quarters out, the PEG on Innovex comes to about 0.50. The run-rate on Innovex (current quarter, multiplied by four) calls for $168 million in sales and $2.88 in earnings per share over the next four quarters. The company expects substantial sequential growth in fiscal 1998, though, which begins in October, and so the run-rate appears conservative, as might be the current estimates of $2.93. We won't go there right now, though. Even on the current estimates the stock looks attractive to us, trading at 11.6 times expected earnings five quarters away.
We covered the Innovex earnings report in some detail last evening, and we'll have the conference call summary available within a day or so as well. The call went well. The company has been shipping about 12 million lead wire units per week, and currently has capacity for 14 million. About 67% of product shipped is Innovex's new MR technology, released only last year. The company isn't changing its thoughts of reaching capacity (if demand warrants) of 18 million per week in the next fiscal year.
The company feels that it has the competitive advantage in price and product, and as data transfer speeds continue to get faster, more lead-wires are needed. The company's gross margins were guided down from 46% to about 43%, while net margins remained around 26%, up from 18% last year. Return on Equity jumped to 64% (the company is creating more shareholder value through better asset management, financial leverage, and overall profitability).
Innovex expects the current quarter to be flat with the last quarter, but sees improvements from there. Already September bookings are higher than June bookings, and August improves from July. Cash increased to $37 million and the company's current ratio is 5.37. The current ratio is simply current assets divided by current liabilities, and measures a company's liquidity (ability to pay bills, etc). Above 1.5 is favorable, while a number too high may beg the question: too much cash on the books? But we needn't worry about the cash burning a hole in Innovex's pocket.
Finally, the software division, Iconovex, is in talks for a joint venture that, if approved, will be announced in September. All told (there will be more to discuss later) things look pretty strong and on track at Innovex.
Speaking of the current ratio, TRUMP HOTELS (NYSE: DJT) has a current ratio of 0.83, sporting more current liabilities than current assets. More on Trump later...
Stay cool out there. Ice cubes are much easier to come by than they were one hundred years ago.
--Jeff Fischer, Fool
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Stock Change Bid ---------------- AOL - 3/4 73.00 T - 7/16 35.00 ATCT - 1/16 4.69 CHV + 3/4 76.56 DJT - 1/16 10.88 GM -1 54.25 INVX +3 5/8 34.00 IOM + 1/8 21.88 KLAC - 7/8 57.88 LU +1 5/8 82.75 MMM -1 102.50 COMS +2 5/16 57.69Day Month Year History FOOL +0.81% 10.23% 16.25% 210.25% S&P: +0.80% 4.59% 24.98% 101.95% NASDAQ: +1.20% 6.94% 19.45% 114.13% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 73.00 904.13% 5/17/95 980 Iomega Cor 2.52 21.88 768.06% 10/1/96 42 LucentTech 47.62 82.75 73.79% 8/12/96 110 Minn M&M 65.68 102.50 56.07% 8/11/95 125 Chevron 50.28 76.56 52.26% 8/24/95 130 KLA-Tencor 44.71 57.88 29.44% 8/13/96 250 3Com Corp. 46.86 57.69 23.11% 6/26/97 325 Innovex 27.71 34.00 22.70% 8/12/96 280 Gen'l Moto 51.97 54.25 4.38% 8/12/96 130 AT&T 39.58 35.00 -11.57% 4/30/97 -1170 *Trump* 8.47 10.88 -28.41% 10/22/96 600 ATC Comm. 22.94 4.69 -79.56% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 25915.00 $23333.13 5/17/95 980 Iomega Cor 2594.53 21437.50 $18842.97 8/12/96 110 Minn M&M 7224.44 11275.00 $4050.56 8/11/95 125 Chevron 6285.61 9570.31 $3284.70 8/13/96 250 3Com Corp. 11714.99 14421.88 $2706.89 6/26/97 325 Innovex 9005.62 11050.00 $2044.38 8/24/95 130 KLA-Tencor 5812.49 7523.75 $1711.26 10/1/96 42 LucentTech 1999.88 3475.50 $1475.62 8/12/96 280 Gen'l Moto 14552.49 15190.00 $637.51 8/12/96 130 AT&T 5145.11 4550.00 -$595.11 4/30/97 -1170*Trump* -9908.50 -12723.75 -$2815.25 10/22/96 600 ATC Comm. 13761.50 2812.50-$10949.00 CASH $40625.59 TOTAL $155123.28