Fool Portfolio Report
Wednesday, July 30, 1997
by Jeff Fischer (TMFJeff)
ALEXANDRIA, VA, (July 30, 1997) -- The stock market continued to make record highs and the Fool, with too much cash sitting on the sideline -- against its own philosophy -- continued to lag.
That'll teach us! And has. It reiterates our belief of replacing any sells with new purchases, which was our aim during our latest sells, but the purchases were not finalized and were then dismissed. Now we're certain to be more diligent going forward.
This is great. This is progress, and this is learning; and sharing our mistakes makes them Foolish and is the point of this portfolio.
The Fool did nearly keep pace, gaining 0.84% as the S&P and Nasdaq both jumped one percentage point. 3Com threw a punch at the portfolio, knocking it back, and Trump Hotels nearly did as well before getting tired and dropping its arms, limp.
3COM (Nasdaq: COMS) fell after stating that earnings were actually one penny below previously reported results for the recently ended fiscal year. The company said that accounting differences resulting from the merger with U.S. Robotics are responsible for the discrepancy.
More importantly, 3Com shared that sales are strong despite some seasonal slow-down in the adapter card business, and it reiterated that new switching products will ship in the next few months. The stock trades at 23 times estimates for the year ending in May of 1998, and at 17 times current fiscal 1999 estimates.
The YPEG value of 3Com is $72.90, which would put the stock at 30 times May of 1998 estimates. This didn't stop A.G. Edwards from downgrading the stock today, though, from Buy to Accumulate.
(Can you accumulate if you haven't yet bought?)
TRUMP HOTELS (NYSE: DJT) announced poor earnings yesterday but the stock is holding steady. Trump bulls are claiming victory under the guise of the company's EBITDA number (earnings before interest, taxes, depreciation, amortization, CRDA and non-operating income). Trump's EBITDA for the quarter was $68 million compared to $42 million in the prior year.
TMF Ralegh stated, "EBITDA results alone are just great, if a company wasn't required to pay interest and taxes, if management didn't need to reinvest in the business, and if they're not trying to build any shareholder value. But this is an equity. The goal is to create value after covering expenses..."
Dale Wettlaufer (TMF Ralegh) of the Fool news was too busy spilling coffee on his shirt to complete his next thought. He's the "spill master." He spills beverages almost daily. This morning on his drive to Fool HQ coffee sloshed out of his cup and shorted out his car radio. Send him condolences if you wish. He's pretty disconcerted. Email Dale.
Yesterday we asked our gaming industry Fool, Paul Larson (TMF Parlay), to comment on Trump's earnings. Let's hear what Paul has to say. Take it away, Paul...
In a Fool portfolio recap I scribed one month ago, I said, "Expect better results from Trump in the second quarter." Well, Fool, I was flat wrong. Trump missed their earnings estimate by a wide margin, reporting a net loss of $0.14 per share.
Trump was well on its way to making a profit in the quarter until it hit an unlucky June. I quote from the company's press release, "The operating results improved notwithstanding unusually low table game win percentages experienced during June 1997."
Translation: some high-rollers had a good ol' time at Trump's expense in June. This sort of statement is not uncommon in the gaming industry. As always seems to be the case, however, the gaming companies bring out the "dog ate my homework" excuse when luck is not on their side, but never admit when they are the beneficiary of some exceptionally good numbers, like Trump had in April and May.
Regardless, the report showed that Trump can talk up his business all he wants, but the color of the bottom line has not changed -- red. The story is the same. We have here one of the most leveraged companies on the market facing increased competition without positive earnings and with menial scraps of cash flow after interest expenses.
The SHOWBOAT (NYSE: SBO) casino that opened near Trump's Indiana casino boat in April has lowered the revenues of Trump's boat by roughly 20% on a monthly basis, and the cash flow fell further. Also, there is some anecdotal indication that the brand new Bally's Wild Wild West Casino is hurting all the operators in Atlantic City. We'll find out the truth soon enough when the New Jersey Casino Control Commission releases the July gaming win figures. With all of Trump's leverage, even a small decline in revenues can really blow a hole in the earnings.
If you wish to discuss Trump further, feel free to stop by the Fool Chat on AOL tonight, for I'll be hosting a chat concerning the gaming industry this evening at 9 PM Eastern. If you can't make that chat, stop by the ever-active Trump and gaming industry message boards for an "All You Can Eat" discussion about Trump.
Our thanks go to Paul for his contribution, and we concur that the Trump and gaming message boards have some great discussions taking place.
Next up... Merrill Lynch has given us a chance to track their performance.
KLA-TENCOR (Nasdaq: KLAC) was downgraded from Accumulate to Neutral by Merrill Lynch today. As usual, we didn't see the analyst's report so can't combat it. Suffice it to say that earnings were on the mark yesterday, the semiconductor cycle is more likely to upturn than downturn again (though we're not pretending to have a crystal ball), and that the last time a major brokerage house downgraded the stock it fell from $48 to $43, on June 10th, 1997.
Since then the stock has gained 37%. Hambrecht and Quist was apparently wrong.
Finally, CHEVRON (NYSE: CHV) hit a new high today just shy of $80. There was only one small piece of news, but something about it is worthy of a Fool's contention. Witness, Chevron's full press release:
"SAN FRANCISCO, July 30/PRNewswire/ -- Chevron Corp. declared a quarterly dividend of 58 cents per share, payable Sept. 10 to stockholders of record Aug. 20. The dividend rate is unchanged from the preceding quarter."
That's it. Nothing more. End of statement.
So, why not "Fool it up"? Apparently the Fool hasn't taught Chevron anything in the two years that it has held the stock. Unfortunately the relationship is coming to an end next month, so a last minute lesson: All Chevron needed to do in order to "Fool up" the press release was end it with three more words. Imagine it ending this way: "The dividend rate is unchanged from the preceding quarter. Buy more oil." Or something like that. I'm sure management at Chevron has a better joke or two that they like to kick around.
It's a missed opportunity, folks. It's the difference between a great Foolish life and just a plain life. Why not send some extra happiness to Chevron shareholders that read the press release? Make oil a bit more Foolish. Maybe next time, eh Chevron?
P.S. A few more thoughts to add to this piecemeal recap: Dale the "spill master" has penned tonight's Boring recap. Remember that he's very distressed and give him a read.
The new Dividend Reinvestment portfolio (or DRP) is starting to discuss the stocks that it will consider continually buying for the next twenty years.
And what do you think of the market-leading stocks? Today UBS Securities initiated coverage of MICROSOFT (Nasdaq: MSFT) with a Strong Buy rating. It's never too late to buy great companies, if you have time enough ahead of you.
DRP Portfolio -- What
to keep buying for 20 years?
Fool Message Boards -- Speak your Foolish mind!
Boring Portfolio -- Boring is beating the Fool Port.
Fool Four Portfolio -- 23% annually, historically.
Evening News -- The latest stock news, a day before the papers.
Port Tracker -- Update your portfolio daily, easily.
Daily Double -- Daily Double looking for trouble?
Daily Trouble -- Is there value in this butchered stock?
Fribble -- A fun short story from readers.
Stock Change Bid ---------------- AOL +2 1/4 66.63 T + 1/16 37.00 ATCT - 1/32 4.03 CHV +1 79.63 DJT - 1/16 10.50 GM + 9/16 60.00 INVX - 3/8 31.38 IOM +1 1/16 22.69 KLAC - 7/8 59.31 LU +1 7/16 84.88 MMM -1 1/2 95.06 COMS -2 1/4 55.75Day Month Year History FOOL +0.84% 9.49% 15.46% 208.15% S&P: +1.06% 7.59% 28.56% 107.74% NASDAQ: +1.00% 10.12% 23.01% 120.51% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 66.63 816.44% 5/17/95 980 Iomega Cor 2.52 22.69 800.30% 10/1/96 42 LucentTech 47.62 84.88 78.25% 8/11/95 125 Chevron 50.28 79.63 58.35% 8/12/96 110 Minn M&M 65.68 95.06 44.74% 8/24/95 130 KLA-Tencor 44.71 59.31 32.66% 8/13/96 250 3Com Corp. 46.86 55.75 18.97% 8/12/96 280 Gen'l Moto 51.97 60.00 15.44% 6/26/97 325 Innovex 27.71 31.38 13.23% 8/12/96 130 AT&T 39.58 37.00 -6.51% 4/30/97 -1170 *Trump* 8.47 10.50 -23.98% 10/22/96 600 ATC Comm. 22.94 4.03 -82.42% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 23651.88 $21070.01 5/17/95 980 Iomega Cor 2594.53 22233.75 $19639.22 8/11/95 125 Chevron 6285.61 9953.13 $3667.52 8/12/96 110 Minn M&M 7224.44 10456.88 $3232.44 8/12/96 280 Gen'l Moto 14552.49 16800.00 $2247.51 8/13/96 250 3Com Corp. 11714.99 13937.50 $2222.51 8/24/95 130 KLA-Tencor 5812.49 7710.63 $1898.14 10/1/96 42 LucentTech 1999.88 3564.75 $1564.87 6/26/97 325 Innovex 9005.62 10196.88 $1191.26 8/12/96 130 AT&T 5145.11 4810.00 -$335.11 4/30/97 -1170*Trump* -9908.50 -12285.00 -$2376.50 10/22/96 600 ATC Comm. 13761.50 2418.75-$11342.75 CASH $40625.59 TOTAL $154074.72