Fool Portfolio Report
Friday, August 1, 1997
by Jeff Fischer (TMFJeff)

ALEXANDRIA, VA (Aug. 1, 1997) -- The S&P ended the week up 0.89%, while the Fool gained 2.85%.

            July, she will fly
And give no warning to her flight

-- Simon & Garfunkel, "April"

Fly is exactly what July did, and then August introduced itself by knocking stocks lower. (I stole that Simon & Garfunkel quote from the recap that David Gardner wrote last year. Soon we'll simply recycle entire recaps. Only attentive readers will notice.)

ONE. The biggest news on the week wasn't so big. Bells, whistles, bright lights and slot machines -- it all added up to negative earnings for Trump Hotels. Meanwhile, wafer metrology and yield-enhancement equipment, white suits and anti-static gloves -- that all resulted in estimate-meeting numbers for KLA-Tencor.

Other than the two earnings reports, the other news was related to ATC COMMUNICATIONS (Nasdaq: ATCT). The micro-cap is on track to come in with flat earnings, as it announced earlier, but ATC should finalize and begin new business with as many as ten new clients in August. The company announces earnings in the final week of the month.

AMERICA ONLINE (NYSE: AOL) announces earnings sooner -- next week, on August 7th. The stock rose $3 Friday, helping the Fool to its 1.25% gain while the S&P fell.

Last quarter the online leader achieved $456 million in sales and $2.6 million in profit, for a fat net profit margin of... oops, did I say fat?

Of course, America Online is only just now ramping up to profitability under its recent accounting method.

At least one respected AOL analyst expects annual sales of $5 billion within five years and operating margins of 20%. America Online currently has $1.5 billion in trailing sales and a current market cap $7 billion, so it trades at 4.6 times sales. We estimate a fair value of around $90 per share, figured on a subscriber-based valuation that predicts 10 million members within 18 months.

The Motley Fool will offer full coverage of the earnings announcement next week, and will take apart the numbers as soon as the largest online company in the world releases them. What will three months of twenty-four hour, seven days per week, non-stop, open shop, modem-line mayhem result in? Let's hope for revenues of well over $500 million, or $5.5 million per day. Seven cents in earnings per share is expected.

TWO. Watching the stock market too closely is like watching an active and thus muddied pond. We prefer to sit beside a clear pond, where we can see through to the bottom -- to the final long-term goal. With little in the way of company news this past week, this recap was able to address issues that are more timeless or meaningful. Shorting stocks was one issue. The value of market sentiment another. Both issues incited some good and civil debate among Fools.

Now we have what looks to be another debate on our hands -- this one concerning the Foolish Four and our annual Foolish Four switch that is done on August 13th. The current Foolish Four stocks that we would buy if we made the switch today are DuPont, Exxon, and Philip Morris, while the portfolio would keep General Motors (which has been on a tear and made a new high on Friday). The debate -- not really a surprise -- is over PHILIP MORRIS (NYSE: MO).

In the May 19th Fool recap, David Gardner wrote that if Philip Morris was a Fool Four stock in August, he'd buy it for the portfolio. That caused letters of objection from many of you. You wrote and also posted on the message boards your opinions regarding the ethics of buying the cigarette giant. Together, your opinions resulted in a special content collection on Philip Morris.

David read all of the opinions, wrote everyone responses, and shared his general response in a recap two days later. He didn't have a strong opinion about the issue at the time.

Since then the issue has lingered, and perhaps David has pondered it. The last he spoke of it, about one week ago, he said that he may not want to buy Philip Morris anymore. That brought about a round of e-mail responses from the people closest to the portfolio, one of them being Tom Gardner. Tom has another plan entirely if and when Philip Morris is bought by the Fool Port -- or any portfolio on the Motley Fool.

Personally, I'd like the Fool port to simply buy Philip Morris because it is now a Fool Four stock. Period. The system is methodical and so it should be followed methodically. That sounds frightening and cold, I agree. And not even Foolish. But the system IS Foolish, so you're being Foolish following it. And if you deviate from it in one way -- due to an objective opinion -- what happens the next time that you have an opinion that deviates from the Foolish Four? Do you deviate again? For instance, strong arguments could have been made against buying AT&T last August. Or against buying an oil company like Chevron or Exxon. But when opinion enters a method, it's no longer the same method -- or a method at all.

I'm not even considering what Philip Morris does, though I admit and agree that I can't imagine the Fool ever buying it straight out because of the issues involved. It's only because MO is a Foolish Four stock this time around that I think the port should buy it. What all other Fools do about buying it or not buying it is of course up to them. If you need to feel comfortable with every stock that you own on every level possible, that's fine and respectable. I feel the same when the purchases being made are based on independent decisions. But when following a method, the method is the decision. You can inject the human side to it, of course, and I find that admirable in thought; but in trying to remain completely detached from the Foolish Four approach, as it was meant to be, it's hard to justify putting a human side into the method through action.

If a Fool does act and avoid one of the stocks for another stock, the precedent is set for doing so again. It's too easy -- after it's already been done once -- for a person to later not buy another stock that they don't want to buy, because it looks bad, and then for that stock to be the star of the Foolish Four that year.

That's one Fool's opinion. We'll surely hear more next week!

THREE. In other news, the Motley Fool launched a brand spanking new portfolio, the Drip Portfolio. Starting with $500 and adding $100 per month, the portfolio aims to invest directly in great companies and grow to $150,000 in twenty years -- beating the historical market return handily. Give it a look and maybe think about Dividend Reinvestment Plans for yourself or for the little tykes in your life. Start early!

The Fool is also very happy to announce that the Detroit News and Free Press picked up the Fool's syndicated newspaper column, offered through the Universal Press Syndicate. The weekly Motley Fool column of all original content can now be read in about fifty newspapers across the country, from the Los Angeles Times to the Miami Herald.

The Detroit News and Free Press throws some Foolish light on the Midwest, but Chicago is still begging to be "Foolerized."

Finally, for Washington D.C. Fools, on Monday David and Tom Gardner will be on the Derek McGinty radio show, broadcast from WAMU, 88.5 fm. The hour-long show begins at high noon! Just drive carefully while you're listening, if you're in your car zipping around the capital at lunchtime.

Good Fools, have a great weekend.

Fool on!

--Jeff Fischer, Fool

Drip Portfolio -- Value and growth.
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 +3 70.50 T + 7/16 37.25 ATCT + 1/8 4.44 CHV - 3/8 78.63 DJT - 5/16 10.44 GM +2 9/16 64.44 INVX + 1/4 31.25 IOM - 3/8 22.13 KLAC +1 3/16 61.69 LU - 7/8 84.00 MMM - 1/2 94.25 COMS - 5/16 54.31
Day Month Year History FOOL +1.25% 1.25% 17.02% 212.30% S&P: -0.75% -0.75% 27.86% 106.62% NASDAQ: +0.03% 0.03% 23.49% 121.38% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 70.50 869.74% 5/17/95 980 Iomega Cor 2.52 22.13 777.98% 10/1/96 42 LucentTech 47.62 84.00 76.41% 8/11/95 125 Chevron 50.28 78.63 56.36% 8/12/96 110 Minn M&M 65.68 94.25 43.51% 8/24/95 130 KLA-Tencor 44.71 61.69 37.97% 8/12/96 280 Gen'l Moto 51.97 64.44 23.98% 8/13/96 250 3Com Corp. 46.86 54.31 15.90% 6/26/97 325 Innovex 27.71 31.25 12.78% 8/12/96 130 AT&T 39.58 37.25 -5.88% 4/30/97 -1170 *Trump* 8.47 10.44 -23.25% 10/22/96 600 ATC Comm. 22.94 4.44 -80.65% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 25027.50 $22445.63 5/17/95 980 Iomega Cor 2594.53 21682.50 $19087.97 8/11/95 125 Chevron 6285.61 9828.13 $3542.52 8/12/96 280 Gen'l Moto 14552.49 18042.50 $3490.01 8/12/96 110 Minn M&M 7224.44 10367.50 $3143.06 8/24/95 130 KLA-Tencor 5812.49 8019.38 $2206.89 8/13/96 250 3Com Corp. 11714.99 13578.13 $1863.14 10/1/96 42 LucentTech 1999.88 3528.00 $1528.12 6/26/97 325 Innovex 9005.62 10156.25 $1150.63 8/12/96 130 AT&T 5145.11 4842.50 -$302.61 4/30/97 -1170*Trump* -9908.50 -12211.88 -$2303.38 10/22/96 600 ATC Comm. 13761.50 2662.50-$11099.00 CASH $40625.59 TOTAL $156148.59