Fool Portfolio Report
Friday, January 17, 1997
by Jeff Fischer (MF BudFox)
ALEXANDRIA, VA, January 17, 1997 -- With each record high the Dow made this week, it made other records, too. Each record high on the index presented a five-year record low on the Dow dividend yield. On Thursday the yield fell to 1.98%. Friday, even lower. Meanwhile, the price-to-book value of the Dow has risen above 4.90, a five-year high. According to Investor's Business Daily, bullishness has risen to 51% (somewhat high), and bearishness is down to 31%.
What does this mean for the near-term future of stocks? Who knows. Monday, though, David wrote a fine column about contending market forces in a recap entitled "What Moves Markets," available in the archived Fool port recaps. While Tuesday, Tom wrote about the inability to surmise if we're cruising on the Titanic.
First today, two corrections: Thursday I mentioned that the Dow had risen 8% in December. Actually, it rose 8% from December 16th to Thursday, January 16th (from 6268 to 6762), with much of the rise coming the last few weeks. Thanks to the Fool who sent me email about this. I apologize for any confusion.
Also, KLA INSTRUMENTS (Nasdaq: KLAC) was due to announce earnings yesterday, and the company did. They matched the 40 cents per share consensus. The full report is available on KLA's Web site (which I should have checked first Thursday). You see, a few Fools sent email stating that earnings were out at eight in the morning Thursday, while the KLA message board and this Fool couldn't find them until eight in the evening. Friday I phoned KLA and, indeed, the earnings were released Thursday morning. (Good thing we invest for the long-term, eh?). I'd call that a blunder on my part, however you slice it. The company said earnings were available at least through First Call, a business wire, and on the KLA Web site. My apologies!
Along with earnings and following the merger announcement with Tencor (Nasdaq: TNCR), two analysts (Smith Barney and PaineWebber) raised KLA's stock to "Buy" from "Outperform." The stock rose Friday after December's semiconductor equipment book-to-bill number pleased investors. KLA hit a new 52 week high, up $2 3/8 to $42 3/8. The Fool isthisclose to being in the black on this baby.
As for today, the Fool lost to the market as America Online, ATC Comm, and Chevron dipped, while Iomega was flat.
AMERICA ONLINE (NYSE: AOL) rose about two dollars this morning before slipping to end down fractionally. Another class action lawsuit was filed against AOL Thursday night, making four in a week. (Suits are coming out of the wood-work now). America Online was named "company of the year" by TechWire, and the full article with an interview of Steve Case is well-worth reading if you have the interest. Also, a recent Fortune article entitled "The Price Isn't Right On the Internet" suggests that flat-rate online pricing will be a short-lived practice as demand outstrips the supply of "bandwidth" (to simplify). It's an interesting article.
What can this overwhelming demand for Internet access mean to investors? Companies like the Fool's 3COM (Nasdaq: COMS), and Cisco Systems (Nasdaq: CSCO), Ascend Communications (Nasdaq: ASND) and US Robotics (Nasdaq: USRX) provide hardware for the Internet. Investors are attributing Friday's $4 1/2 rise in US Robotics to Thursday's news that AOL is spending an additional $100 million on networking improvements (now AOL will spend $350 million over the coming months to improve and increase online services). While yesterday Ascend Communications announced strong earnings, again, sending the stock higher, again. (Fool Evening News). Computer networking has been a brilliant investment in the 1990's, and will most likely continue to be strong. For an overview of the computer networking industry, check out the Fool's numerous Weekly Industry Reports. If networking doesn't get you wired, try the gaming industry, or airlines, or Restaurants.
As for the Fool's 3Com, let's take a quick look at some valuation numbers compared to other networking leader, Cisco Systems:
3Com Corp.. (Nasdaq: COMS) ($71) Market Cap: $12 billion Trailing 12 month revenues: $2.8 Billion Price-to-Sales Ratio (PSR): 4.3 Est. 5 year annual growth rate: 30% Earnings Est., fy98 (end 5/98): $3.12/share P/E on forward earnings: 22 YPEG value: $93 5/8 Cisco Systems (Nasdaq: CSCO) ($72) Market Cap: $47 billion Trailing 12 month revenues: $4.7 Billion Price-to-Sales Ratio (PSR): 10 Est. 5 year annual growth rate: 35% Earnings Est., fy98 (end 7/98): $2.72/share P/E on forward earnings: 26 YPEG value: $95 1/4
From 1995 to 1996 Cisco grew revenues a big 83.5%, from $2.2 billion to $4 billion. While 3Com's sales increased 46%, from $1.6 billion to $2.3 billion. Cisco has also historically had higher margins, but 3Com's margins are rising impressively, as they did last quarter, and the company has stated it expects the trend to continue. 3Com currently leads the Ethernet Network adapter market, the networking hub market (in total parts shipped), and the nascent "consumer" market. While Cisco is the big kid on the block, the over-all world-leader.
On a price-to-earnings valuation the stocks are similarly valued looking forward, while on a price-to-sales basis Cisco is granted a significantly higher valuation. Cisco made a record new high today, and 3Com did only a few weeks ago. Cisco is a stock in the Boring Portfolio.
ATC COMMUNICATIONS (Nasdaq: ATCT) rose to about $14 recently and now has fallen back to $12 1/2. It's the port's new under-dog. No news on the little guy, but yesterday America Online announced plans to add another 600 customer support representatives over the next six months. ATC Comm and AOL have a teleservices agreement, and though the details haven't been disclosed, perhaps this news will benefit ATC Comm. ATC has had no news since we wrote the sector snapshot on the company in late December.
Also today, big old CHEVRON (NYSE: CHV) burned off $1 1/8, possibly on the news that fourth quarter earnings for oil companies with operations on the West Coast are expected to suffer some due to a gasoline price war in Los Angeles. Los Angeles (some of it) is also suing America Online. What's with that city?
Finally, Friday evening Microsoft (Nasdaq: MSFT) announced record earnings, though cautioned about the ability to maintain such a torrid growth pace. The company also launched its new product Office 97. Office 97 takes up a good amount of space on the hard drive, and a Fool sent a "heads-up" e-mail to me that "one solution mentioned was to go to a Jazz or Zip drive as [an] alternate memory source." IOMEGA (NYSE: IOM) will announce earnings within a week or so.
To close this "reference of a recap," there a few more articles which may make for good weekend reading. I feel Investor's Business Daily is one of the finer publications available for the market-minded. It's well-written, objective, and -- perhaps more than that -- I'd call it "positive-journalism." Much of the writing is meant to help the reader, or present disparate views objectively. Of course it isn't perfect. Nothing is. But it's a pleasure to read. Thursday John Merline wrote the "Leaders & Success" column about Coca-Cola's late Robert Woodruff, and Friday Matthew Robinson wrote an article head-lined Faith in the Media at All-Time Low. According to the article, the countrys' faith in the media has hit a record low, and in part the Internet is attributed to the change.
This weekend begins the 53rd Presidential Inaugural events, and Monday the Inaugural Ceremony will be broadcast live on the Internet.
Have a Foolish weekend!
Stock Change Bid -------------------- AOL - 3/8 41.00 T - 1/8 38.25 ATCT - 3/8 12.50 CHV -1 1/8 67.38 GM - 1/2 60.13 IOM --- 16.38 KLAC +2 3/4 42.38 LU --- 51.63 MMM + 1/4 85.88 NCR +1 1/4 36.00 COMS - 3/4 71.50 Day Month Year History FOOL -0.54% 3.72% 3.72% 176.82% S&P 500 +0.83% 4.78% 4.78% 69.32% NASDAQ: +0.64% 4.49% 4.49% 87.32% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 16.38 550.07% 8/5/94 680 AmOnline 7.27 41.00 463.74% 8/13/96 250 3Com Corp. 46.86 71.50 52.58% 8/11/95 125 Chevron 50.28 67.38 33.99% 8/12/96 110 Minn M&M 65.68 85.88 30.75% 8/12/96 280 Gen'l Moto 51.97 60.13 15.68% 10/1/96 42 LucentTech 47.62 51.63 8.42% 1/2/97 8 NCR 33.63 36.00 7.06% 8/12/96 130 AT&T 39.58 38.25 -3.35% 8/24/95 130 KLA Instrm 44.71 42.38 -5.23% 10/22/96 600 ATC Comm. 22.94 12.50 -45.50% Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 32913.75 $27850.62 8/5/94 680 AmOnline 4945.56 27880.00 $22934.44 8/13/96 250 3Com Corp. 11714.99 17875.00 $6160.01 8/12/96 280 Gen'l Moto 14552.49 16835.00 $2282.51 8/12/96 110 Minn M&M 7224.44 9446.25 $2221.81 8/11/95 125 Chevron 6285.61 8421.88 $2136.27 10/1/96 42 LucentTech 1999.88 2168.25 $168.37 1/2/97 8 NCR 269.00 288.00 $19.00 8/12/96 130 AT&T 5145.11 4972.50 -$172.61 8/24/95 130 KLA Instrm 5812.49 5508.75 -$303.74 10/22/96 600 ATC Comm. 13761.50 7500.00 -$6261.50 CASH $4600.04 TOTAL $138409.42 Transmitted: 1/17/97