Fool Portfolio Report
Thursday, January 30, 1997
by Tom Gardner ([email protected])

ALEXANDRIA, VA., Jan. 30, 1996 -- One particular poster on our AOL-based message boards has lately taken it upon himself to prominently opine that we only talk about our winners in this little corner of Fooldom. It being a sunny day in Alexandria, I having recovered from my rolling flu, and The Fool Portfolio having risen -- I can think of no better time to oblige the critic.

Thus, we'll only consider our winners today, proceeding as if here, in the Hall of Portfolios, we live only in the best of all possible worlds. As if our purchases always flame skyward like rocket ships; as if our shorts always crumble like cookies. So as to amuse Voltaire this day, let's just talk winners.

3Com Corporation (NASDAQ: COMS) woke up around 10 AM, and relentlessly fought its way into the ether. The folks who write in full sentences (generally a good indication of the value of the contribution) have been notably bullish on COMS in the wake of its few-day fall from the mid-$70s to $60 a share. COMS rose $2 3/4 to $65 3/8.

The world of computer networking has been bursting with public debate of late. What do Cisco's price cuts mean for the industry? How dominant a role in networking will Intel play in the years ahead? A not-unthinkable scenario has been proposed that Intel will smash the adapter-card market (40% of 3Com's business) by simply integrating it into its motherboard. Finally, how hurtful to the networkers will that December slowdown in computer sales be?

During the past few days, I've thoroughly enjoyed the ongoing coverage of the group in our Ascend, Cisco, and 3Com stock folders and on our Networking industry board. Therein I've learned that the following research groups offer these projections:

- Eric Blachno at Bear Stears has maintained his 3Q estimate of 63 cents per share;

- Salomon Brothers downgraded 3Q projections to $845 million sales and 61 cents per share;

- NatWest revised down 3Q sales estimates to $855 million, but is maintaining its 12-month price target of $95 per share;

- Standard & Poor's currently has a 12-month price target for COMS of $117 3/4 per share;

For these and for a enlightening conversation therein, I'd like to again thank the folks who write in full and grammatical sentences. Our position on 3Com is that while they are certainly in a highly competitive field, it is also a rapidly expanding business. We expect 3Com will be able to continue expanding its profit margins, even as sales outgrow the industry. The Intel threat, while real, is far more theoretical than actual. To put it formally -- we're maintaining our summer fair-price target of $93 per share and remain pleased-as-punch to have gotten in on 3Com below $50 a stub.

Check it out, another winner!

KLA Instruments (NASDAQ: KLAC) climbed back another $2 7/8 to $42 1/8 today, sans a lick of news. KLAC's soon to be merged partner, Tencor Instruments, ran ahead three dollars as well. By my reckoning, the KLA Instruments-Tencor Instruments pie is fairly-priced around $46 a share. But what worth there is in that valuation, I'll let you be the judge. We purchased KLAC at $44 a share nearly one-and-a-half years back!

The folders for both these stocks also have been incredibly educational. Lately, discussions have revolved around how attractively the merger brings together two companies that have almost no product overlap, but that have numerous opportunities to integrate their offerings. Amidst that great discussion, two posts from recent sellers of KLAC stood out:

Given lower capital equipment spending in the semis, projected slow earnings growth at Intel, and the burden of absorbing Tencor's operations, it doesn't look like there are grounds for expecting any positive earnings surprises from KLAC any time soon. So my son's college fund will take about a 64% net profit on this one, and gladly so after initially buying last April at $31.375, and watching it sink into the teens. Thanks for the many informative posts. Owning KLAC has been a great educational experience for this novice investor. - SPFussel

And...

I thank you all who've written about KLA... this message board really helped me learn about KLA and incented me to invest when I read your reviews (since last June) where I bought in at $24 and just sold at $43. - Mazander

America Online (NYSE: AOL) counts as a winner today, too, with its quarter-point rise to $37 7/8. In Grove-ian style, AOL yielded to customer complaints, offering a variety of concessions. The Company will stall its move to acquire new subscribers, will refund any frustrated users with credit (and in select cases, cash), and will clearly state in its marketing materials that access to their service is subject to availability.

I think this solution is a fantastic one. AOL has reasserted itself as a consumer-driven operation by tackling the problem head-on. We are heartened that AOL is clearly communicating that network capacity and access times are its greatest challenge (and thus will receive primary attention and investment) in 1997. Andrew Grove is right about more than just how necessary it is to meet customer needs in an interactive world. Grove has also emphasized that the greatest challenge facing the computer world over the next five years is access time. You need to be able to flip on your computer, flip to your America Online, and flip to your Motley Fool in a flash. And so do I.

And finally, 3M (NYSE: MMM) gains a nod as winner for spinning upward another $1 3/8 to $85 5/8. This business has risen in value more than 30% for us since we bought the slice last August. And while you just have to love the brainless nature of the Dow approach, hey, why shouldn't we learn a bit about the business? For starters, if you own 3M, do you know the name of your chief executive officer?

a) L.D. DeSimone
b) William Faulkner
c) George Foreman
d) Eddie Antar

I won't tell you the answer, but I will provide a quote from the 3M's CEO, offered up a few days back upon the release of their 4th quarter earnings:

"We expect solid sales and earnings growth again in 1997," he said. "Our technology base and new product portfolio are the strongest in our history. We are meeting customer needs better than ever. We are extending our already wide global reach. And we are continually increasing our productivity and our competitiveness."

Rah, rah... go 3M!

And there ends our offering to Pangloss, the optimist of all time. The Fool Portfolio rose 0.55% today, and has now risen 176% since our launch two-and-a-half years back. That stacks up pretty well against the S&P 500 returns of 71%.

But, now that Polyanna has come and gone, I should note that we:

a. lost to the market today;
b. are losing to the S&P in 1997 by 2.5%;
c. have over these two years gone long Sonic Solutions (bif!), short Paychex (bam!), long Applied Materials at the wrong time (pow!), and long ATC Communications (blam!);

Accountability, accountability! Ya gotta love it.

Tom Gardner, Fool

TODAY'S NUMBERS 

Stock  Change    Bid
--------------------
AOL   +  1/4   37.88
T     +  5/8   39.38
ATCT  -  1/8   11.75
CHV   +  1/4   66.88
GM    -  3/4   60.13
IOM   -  3/8   18.13
KLAC  +2 7/8   42.13
LU    +  7/8   54.88
MMM   +1 3/8   85.63
NCR   -1 1/8   38.75
COMS  +2 3/4   65.38


    
  

      

                   Day   Month    Year  History
        FOOL     +0.55%   3.45%   3.45% 176.08%
        S&P 500  +1.51%   5.86%   5.86%  71.07%
        NASDAQ:  +1.17%   6.20%   6.20%  90.37%


    Rec'd   #  Security     In At       Now    Change

  5/17/95 2010 Iomega Cor     2.52     18.13   619.54%
   8/5/94  680 AmOnline       7.27     37.88   420.77%
  8/13/96  250 3Com Corp.    46.86     65.38    39.51%
  8/11/95  125 Chevron       50.28     66.88    32.99%
  8/12/96  110 Minn M&M      65.68     85.63    30.37%
  8/12/96  280 Gen'l Moto    51.97     60.13    15.68%
  10/1/96   42 LucentTech    47.62     54.88    15.24%
    1/2/97   8 NCR           33.63     38.75    15.24%
  8/12/96  130 AT&T          39.58     39.38    -0.51%
  8/24/95  130 KLA Instrm    44.71     42.13    -5.78%
 10/22/96  600 ATC Comm.     22.94     11.75   -48.77%


    Rec'd   #  Security     In At     Value    Change

  5/17/95 2010 Iomega Cor  5063.13  36431.25 $31368.12
   8/5/94  680 AmOnline    4945.56  25755.00 $20809.44
  8/13/96  250 3Com Corp. 11714.99  16343.75  $4628.76
  8/12/96  280 Gen'l Moto 14552.49  16835.00  $2282.51
  8/12/96  110 Minn M&M    7224.44   9418.75  $2194.31
  8/11/95  125 Chevron     6285.61   8359.38  $2073.77
  10/1/96   42 LucentTech  1999.88   2304.75   $304.87
    1/2/97   8 NCR          269.00    310.00    $41.00
  8/12/96  130 AT&T        5145.11   5118.75   -$26.36
  8/24/95  130 KLA Instrm  5812.49   5476.25  -$336.24
 10/22/96  600 ATC Comm.  13761.50   7050.00 -$6711.50


                             CASH   $4639.01
                            TOTAL $138041.89



Transmitted: 1/30/97