Fool Portfolio Report
Friday, January 31, 1997
by Jeff Fischer (MF BudFox)
ALEXANDRIA, VA., January 31, 1997 -- Can the market maintain this pace? If stocks continue to rise at the same rate as the last two years (about 30% per year), the Dow, now at 6813, will begin the next century at 15,400. If the market rises the average 11% per year, the Dow will sit around 9,400 come the Millineum. So, what is the market going to do next? The answer to any such concern: invest in the best companies you can find, and invest in stocks for a life-time.
Bubble-gum journalists often write that The Motley Fool hypes stocks. Apparently they haven't read The Motley Fool. Fools don't guess the market either way, up or down; and, being long-term investors, what would be the point of hyping stocks? Hmm? The day I see Tom or David hyping a stock is the day I pack up and move back to Albequerque, New Mexico -- on horseback.
Not counting on that happening, let's move on.
At the beginning of this month I asked you for suggestions about this part of Fooldom. We received many letters, and we're working to tweak the Fool recaps in the direction that a majority of responses suggested (for example: more individual stock coverage, additional Fool Four coverage -- though it's a hands-off strategy -- and, also, more free-flowing opinion on situations). New ideas were also suggested, and in that arena I'm planning to begin a monthly service called "One Fool's Portfolio." Derived from a suggestion by long-time Fool, "JJKozub," this should be an interesting way to see how Fools out there have their portfolios laid out. I'll have more details to share before long. For now, though, thank you for the mail, we appreciate it, and, as always, keep the feedback and ideas flowing!
January has come to an end. It was a strong month, as the S&P and the Nasdaq both rose more than 6%. The Fool underperformed quite badly this month (up 2%), as we have in the past, and as we will in the future. It's the big picture that counts, of course, and the results decades from now. Fools are off to a great head-start, up 172% against returns of 71% and 92% for the S&P and Nasdaq in the same time period.
Seeing how Tom wrote only of winners in Thursday's recap, today I'm writing about only losers, and ATC COMMUNICATIONS (Nasdaq: ATCT) qualifies. The stock has fallen so low that it may soon be forgotten and absorbed into the earth, like a meteorite splashing into a desolate part of sea... which is statistically happening at this very moment.
ATC fell $3/4 today, closing at a bid of $11. The company announces earnings next week, though a specific date has not been set. Ten cents per share is expected. At this price, if the company meets the estimate the stock will be trading at 30 times trailing earnings, which are expected to grow 144% this year over last, and 36% more in 1998. ATC currently has a market cap of $177 million, and after earnings should sport trailing revenues somewhere around $115 million, giving the stock a price-to-sales ratio of not much over 1.5. Yup, 1.5. For a small-cap, high-growth stock, these numbers are significantly below those of most such companies growing at similar rates.
Along with the earnings report, we'll be interested in seeing the company's cash-flow, assets to liabilities, and of course how gross and net margins are faring.
It's an interesting time for teleservices firms. The industry is in over-drive and the promise of business expansion abounds. Growth comes with a cost, though, and carries with it uncertainty. This uncertainty and the challenges of "re-focusing" the company to capture the growth prospects in the industry (as talked about in the company's latest conference call), have weighed on the stock's price the last few months -- and on the industry stock prices as well.
There comes a point, if ATC's numbers are half-decent, that the stock would represent a pure value-play. The high-growth aspect of the company would be an added bonus to that flat-out value. We'll get another "snapshot" of the company's progress next week, as ATC announces second quarter, fiscal 1997 earnings. We'll see.
Another losing stock was GENERAL MOTORS (NYSE: GM), down $1 1/8 to $59. There was no substantial news from the company, except that it saw record sales in Asia in 1996. GM could form an army with its employees and attack the former Soviet Union, or get out of the auto industry and launch a boot repair business instead, and we'd hold onto the stock. In that sense, the news doesn't matter with this or any Foolish Four holding.
AMERICA ONLINE (NYSE: AOL) also dropped. The stock gave back $7/8 Friday, after rising Thursday on news that the company's financial condition may actually improve more quickly thanks to its recent lawsuit settlement "offering." AOL's refund plan will be off-set by cuts in its marketing expenses, and overall the re-arrangement could put the company in a stronger position.
The lawsuits over AOL's "business practice" have been very prevelant in the news lately, and today came the amusing stories that AOL's settlement offering, "Doesn't completely please all of AOL's members," and "failed to appease everyone."
Hmm. Yes? And you were saying?
I'm going to sign off now. Let somebody else online. I leave you with some different opinions about the America Online issue, and some humor that a Fool sent us. Have a great weekend, everyone. Enjoy Star Wars!
Others' thoughts on AOL lawsuits:
"I tried to join AOL in December. It took 40-plus minutes to get through to a customer service representative on the several occasions that I called. So what did I do? I filed my own class-action suit against AOL by taking my business to MCI Internet. AOL was fined the cost of losing my business -- $19.95 a month, or $2,394 over 10 years of missed business.
"What in the world are we going to sue for next? Should we sue McDonald's because it advertises fast food and sometimes we have to wait ten minutes? How about an ATM machine that is out of order? Can we sue the bank for that?
"Get a grip, America! Realize the most damaging thing you can do to a business is to stop being a customer and use word of mouth to let others know about your bad experience.
"Lawsuits cost everybody involved -- consumers through higher retail prices, productivity through fear of innovation and risk-taking, a businessperson's health through the stress a lawsuit brings. Oh, I'm sorry, I forgot there is someone who does benefit from all the frivolous lawsuits -- the trial lawyers.
--Incline Village, Nev"
Investor's Business Daily letters to the editor
"We've been blown away at the intensity of the press coverage that AOL's problems have received -- c'mon this is not an aspirin-substitute scare or an oil spill -- there are no human deaths or geese drenched ni petroleum."
Morgan Stanley analyst
"I know you have heard of everyone that's suing AOL because of access problems, and I appluad it. I was wondering if any of you would join me in a class action suit against Disneyland.
"You see when the Indiana Jones ride came out, my inlaws went there and waited for 5 hours or so to get on that ride. Plus all the other rides had waits of 2+ hours for them. We went to Disneyland a few months later, and the wait for each ride was still 2+ hours. Now, we had already paid to get into the park & that admission price includes UNLIMITED rides but I couldn't even get onto all the rides because of the lines, and I even had to stand in line to get my admission ticket, for food, the bathroom, and to exit the park.
"They wouldn't even discount my admission because I couldn't get onto every ride, they said I could just come back for another day & pay another admission.
"Secondly, I am thinking of bringing a lawsuit against the phone companies, because sometimes I get a message that says, "All circuits are busy." Even worse, this happens more around the holidays and on Mother's Day. I pay for 24-hr phone service, but don't always get it.
"The phone companies should have increased their capacity years ago, but they have not. And forget about some type of refund, they said there was nothing they could do about it, that I should try when it is less busy.
"Thirdly, I am thinking about suing the Department of Transportation. Often I am driving on roads where I am unable to travel at the posted speed limit due to traffic congestion. This is detrimental to my career when going to business meetings.
"I pay taxes which go for road construction and repair, so I should expect to never have any traffic delays due to congestion. I called a local official, but he said that the state was building more roads as fast as they could afford to build them. I say they should have seen the population growing and had the roads built and ready for use before traffic slowed down. I also asked for some type of cash rebate of my taxes, since I was not getting the full use out of the roads, but I was scoffed at.
"Lastly, I may have to file lawsuits against banks, fast-food restaurants, car washes, and anybody else that I can think of who has ever made me wait for a service that I pay for. When I complained about the noon-time wait to people at the banks, post office, and restaurants, they had the gall to suggest that I try using their service at a less busy time. Can you believe these people?"
--author unknown, sent to MF Knave through email.
"The following are my Top 10 Things To Do With My AOL
1. Buy new Rubber Duck for a hot bath ( I cant get online
sometimes in the evening).
2. Buy a new copy of The Motley Fool Investment Guide. ( Loaned
my first copy to a friend who never returned it).
3. Contribute to the election campaign of the person who is
running against the present NY Attorney General .
4. Buy a new Iomega labeled T-shirt (last one caught on fire just
after last earnings report).
5. Pay for ad in local paper personal section (wanted SWF who
wants to have a meaningful relationship with a real Fool).
6. Buy Elaines subscription news letter (so I can do just the
opposite of what is recommended by her).
7. Use as a down payment toward starting my new online service (will use all the IOM and AOL folders for content, should be as good as the soaps on tv now).
8. Buy a sign (I Want my AOL and I Want It Now ) for future trip to Virginia .
9. Contribute to a fund for a hair piece for a Foolish financial
co-founder (is he the one who rides a bicycle to work?)
10. I am going to use my refund from AOL towards purchasing a brand new used car from that Ugly Duck dealer. I hear they have excellent financing through Mercury Finance.
Wait, I just found out that I dont qualify for a refund. (I spent too much time online in Dec. and Jan. when I said I wasnt online at all. Can AOL do that? Hey, what's going on here!? Show me the money!!!")
--sent from Fool "DON50OH."
Stock Change Bid -------------------- AOL - 7/8 37.00 T --- 39.38 ATCT - 3/4 11.00 CHV - 1/2 66.38 GM -1 1/8 59.00 IOM - 1/2 17.63 KLAC + 1/2 42.63 LU - 5/8 54.25 MMM - 3/8 85.25 NCR - 7/8 37.88 COMS +1 3/4 67.13
Day Month Year History FOOL -1.45% 1.95% 1.95% 172.08% S&P 500 +0.25% 6.13% 6.13% 71.50% NASDAQ: +0.64% 6.88% 6.88% 91.60%Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 17.63 599.69% 8/5/94 680 AmOnline 7.27 37.00 408.74% 8/13/96 250 3Com Corp. 46.86 67.13 43.25% 8/11/95 125 Chevron 50.28 66.38 32.00% 8/12/96 110 Minn M&M 65.68 85.25 29.80% 10/1/96 42 LucentTech 47.62 54.25 13.93% 8/12/96 280 Gen'l Moto 51.97 59.00 13.52% 1/2/97 8 NCR 33.63 37.88 12.64% 8/12/96 130 AT&T 39.58 39.38 -0.51% 8/24/95 130 KLA Instrm 44.71 42.63 -4.67% 10/22/96 600 ATC Comm. 22.94 11.00 -52.04%Rec'd # Security In At Value Change 5/17/95 2010 Iomega Cor 5063.13 35426.25 $30363.12 8/5/94 680 AmOnline 4945.56 25160.00 $20214.44 8/13/96 250 3Com Corp. 11714.99 16781.25 $5066.26 8/12/96 110 Minn M&M 7224.44 9377.50 $2153.06 8/11/95 125 Chevron 6285.61 8296.88 $2011.27 8/12/96 280 Gen'l Moto 14552.49 16520.00 $1967.51 10/1/96 42 LucentTech 1999.88 2278.50 $278.62 1/2/97 8 NCR 269.00 303.00 $34.00 8/12/96 130 AT&T 5145.11 5118.75 -$26.36 8/24/95 130 KLA Instrm 5812.49 5541.25 -$271.24 10/22/96 600 ATC Comm. 13761.50 6600.00 -$7161.50CASH $4639.01 TOTAL $136042.39Transmitted: 1/31/97