Fool Portfolio Report
Monday, February 3, 1997
by David Gardner (Motley Fool)
ALEXANDRIA, VA, February 3, 1997 -- Hear that gigantic sucking sound? Nope, that wasn't NAFTA's effects on our economy, pace Ross Perot. Instead, it was 3COM stock Monday, which got whacked today for a five-buck loss. You know, as in our 3Com stock... the one that had been up 70% just a few weeks ago. Recent performance has been distinctly underwhelming, but I remain untroubled about the company's long-term prospects.
Most of today's selloff occurred in the last hour of trading. That hour occasioned a flurry of inquiries in our 3Com message folder; as of this writing, there were no real answers as to why. Scan those news wires: no real news. So here I am, typing by my lonesome in Fool HQ, in the position of having to dream up some sort of news to justify a fast and hard 7% selloff in one of the Fool Port's tastiest candy.
Well I ain't gonna do it.
You see, we're not privy to Wall Street whispers down here in Alexandria, and I consider it one of our better blessings. That's because short-term explanation can create short-term focus, when we're looking ahead at 3Com's three-to-five-year future. That's not to say we don't watch the stock regularly, and regularly evaluate it -- we do. But it is to say that somebody's last-minute selling -- a fund? a pension account? a mechanical sell program? -- is not a source of major concern to me.
If you read our stuff last week, you came across several mentions of 3Com. These boiled down to a few issues: (1) Tuesday, competitor Cisco announced price cuts in a number of competing products, quickly taking COMS from up $4 to down $3, (2) the company was the victim of brokerage downgrades all week, in the wake of a slow December for computer products (one analyst did go on to report that the company had a strong January), and (3) murmurings that Intel might incorporate networking functionality (currently provided by 3Com adapter cards, among others) into a future motherboard.
Toss in uncertainty over Cisco earnings announcement tomorrow, and maybe we have some contributing factors to today's 15th-round dive to the canvas for 3Com shares. Maybe not. I don't think we have anything conclusive, and we'll lose no sleep over that. Hey, maybe some group of Fidelity funds had to lighten up on their percentage "exposure" to 3Com following its profitable recent run. Or maybe the big news, the big media report, will come out later tonight. You tell me.
What I'll tell you is that 3Com will play ball for years to come, and not just in 3Com Park. The company is well diversified with a long list of products in a huge and hugely important industry going forward. As Tom mentioned in his Thursday report, the analyst downgrades were mostly small change, stuff that read like this: "3Q sales downgraded to $850 million." With the stock down 15 points in recent weeks possibly anticipating such downgrades, I'm quite comfortable with COMS at these prices. "Downgraded to $850 million"... we should all be so unlucky.
3Com's $5 move (that's one crisp Lincoln bill, fluttering out the car window) was enough to plunge the Foolfolio into the red on this, the first market day of February. A shame, because we were otherwise sitting in the catbird seat. With the market flat, we were showing a nice gain following a $1 7/8 rise in AMERICA ONLINE.
AOL was the beneficiary of a new "Buy" report from First Boston this morning. Eighteen-month price target? $55 a share. The analyst was quoted as saying that while he believed the next three to four months would make for a "bumpy road," that given AOL's leading position in new media, "Over the long term, I am very encouraged."
Is that all that it takes to be an analyst?
Geez, guys, click in to Fooldom's AOL message folder and we've been, um, saying that for a few years. Anyway....
(Hey, I'm just being snide. The shareholder in us appreciates the plug, and the $2 rise in our shares today was mostly on the back of the Mr. Alan Braverman who wrote the report.)
AT&T's CFO departed today. The man's name was Rick Miller, and he was instrumental in the recent restructuring, including spinoffs of Lucent and NCR. For this, we thank him... beyond that, the press release had little additional light to shed. I did find it interesting that "AT&T" is the answer to the trivia question, "What is the most widely held common stock in America?" We're talkin' 1.62 billion shares out, and 3.3 million shareholders. Stick that in your pipe and smoke it. (Cough, cough.)
Final nod of the belled cap today goes to a news release from GENERAL MOTORS. The press release over PR Newswire reports on January vehicle sales. The release begins (we'll come back to this), "General Motors Corp dealers in the United States sold 332,000 passenger cars and trucks in January 1997, down 9.0 percent versus January 1996." You go on to read that passenger cars were actually up, with light trucks down (which, by the by, goes against conventional wisdom, which is all about how light trucks are where all the action is these days).
Anyway, the stock dropped $3/8 today, possibly a slightly disappointed response. And that's where today's HUGE DAYTRADER'S TIP comes in (you were waiting with bated breath, right?). Because you know what? The world's largest company (just about) had a blatant typo in the first line of today's important press release. Take the time to look at the actual numbers lower in the release and you'll see that cars were up 4.0%, trucks were down 6.7%, and overall sales were down 0.9%...
0.9%... NOT 9.0%, which would've been a DISASTER!
The world's nearly largest company needs to proof its press releases.
Now, I figure some traders didn't actually read the numbers... trading being what it is, right? They went through this basic process:
(1) read the headline
(2) trade (in this case, sell) the stock
And so GM drops $3/8, as a fair amount of the guys down on the big floor are convinced GM sales declined 9% year-over-year. Well there's a Fool here telling you wrongo, fellas. GM sales were down less than 1% (0.9%) year-over-year, from 334,958 to an even 332,000.
Now the value-added part: I'm figuring that this stock is bouncing back tomorrow... at least a sixteenth, barring a dramatic market decline. Enter, the HUGE DAYTRADER'S TIP: go in, and go in big, at market open. You're loading up on call options, you're selling puts, playing the reverse floaters, the works. It's called market inefficiency... watch, and weep.
Only in Fooldom can you read this stuff.
--- David Gardner, February 3, 1997
Stock Change Bid -------------------- AOL +1 7/8 38.88 T - 1/2 38.88 ATCT --- 11.00 CHV - 1/8 66.25 GM - 3/8 58.63 IOM --- 17.63 KLAC - 5/8 42.00 LU - 1/8 54.13 MMM - 5/8 84.63 NCR + 1/8 38.00 COMS -5 62.13
Day Month Year History FOOL -0.23% -0.23% 1.71% 171.46% S&P 500 +0.07% 0.07% 6.21% 71.63% NASDAQ: -0.28% -0.28% 6.59% 91.07% 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 38.88 434.52% 8/13/96 250 3Com Corp. 46.86 62.13 32.58% 8/11/95 125 Chevron 50.28 66.25 31.75% 8/12/96 110 Minn M&M 65.68 84.63 28.85% 10/1/96 42 LucentTech 47.62 54.13 13.67% 1/2/97 8 NCR 33.63 38.00 13.01% 8/12/96 280 Gen'l Moto 51.97 58.63 12.80% 8/12/96 130 AT&T 39.58 38.88 -1.78% 8/24/95 130 KLA Instrm 44.71 42.00 -6.06% 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 26435.00 $21489.44 8/13/96 250 3Com Corp. 11714.99 15531.25 $3816.26 8/12/96 110 Minn M&M 7224.44 9308.75 $2084.31 8/11/95 125 Chevron 6285.61 8281.25 $1995.64 8/12/96 280 Gen'l Moto 14552.49 16415.00 $1862.51 10/1/96 42 LucentTech 1999.88 2273.25 $273.37 1/2/97 8 NCR 269.00 304.00 $35.00 8/12/96 130 AT&T 5145.11 5053.75 -$91.36 8/24/95 130 KLA Instrm 5812.49 5460.00 -$352.49 10/22/96 600 ATC Comm. 13761.50 6600.00 -$7161.50 CASH $4639.01 TOTAL $135727.51 Transmitted: 2/03/97