Fool Portfolio Report
Tuesday, March 25, 1997
by Jeff Fischer (MF BudFox)
ALEXANDRIA, VA., (March 25, 1997) -- Alone, you turn on your computer and click your way to The Fool. You want to see if Greenspan did anything today. See what stocks did. You click into the Fool Portfolio, look left, look right -- all is quiet -- words cascade down the page waiting to be read. You lean in and begin to read, trying to concentrate.
"Ah," you mumble to yourself. Stocks were confused today after the Fed raised interest rates a quarter point, as was anticipated. Will this lead to more rate increases in the future? A better question: am I invested in the stocks of great companies? An even better question: for what reason?
You see that the Fool Portfolio had an excellent day, rising 5.28%, while the S&P lost 0.24%, and the Nasdaq gained 0.44%. IOMEGA (NYSE: IOM) carried the port higher, rising $2 3/4 to $16 7/8 on heavy volume -- a 19% gain, but no news. The company trades at 21 times this year's expected earnings, and announces first quarter results in mid-April.
As the market closed, Emerald Research announced over business wires that it had an updated report on Iomega, but that the report wouldn't be available until after 7:30pm ET. Emerald knew how many people were looking for an explanation of the stock's rise, so, suddenly, if you search the wires, you see Emerald's name and are directed to its Web site for its Iomega report. Just smart marketing? Either way, the people at Emerald (www.emeraldresearch.com) have been covering the company skillfully for quite a while.
You continue reading and the recap leads into thoughts on 3COM (Nasdaq: COMS). A group of shareholders are forming a class action lawsuit, alleging 3Com officers encouraged a rising stock price with forward looking comments, and then sold positions near the high, before the stock crashed. You remember the company stated gross margins should improve last autumn, but nothing more, and that statement held water.
Your mind wanders. You're standing in a dark line of people, surrounded by simulated storms, and the smell is of water and fire. It's night, though outside you know it's sunny. You step onto a small open boat with bench-seats, and a dozen other people sit around you. The boat moves forward on rollers which suddenly drop it into a stream of shallow water, and the boat drifts forward, round a bend in the darkness. "Rough Waters Ahead, Mate!!" a sign reads. You hear falling water. A pirate stands along the canal laughing and pointing, a parrot on his shoulder. There it is -- the waterfall! The people in the boat are anxious and suddenly the boat goes over....
Shouts and laughter. The mother next to you is soaked, as are her children. The boat bobs and settles and moves forward. Cannon ball splashes are up ahead! Ka-boom! Ka-boom! Pirates have set the town on fire! Pirates are everywhere, pillaging, swindling...
What does "The Pirates of the Caribbean" ride at Disney Land have to do with the 3Com lawsuit? you think to yourself, coming back to the recap. Your eyes adjust to the words again. You look for your place in the column, but can't find it. You begin with a table of numbers:
1993 1994 1995 1996 Net Revenues $3.7b $4.6 $5.9 $8.6 Net Income 953m 1146 1453 2195 Earnings/Share 1.57 1.88 2.32 3.43 Net Margins 25% 25% 25% 25% Cash $2.2b $3.6 $4.7 $6.9
You think to yourself, consistent 25% net profit margins, adding billions in cash each year, steadily increasing sales and earnings -- a table of the ideal company? You read:
...And this table doesn't show the company's twenty-one consecutive years of growth in revenues and profits. The company had $8 billion in sales last year, ended July 1996, which isn't bad, but in the long-term it will prove small. The industry: computer software. Computer software is a manufacturing business. What do they manufacture? Devices that make computers work well for people and businesses.
The recap continues with another table:(in billions, except earnings per share) 1993 1994 1995 1996 Net Revenues $8.7b $11.5 $16.2 $20.8 Net Income 2.3b 2.3 3.5 5.2 Earnings/Share 2.60 2.62 4.03 5.81 Net Margins 26% 20% 22% 25% Cash & like $4.5b $4.1 $8.0
Another billion dollar company with its strong qualities illustrated through the numbers. Another company which controls 90% of its market. The two companies represented by the tables were written of by The Wall Street Journal last week as being overvalued, though the author cited an analyst who stated that if you're invested in these leaders for the next five years, he wouldn't be so concerned. But in the near-term, concern was the objective of the article.
Darkness... your mind wanders from the recap again. This time it's -- click, click, click, jerk, click -- climbing up in the darkness, flashing lights, a cold plastic seat beneath you, space and arcing comets above, and the metal click from the train of scaling cars in which you sit. The people seated behind and in front of you are raising their arms and some are shouting. You reach a peak and the cars slow and you see far below you the steel girders of the rollercoaster. You're incredibly high -- the top of Disney's Space Mountain -- hanging, lingering. Suddenly you begin to drop -- plunge -- dive. Ahh! Someone screams!
The man in front of you is in a suit and tie. He's trying to stand up -- frantically -- while you're plunging, while everything is falling. He's trying to stand up because he wants to jump out! He wants out! Now!
He's up! He jumps! You hear him scream, the scream diminishes, a heavy thud -- Wham! He's gone. His misery is over. The rollercoaster, meanwhile, slows, finds the bottom, sails a while and then begins to climb again. There's yet a higher ascent ahead -- it will only take some time.
You come back to the recap. What else happened today? Montgomery Securities announced that it thought MICROSOFT (Nasdaq: MSFT), represented by the first table above, was actually undervalued, along with ORACLE CORP (Nasdaq: ORCL). Meanwhile, INTEL CORP (Nasdaq: INTC), the company represented by the second table, rose $2 5/8 today.
In other Fool port news, AMERICA ONLINE (NYSE: AOL) rose $1/2 as it announced the beginning of services in Japan on April 15th. The company also disclosed that it has over 600,000 international members, and it expects Japan to be its largest international opportunity.
So, to close -- the Fed raised rates today for the first time since February of 1995, and stocks reacted with confusion. History shows a "tightening process" usually raises rates at least one basis-point before being finished. Have we begun a new tightening cycle? Depends. What could minimal rate increases mean for stocks? It could be good, if the process steams-off anticipated inflation. Or, it could stifle the near-term attractiveness of stocks.
You can't know what the economy, or the Fed, (or stocks), will do in the next few years. Asking questions you can't answer is counter-productive. Ask questions that you can answer: do you understand your investments? Are you invested for the right time-frame? Why are you investing? Are you invested in world-leading companies with increasing earnings, strong margins, no debt, and with the business models in place to move forward with heightened success over the long-term?
Questions which you can readily answer and act upon are the ones that are worth asking. Mysterious questions will always be such, and the energy and time spent on these leads to... well, I'm beginning to picture the ghosts swirling about the outdoor ball at Disney's Haunted Mansion... and also the ghosts that appear and vanish in the mirror, seated next to you during that ride, while you're unable to touch them.
I can hear those ghosts whispering, "Have a Foolish evening."
(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.
Stock Change Bid -------------------- AOL + 5/8 42.38 T +1 36.00 ATCT - 1/4 6.63 CHV +1 1/4 71.63 GM - 7/8 57.00 IOM +211/16 16.81 KLAC +1 1/8 37.50 LU - 3/8 53.00 MMM + 1/8 88.75 COMS + 5/8 33.38 Day Month Year History FOOL +5.28% 4.35% -5.11% 153.25% S&P: -0.23% -0.22% 6.52% 72.14% NASDAQ: +0.44% -4.66% -3.33% 73.30% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 16.81 567.44% 8/5/94 680 AmOnline 7.27 42.38 482.64% 8/11/95 125 Chevron 50.28 71.63 42.44% 8/12/96 110 Minn M&M 65.68 88.75 35.13% 10/1/96 42 LucentTech 47.62 53.00 11.31% 8/12/96 280 Gen'l Moto 51.97 57.00 9.67% 8/12/96 130 AT&T 39.58 36.00 -9.04% 8/24/95 130 KLA Instrm 44.71 37.50 -16.13% 8/13/96 250 3Com Corp. 46.86 33.38 -28.78% 10/22/96 600 ATC Comm. 22.94 6.63 -71.12% Rec'd # Security In At Value Change 8/5/94 680 AmOnline 4945.56 28815.00 $23869.44 5/17/95 2010 Iomega Cor 5063.13 33793.13 $28730.00 8/11/95 125 Chevron 6285.61 8953.13 $2667.52 8/12/96 110 Minn M&M 7224.44 9762.50 $2538.06 8/12/96 280 Gen'l Moto 14552.49 15960.00 $1407.51 10/1/96 42 LucentTech 1999.88 2226.00 $226.12 8/12/96 130 AT&T 5145.11 4680.00 -$465.11 8/24/95 130 KLA Instrm 5812.49 4875.00 -$937.49 8/13/96 250 3Com Corp. 11714.99 8343.75 -$3371.24 10/22/96 600 ATC Comm. 13761.50 3975.00 -$9786.50 CASH $5240.09 TOTAL $126623.59