Fool Portfolio Report
Friday, November 07, 1997
by David Gardner (DavidG@fool.com)


ALEXANDRIA, VA (Nov. 7, 1997) -- The Fool Portfolio sunk below the S&P 500 at Friday's close, following a bad day on Wall Street. The continued declines of KLA-Tencor, Innovex, and 3Com once again took a bite out of this most unWise collection of stocks, pinning the Fool against the ropes and pummeling him to win the round. As the bell rang, the judges had the Fool down for a 2.28% loss, vs. declines of 1.12% and 1.30% for the S&P 500 and Nasdaq, respectively.

For the week, the Fool Portfolio scored a meaningless gain of 0.18%, versus only slightly more meaningful gains of 1.41% and 0.55% for those same respective averages. November so far is unFoolish.

In the past three months, Innovex (Nasdaq:INVX) has declined from $36 to $26, 3Com (Nasdaq:COMS) has dropped from $58 to $38, and KLA-Tencor (Nasdaq:KLAC) has falled from $75 to $45. All three companies remain leaders in their fields, with strong year-over-year growth in their businesses, high profit margins, and bright futures. All three therefore continue to look to us like long-term market beaters. But all three are making (in one fashion or another -- this is a broad generalization) computer hardware, and the market is currently torpedoing these industry players. The latest to suffer the slings and arrows of outrageous fickleness was Western Digital (NYSE:WDC), which lost $6 5/8 today to $23 5/8.

And it's all pretty much the same story: pricing. As Fool newswriter Dale Wettlaufer put it in today's Lunchtime News, "Western Digital is feeling the effects of highly competitive pricing in desktop drives due to a number of factors that are familiar to investors in the PC, disk drive, and semiconductor industries." You better believe it... we're getting whacked by these price declines.

Now, sinking prices are endemic to PC hardware, whether we're talking about random-access memory (RAM), storage technology (hard drives), or the overall prices of PCs. (I just bought a 300 MHz computer that cost as much as my previous 133 MHz two years ago... which itself cost as much as my 50 MHz computer two years before that.) So this sort of dynamic plays out cyclically for this industry.

Here's the spin cycle:

New technology is developed, rendering existing technology old. Prices come down on that now "old" technology in advance, due to the anticipation of new product introductions. Stock prices come down. New technology is introduced, companies reap rewards, share prices rise. Repeat rinse.

Over time, value is created. Technology marches unflaggingly forward, as do the long-term prices of these stocks. But in the short term, you often get whacked. That's happened to us twice with KLA, twice with 3Com, and now once with Innovex (Innovex's product pricing isn't under pressure, but its sales volume declined over the summer due to an industry slowdown and pricing competition within the industry). That is the game; the way to play it is not to flinch in the short term.

It's a tough industry, but somebody's gotta invest in it. We're quite happy to be some of those somebodies.

To recap the week:

On Tuesday Innovex (Nasdaq: INVX) announced record fiscal fourth quarter earnings, which were covered in the Tuesday Fool recap. Innovex ran up 10% on the announcement. However, after today's bad news from Western Digital, INVX dropped about 10% and ended the week flat from last Friday.

AOL was dancing to the same rhythm. The big news on the week was America Online's earnings for its first quarter of fiscal 1998. The Fool offers full coverage and thoughts on the news. In anticipation of the report, AOL rose $6. Following the report, AOL dropped about $6. Another wash.

3Com (Nasdaq: COMS), on the other hand, had no "sync" in its syncopation. The stock lost $2 13/16 Friday and about 10% for the week, following news of price cuts at Ascend Communications (Nasdaq: ASND), analyst downgrades, and fears that the company wasn't as straightforward as it could have been in its accounting for the US Robotics merger. This was covered in Thursday's Evening News.

Disappointed to be looking upward at the S&P 500 once again, we nevertheless anticipate next week's market trading with relish. Never traders ourselves, we still fervently follow the news, stories, and swings of our stocks every bit as much as the LONG-TERM baseball fan follows his favorite team's boxscores day by day. It's great fun!

Have a Foolish weekend.

(Oh yeah, one final note -- a rare statement of naked personal bias on an off-topic subject. GO HEELS!)

-- David Gardner, November 7, 1997 (UNC '88)


TODAY'S NUMBERS

Stock Change Bid ---------------- AMZN -2 1/8 53.63 AOL - 3/4 79.25 T + 1/16 48.00 CHV - 3/4 83.50 DJT - 5/16 8.75 GM -1 3/4 64.75 INVX -2 1/4 25.81 IOM - 13/16 28.19 KLAC -3 5/8 45.50 LU -1 1/4 83.56 MMM - 1/4 93.00 COMS -2 13/16 38.06
Day Month Year History FOOL -2.28% 0.18% 24.31% 231.75% S&P: -1.12% 1.41% 25.21% 102.34% NASDAQ: -1.30% 0.55% 24.12% 122.50% Rec'd # Security In At Now Change 5/17/95 980 Iomega Cor 2.52 28.19 1018.55% 8/5/94 355 AmOnline 7.27 79.25 989.67% 10/1/96 42 LucentTech 47.62 83.56 75.49% 8/11/95 125 Chevron 50.28 83.50 66.05% 8/12/96 110 Minn M&M 65.68 93.00 41.60% 9/9/97 290 Amazon.com 38.22 53.63 40.30% 8/12/96 280 Gen'l Moto 51.97 64.75 24.58% 8/12/96 130 AT&T 39.58 48.00 21.28% 8/24/95 130 KLA-Tencor 44.71 45.50 1.76% 4/30/97 -1170 *Trump* 8.47 8.75 -3.32% 6/26/97 325 Innovex 27.71 25.81 -6.85% 8/13/96 250 3Com Corp. 46.86 38.06 -18.77% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 28133.75 $25551.88 5/17/95 980 Iomega Cor 2509.60 27623.75 $25114.15 9/9/97 290 Amazon.com 11084.24 15551.25 $4467.01 8/11/95 125 Chevron 6285.61 10437.50 $4151.89 8/12/96 280 Gen'l Moto 14552.49 18130.00 $3577.51 8/12/96 110 Minn M&M 7224.44 10230.00 $3005.56 10/1/96 42 LucentTech 1999.88 3509.63 $1509.75 8/12/96 130 AT&T 5145.11 6240.00 $1094.89 8/24/95 130 KLA-Tencor 5812.49 5915.00 $102.51 4/30/97 -1170*Trump* -9908.50 -10237.50 -$329.00 6/26/97 325 Innovex 9005.62 8389.06 -$616.56 8/13/96 250 3Com Corp. 11714.99 9515.63 -$2199.37 CASH $32438.81 TOTAL $165876.87