Fool Portfolio Report
Tuesday, January 20, 1998
by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (Jan. 20, 1998) -- The Fool Port won the day, gaining 1.91%, but until we pass the S&P for the year we'll be keeping a tight lid on the celebration. Though, of course, only through incremental victories will we eventually regain the lead, so our performance today is indeed worth a tip of the hat and a wave of the cane, before you go ambling along your merry way.

Amazon.com (Nasdaq: AMZN) and America Online (NYSE: AOL) happily inflated the wallets of shareholders, with AOL hitting another new high (how many times has that been written here since 1994?). That company enjoyed a surge in electronic commerce last quarter and today announced that it has surpassed the 11 million member mark. Momentum in member acquisition and a higher member retention rate -- along with increased sales of sub-$1000 computers -- has helped AOL grow its membership quickly since announcing 10 million members just two months ago, on November 17. We won't hear about AOL's quarter until February 6.

Amazon, on the other hand, will announce earnings this week (First Call shows today as the date, but that doesn't appear to be correct). We should see revenue of over $40 million at the online book leader. That compares to $5.6 million in online revenue at Barnes & Noble over the same holiday quarter.

Today three Fool companies did announce earnings, but like most Foolish investors out there, I wasn't plastered to the monitor waiting for them to roll across the screen. Alongside working on content that included the new Boring buy, answering email, reading and posting on the message boards, attending meetings, updating numbers, and not having lunch, I hardly got to glance at our companies' earnings reports until early evening. I see that Lucent (NYSE: LU) and KLA-Tencor (Nasdaq: KLAC) both rose sharply, but Innovex (Nasdaq: INVX) was down a fraction, so of course let's go to Innovex first to see what's up. Or not up.

Innovex announced earnings per share of $0.50, one penny above estimates and about 17% above the earnings per share achieved last year. Sales rose 13% to $33 million. Gross margins rose above 42% for the quarter, up from last year. I did dial the conference call and listen to what I could before writing (you can reach the full recording at 1-800-633-8284, code 3605232, until 1:00 p.m. Central Time on Wednesday, the 21st), and the gist of the message is that the recent slowdown is continuing and looking ahead ("visibility" of future performance) is difficult, because drive makers are ordering product later and later before they need it, trying only to order what they need to meet demand.

During the quarter just ended the company shipped about nine to ten million lead wire units per week, but for the current quarter it looks like volume will dip below nine million per week. The company doesn't see sequential growth in the current quarter, or year-over-year growth. (Analysts are already calling for a 20% decline in earnings per share for the quarter, so no big surprise.) The company stated that it is at the whim, still, of the industry (sounds like the networking and semiconductor story, or automobiles -- because it is like those, whenever those sectors experience slowdowns). The one good deal with Innovex, however, is that the company, with 40% gross margins, will remain adequately profitable (no problem-o) while peers in the drive industry are dropping profits like flies.

Innovex's cash rose above $46 million, representing over $3 cash per share. The balance sheet as a whole looks very fine -- accounts receivables are down, inventory is stable, assets are up, shareholders equity is climbing. What we need to do here, more or less, is wait for the industry to turn around. When we bought the dang thing we knew disk drives where in a crunch; we bought the stock far from its high and at a decent valuation, which has helped us not get blasted for 50% or more -- which is how much most disk drive-related stocks have fallen. Still, we're not celebrating the loss to date. Perhaps those sub-$1000 PCs will help out Innovex before too long (definitely in the long term) as it has helped out AOL. What we essentially have is a bunch of disk drive makers (a small handful of the three to five biggies) that were too aggressive last year and are still pushing out inventory. Like having too much ice cream in your freezer, it's a temporary problem. How temporary? Hey, I've seen ice cream sit in a freezer for a few years.

Moving to a better scene, but no less volatile, KLA-Tencor announced earnings of $0.59 per share, meeting estimates to the penny. The company recorded revenue of $326 million, 35% above the results of last year. This was good enough to send the stock up 10%.

Believe it or not, good old KLAC stock has compounded over 45% annually the past five years, though it's been dead flat for the Fool for 2 1/2 years. It was bought high, baby, high -- and though probably not valued too steeply on the earnings estimates existing at the time, the whole industry hit a wall soon after the Fool bought. Still, the valuation makes a difference, obviously. Every investment has at least two variables with regard to risk: business risk and valuation risk. You lessen the valuation risk with your time horizon, but that doesn't guarantee market beating returns in the near term (or even long term), of course.

The last of the Fool companies to announce results today was Lucent Technology, which staggered ahead 7% following a strong report (the stock has been all over the board lately). On $8.7 billion in revenue the company earned a non-diluted $1.72 in earnings per share, well above estimates of $1.52 per share. Recently on CNBC some guy was asked if he liked any technology stocks on the market, and he said that the only one, the only one he liked, was Lucent. I don't know. I can think of several technology leaders that have much better margins, strong niches, and just as healthy growth rates as Lucent. Plus (grudge alert! grudge alert!) our phones at Fool HQ, which are Lucent, have been a mild irritant. The system doesn't work quite right. Lucent, anyway, is a stock well-liked by investors and has been nothing but Sweet with a capital "S" for the Fool Port. Too bad we weren't given 1,000 shares of it from AT&T, instead of only 42.

Finally, Iomega (NYSE: IOM) was crowned with coverage by SoundView Financial. The firm rated the stock a "short-term buy" and a "long-term hold." Hmmm... no comment.

David and Tom are out West on the book tour, climbing through San Francisco on Wednesday, singing in the rain in Seattle on Thursday. Meet them if you can!

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TODAY'S NUMBERS

Stock Change Bid ---------------- AMZN +2 3/16 59.44 AOL +2 3/8 95.88 T + 1/4 65.31 CHV +1 3/16 77.94 DJT + 3/8 9.13 GM +1 3/4 59.00 INVX - 3/8 21.13 IOM + 9/16 12.63 KLAC +3 7/16 40.38 LU +5 11/16 81.00 MMM --- 83.25 RTN.A +1 50.63 COMS -1 32.38 TDFX - 1/2 24.75 SPY +1 21/32 97.88
Day Month Year History FOOL +1.91% -0.93% -0.93% 232.47% S&P: +1.78% 0.84% 0.84% 113.48% NASDAQ: +1.74% 1.26% 1.26% 120.79% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 95.88 1218.25% 5/17/95 1960 Iomega Cor 1.28 12.63 886.01% 10/1/96 42 LucentTech 47.62 81.00 70.11% 8/12/96 130 AT&T 39.58 65.31 65.02% 9/9/97 290 Amazon.com 38.22 59.44 55.51% 8/11/95 125 Chevron 50.28 77.94 54.99% 8/12/96 110 Minn M&M 65.68 83.25 26.76% 8/12/96 280 Gen'l Moto 48.74 59.00 21.04% 1/8/98 115 S&P Depos. 95.91 97.88 2.05% 1/8/98 425 3Dfx 25.67 24.75 -3.57% 12/19/97 17 Raytheon 53.21 50.63 -4.86% 4/30/97 -1170 *Trump* 8.47 9.13 -7.75% 8/24/95 130 KLA-Tencor 44.71 40.38 -9.70% 6/26/97 325 Innovex 27.71 21.13 -23.76% 8/13/96 250 3Com Corp. 46.86 32.38 -30.92% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 34035.63 $31453.76 5/17/95 1960 Iomega Cor 2509.60 24745.00 $22235.40 9/9/97 290 Amazon.com 11084.24 17236.88 $6152.64 8/11/95 125 Chevron 6285.61 9742.19 $3456.58 8/12/96 130 AT&T 5145.11 8490.63 $3345.52 8/12/96 280 Gen'l Moto 13647.92 16520.00 $2872.08 8/12/96 110 Minn M&M 7224.44 9157.50 $1933.06 10/1/96 42 LucentTech 1999.88 3402.00 $1402.12 1/8/98 115 S&P Depos. 11029.25 11255.63 $226.38 12/19/97 17 Raytheon 904.57 860.63 -$43.95 1/8/98 425 3Dfx 10908.63 10518.75 -$389.88 8/24/95 130 KLA-Tencor 5812.49 5248.75 -$563.74 4/30/97 -1170*Trump* -9908.50 -10676.25 -$767.75 6/26/97 325 Innovex 9005.62 6865.63 -$2140.00 8/13/96 250 3Com Corp. 11715.99 8093.75 -$3622.24 CASH $10740.46 TOTAL $166237.14