Fool Portfolio Report
Friday, February 6, 1998
by Paul Larson (
and Jeff Fischer (

ALEXANDRIA, VA (Feb. 6, 1998) -- Stocks were strong this week with the S&P and Nasdaq both gaining around 4%. The Fool Port did her best to keep up, gaining 3.19%, despite a sharp rise in short position Trump Hotels. After covering some "keeping up to date" information, we'll focus on good old Trump to close the week.

First, it's important to remind you that we'll be making our Foolish Four switch during this month -- not next week, but the week after, following February 13. We've held our current Fool Four stocks for 18 months (as opposed to the 12-month holding period in the past) due to the favorable new capital gains tax laws that came about last year. Investors now pay significantly lower taxes on equity investments that are held longer than 18 months -- significant enough for us to change our holding policy.

If we were to make the switch today, we'd be buying International Paper, DuPont, Exxon, and keeping General Motors. Now admit it, all of those stocks make your blood race, don't they? Admit it, come on! Your blood is racing!

Well, that's not the point anyway. The stocks are the four highest yielding, lowest-priced stocks on the Dow (other than Philip Morris, which is both of those --highest yield, lowest price -- which means that it gets snubbed from Fool Four consideration). The Fool Four approach has returned more than 22% annualized over the past 25 years.

Ok. Stock news?

This week 3Com (Nasdaq: COMS) signed an agreement on 56K technology standards, though the stock didn't respond favorably because analysts had other things in mind for it (downgrading it), while the Fool column looked at the 1997 numbers achieved at (Nasdaq: AMZN) in the Tuesday and Thursday columns. Wednesday was a Special Report on "Market Under Siege" and Monday AOL stock hit $100. Next week America Online (NYSE: AOL) will announce earnings.

That's it. In other words, there wasn't much meaningful news to report on Fool stocks -- until Friday. And even Friday wasn't "news" so much as it was "chatter." Old chatter. But with a new twist.

Trump Hotels (NYSE: DJT) is on the block, according to Donald Trump and an article in The Wall Street Journal. The owner of a majority of shares, the Donald is hoping to get a take-out bid in the $27 to $28 per share range, which values the company at $1.1 billion before you consider the $1.7 billion in debt that Trump holds; so, in fact, the value of the take-over would be $2.8 billion. Not exactly cheap by any multiple.

Could it happen?

Trump has sat down at the table many times in the past only to come up with no deal. Just in the last eighteen months several potential deals have been hyped only to later fall through the cracks. It was a little over one year ago that Trump was rumored to be selling what is now the Trump Marina to the British Rank Corp., parent company of the Hard Rock Cafe chain. Rank was rumored to want to pay $50 million to rename and re-theme the resort to a "Hard Rock Casino" while Trump was going to retain the ownership. For whatever reason, the deal fell through.

Then last winter there were several published reports that Colony Capital, a California investment company that just this week announced its intention to buy Harvey's Casino Resorts (NYSE: HVY), was going to buy a 51% stake in Trump Marina at a price that would have valued the entire resort close to $600 million. Many industry watchers thought that this price was more than a little steep at more than 11x cash flow. Apparently Colony thought it was a little steep, too, and broke off the deal.

Furthermore, it was reported a few months ago in The Wall Street Journal that Colony had offered Donald and company $27 per share for the entire company and that Trump denied the offer. Whether this actually happened or not is still not verified, but it's just another rumored deal to have vanished into the ether.

Finally, this past summer Trump reported soon after its annual meeting that Trump Plaza was up for sale. Just like today, there was a lot of hoopla that a deal to de-leverage the company was right around the corner. The stock got a nice pop then, too. Needless to say, Trump Plaza is still on the block.

As you can see, more than a few deals in the past have been talked about concerning Trump, but none have actually happened. This reminds me of the story of the boy who always cried wolf. Maybe there really is a wolf this time, but we have reasons to doubt. There is no arguing that there is howling in the distance with all the mergers and acquisitions happening in the gaming industry, but it certainly looks like Trump's press release is a little premature (and possibly overly optimistic). Anyone who has owned a house knows that there is often a wide chasm between hiring a real-estate agent and actually selling the house at what you think is a good price.

If anything, these seemingly unending attempts by management to unload the company or pieces of it are probably a fair indicator of what management actually thinks of the business: Not much. And so why would any other company want to pay up for it? We'll see.

Have a Foolish weekend...

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Stock Change Bid ---------------- AMZN - 1/4 58.88 AOL + 1/2 98.50 T + 1/8 63.81 CHV + 3/8 77.69 DJT +1 3/4 11.06 GM + 9/16 60.56 INVX + 1/16 23.31 IOM - 1/8 10.19 KLAC +1 1/16 41.81 LU +2 5/16 94.69 MMM + 1/16 87.56 RTN.A + 5/16 53.44 COMS + 1/16 32.75 TDFX --- 24.50 SPY +1 1/16 101.56
Day Month Year History FOOL -0.95% 3.19% -2.80% 226.20% S&P: +0.89% 3.28% 4.33% 120.87% NASDAQ: +1.04% 4.63% 7.90% 135.27% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 98.50 1254.35% 5/17/95 1960 Iomega Cor 1.28 10.19 695.64% 10/1/96 42 LucentTech 47.62 94.69 98.86% 8/12/96 130 AT&T 39.58 63.81 61.23% 8/11/95 125 Chevron 50.28 77.69 54.49% 9/9/97 290 38.22 58.88 54.04% 8/12/96 110 Minn M&M 65.68 87.56 33.32% 8/12/96 280 Gen'l Moto 48.74 60.56 24.25% 1/8/98 115 S&P Depos. 95.91 101.56 5.90% 12/19/97 17 Raytheon 53.21 53.44 0.43% 1/8/98 425 3Dfx 25.67 24.50 -4.55% 8/24/95 130 KLA-Tencor 44.71 41.81 -6.48% 6/26/97 325 Innovex 27.71 23.31 -15.87% 8/13/96 250 3Com Corp. 46.86 32.75 -30.12% 4/30/97 -1170 *Trump* 8.47 11.06 -30.63% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 34967.50 $32385.63 5/17/95 1960 Iomega Cor 2509.60 19967.50 $17457.90 9/9/97 290 11084.24 17073.75 $5989.51 8/11/95 125 Chevron 6285.61 9710.94 $3425.33 8/12/96 280 Gen'l Moto 13647.92 16957.50 $3309.58 8/12/96 130 AT&T 5145.11 8295.63 $3150.52 8/12/96 110 Minn M&M 7224.44 9631.88 $2407.44 10/1/96 42 LucentTech 1999.88 3976.88 $1977.00 1/8/98 115 S&P Depos. 11029.25 11679.69 $650.44 12/19/97 17 Raytheon 904.57 908.44 $3.87 8/24/95 130 KLA-Tencor 5812.49 5435.63 -$376.87 1/8/98 425 3Dfx 10908.63 10412.50 -$496.13 6/26/97 325 Innovex 9005.62 7576.56 -$1429.06 4/30/97 -1170*Trump* -9908.50 -12943.13 -$3034.63 8/13/96 250 3Com Corp. 11715.99 8187.50 -$3528.49 CASH $11259.61 TOTAL $163098.36