Fool Portfolio Report
Thursday, March 05, 1998
by Paul Larson (TMFParlay@aol.com)

CHICAGO, IL (March 5, 1998) -- Intel spooked the street last night with a revenue warning that panicked many tech-stock investors into selling today. Fools that we are, we looked at the Intel news with some sort of interest, but did not even ponder selling any of the portfolio stocks today. Unlike many other financial media outlets, we don't make mountains out of molehills, and we try to keep things in proper perspective. Speculative traders we are not. Relaxed, confident investors we strive to be.

There is no doubt a story in the Intel guidance, it's just that, well, the Fool port doesn't own any Intel! I'll let the guys over in the Cash-King and Drip portfolios delve into the significance of the announcement since they both actually have a stake in Intel. (Even though I see that Tom Gardner has also ignored the story today in the Cash-King. What a Fool!)

Today marked the second-worst performing day of 1998 for the market as a whole. Back on January 9, the Nasdaq fell 3.36% to 1503.22. Today's drop was a mere 2.72% drop on the Nasdaq, and the Dow and S&P were only down little over a single percent. Even after today's decidedly downward fall, the Nasdaq is still up 9% on the young year, or 67% annualized. It's hard to bemoan today's loss when the rest of the previous weeks have been so exceptionally strong.

Jeff Fischer hoped that I'd mention something about Trump's (NYSE: DJT) earnings in this evening's recap. I think David Gardner said it best yesterday when he said, "The story remains essentially unchanged." The company continues to have positive annual cash flow from operations of $250 million or so ($246 million in 1997, to be exact) and also continues to have annual interest expenses north of $210 million. The story remains that the company's actual business is fairly healthy, but the weight of the financing is onerous.

The earnings for the fourth quarter looked to be a truly mixed bag of results. While the company's top line showed a slight decline as expected from the fourth quarter of 1996, the company did manage to cut costs somewhat and actually raised its gross profit. Though the company missed its earnings estimate by a whooping 52 cents, it really is not surprising that the market shrugged it off. With all of Trump's debt (read: leverage) a mere 1% change in gross margin translates to almost a full 60 cent change in bottom line earnings per share (EPS). Trump's financial structure simply makes estimating quarterly profits more like an exercise in guesstimating. It will be one rare quarter when the analysts accurately predict what Trump's EPS will be. Get out those grains of salt and don't be surprised when Trump misses the estimates by a mile (as is the case this quarter) or completely blows the doors off the expectations in the future.

The company also announced that it has retained the banking services Bear Stearns and DLJ to "explore strategic alternatives" for Trump properties. This is in addition to Merrill Lynch who was hired last year to broker a sale of the company's Trump Plaza unit. Don't be surprised if these investment firms and their analysts suddenly predict a brighter future for Trump. Such is the way of the Wise.

If one of those expensive investment banks does manage to find a buyer for all or part of Trump, it could be a hurtful time to be short. On the other hand, if no deal is struck, the debt is not going anywhere fast, new competition is approaching on the horizon, and being short is looking more attractive than buying long. Either way, Trump gets my vote as the most speculative position in this portfolio. Having a little money on the "don't pass" line helped the portfolio on a day like today as Trump was off a half-buck to $10 5/16.

In other portfolio news today, 3Com (Nasdaq: COMS) announced that it is cutting prices on its popular PalmPilot organizers. The PalmPilot line was folded into the company after 3Com merged with US Robotics last year. I found it interesting that over a million PalmPilots have been sold and that there are over 1,000 software titles available for the nifty little devices that people seem to adore. Make no mistake, 3Com is a networking company first and foremost, but having a different, successful product in the company's portfolio never hurts. 3Com was dragged in the mud with the rest of the tech stocks today and fell $2 3/8 to $35 5/16.

Next up, 3Dfx (Nasdaq: TDFX) bucked the Nasdaq trend and actually rose $15/16 to $23 7/8 on this wonderful March day. Was it Louis Corrigan's bullish argument in this week's Dueling Fools that whipped up Wall Street into a buying frenzy? America Online (NYSE: AOL) and Amazon.com (Nasdaq: AMZN) both also bucked the trend and rose $3 1/8 and $1 9/16 respectively -- on squat for news. What's it mean? What's the significance? I don't know! (ha ha).

Finally, have you seen Stock Madness? Are you enrolled to play our Foolish new game? Would you like to win a prize? The easiest prize can be had by simply putting a caption to our photo of Tom and David on the Web. Visit the photo, write a Foolish caption, and enter for the chance to win a prize. For more prizes, play the entire Stock Madness game, as detailed last night. In only eleven nights the chance to play will be gone! Poof.

Fool on!

-Paul Larson

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TODAY'S NUMBERS

Stock Change Bid ---------------- AMZN +1 3/4 75.00 AOL - 5/8 116.13 T -1 1/16 60.69 DD - 3/4 61.44 DJT - 9/16 10.31 XON - 1/2 62.94 INVX - 11/16 21.19 IP - 5/8 47.88 IOM - 7/16 8.63 KLAC -3 1/16 39.25 LU -2 104.25 COMS -2 7/16 35.25 TDFX + 7/8 23.75 SPY - 31/32 103.84
Day Month Year History FOOL -0.88% -2.76% 3.02% 245.75% S&P: -1.17% -1.36% 6.66% 125.79% NASDAQ: -2.72% -3.31% 9.02% 137.71% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 116.13 1496.69% 5/17/95 1960 Iomega Cor 1.28 8.63 573.61% 10/1/96 42 LucentTech 47.62 104.25 118.94% 9/9/97 290 Amazon.com 38.22 75.00 96.22% 8/12/96 130 AT&T 39.58 60.69 53.34% 1/8/98 115 S&P Depos. 95.91 103.84 8.28% 2/20/98 215 DuPont 59.83 61.44 2.68% 2/20/98 270 Int'l Pape 47.69 47.88 0.38% 2/20/98 200 Exxon 64.09 62.94 -1.80% 1/8/98 425 3Dfx 25.67 23.75 -7.47% 8/24/95 130 KLA-Tencor 44.71 39.25 -12.21% 4/30/97 -1170*Trump* 8.47 10.31 -21.77% 6/26/97 325 Innovex 27.71 21.19 -23.54% 8/13/96 250 3Com Corp. 46.86 35.25 -24.78% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 41224.38 $38642.51 5/17/95 1960 Iomega Cor 2509.60 16905.00 $14395.40 9/9/97 290 Amazon.com 11084.24 21750.00 $10665.76 8/12/96 130 AT&T 5145.11 7889.38 $2744.27 10/1/96 42 LucentTech 1999.88 4378.50 $2378.62 1/8/98 115 S&P Depos. 11029.25 11942.03 $912.78 2/20/98 215 DuPont 12864.25 13209.06 $344.81 2/20/98 270 Int'l Pape 12876.75 12926.25 $49.50 2/20/98 200 Exxon 12818.00 12587.50 -$230.50 8/24/95 130 KLA-Tencor 5812.49 5102.50 -$709.99 1/8/98 425 3Dfx 10908.63 10093.75 -$814.88 6/26/97 325 Innovex 9005.62 6885.94 -$2119.68 4/30/97 -1170*Trump* -9908.50 -12065.63 -$2157.13 8/13/96 250 3Com Corp. 11715.99 8812.50 -$2903.49 CASH $11233.54 TOTAL $172874.70