Fool Portfolio Report
Friday, March 06, 1998
by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (March 6, 1998) -- A crazy first week of March ended with a gift to long-term investors -- the S&P recorded a new high on Friday. The Nasdaq, though, after suffering a mighty fall on Thursday, is still several points below its recent high.

For the week the Fool Port was flat, while the S&P rose 0.61% and the Nasdaq lost nearly 1%. Large movers this week -- or the most volatile stocks, I should say -- were not surprises: KLA, America Online, and Amazon.

News?

3Dfx (Nasdaq: TDFX) rose on some heavy 'ol volume Friday after the company completed its public stock offering without a hitch. 3Dfx sold two million shares at $23.75 per share. The selling price is significant because it represents an "informally acknowledged value" placed on the stock. (Though recall that Iomega (NYSE: IOM) sold equity at $36 per share in a public offering, so there are no guarantees.) Being able to sell the shares near their 52-week high adds more money to 3Dfx's coffers, though, and gives investors confidence that the current share price is reasonable. All in all, it was a good showing for the company aside from earnings per share dilution, but that was probably necessary at some point.

3Dfx has generated a large amount of media attention, and Friday Microsoft Investor published a worthwhile article about the 3D market and 3Dfx. CNet's Gamecenter site also has a series of articles about the industry. Meanwhile, the company's message board on the Fool continues to be one of the most active of any. (It was recently flaming me for my Dueling Fools article on 3Dfx.)

3Dfx promises to be an interesting story as it unfolds. We're hoping that the company can top even the new 1998 earnings estimates, which stand at $1.00 per share. The sales momentum at the company intimates that this is possible, though we're not placing any bets -- other than with our investment, you could say. For both bullish and bearish considerations regarding the stock, visit Dueling Fools. For the best conversation and most thorough knowledge on the industry, visit the message board.

Following the share offering 3Dfx has approximately 14.6 million shares outstanding, a 17% increase. The company announces earnings during the week of April 24 and $0.23 per share is expected, a 53% increase from the fourth quarter.

3Com (Nasdaq: COMS) ended the week flat despite being initiated as a "buy" at several investment firms during the week. The number-two networking company is expected to earn $0.14 per share this quarter, a 67% decrease from last year. The announcement should be made on March 20. For the year ending in May the company is projected to earn $0.98 per share, so the stock trades at about 35 times estimates for this fiscal year.

Analysts expect the company to grow earnings by 90% in fiscal 1999 -- but we're not even going to count on that yet. Let's see how the next two quarters go first. 3Com has been announcing several award-winning new products over the past two months, though, and once its inventory problems are past (some say that they already are), the company will hopefully return to "growing company" status rather than being an "el-shrink-ereno."

Speaking of shrinking, this week Trump Hotels (NYSE: DJT) announced a larger-than-anticipated Q4 loss of $1.24 per share. Estimates called for a loss of $0.72. As TMF Parlay shared, though, when a company is so highly leveraged any small change in the business can result in a large change in the final earnings per share number. The stock ended the week flat. As David Gardner more or less said, "It's the same old story at Trump." There was news today, though, in the land of Trump.

Being a humorous and well-written article, StockSite reprinted a column about Trump attempting to sell one of his New York apartments -- valued at $4.6 million -- at an asking price of $17 million. The column uses this news to revisit Trump's attempts at selling his slumbering, debt-heavy casino and hotel business -- at a price tag well above what is perceived to be fair. Check it out if you wish. The column does, however, feel that Trump Hotels is worth more than $9 a share. (Boo!)

KLA-Tencor (Nasdaq: KLAC) will announce earnings around April 15 and $0.51 per share is expected, but the stock should be hitting new lows this summer no matter what happens, according to at least one analyst. Hey, I have no qualms about this analyst eventually being right with his prediction, if he does turn out to be correct...

But...

My underlying "complaint" in Tuesday's column was that this analyst, and so many others, change their minds so frequently, and often drastically, that they are doing a disservice to any followers who are buying and selling in their wake (as the stocks bounce all around). Micron Technology (NYSE: MU) is one of the most flagrant examples. At one point a few years ago it was thought that the company would earn over $15 per share this year, and later it was decided that the company would instead lose money.

Of course Fools are allowed to change their minds, and Wisefolk are, too; but if you begin to change your mind more frequently than is merited it calls your analysis into question. Maybe the "change of heart" has been merited every single time with this particular analyst. But perhaps that really means that he needs to be more conservative in his predictions to begin with, and he should allow for some flexibility by using longer-term projections.

So, anyway, Merrill Lynch is expecting semiconductor stocks to hit new lows this summer. The possibility is probably good that they will. Hey, whatever. We don't make predictions like that.

Shouldn't the analyst, though, instead of predicting stock prices, analyze the business, and say that the businesses will suffer this year due to excess capacity? -- because that doesn't necessarily mean that the stock prices will make new lows as well. Analysts should be paid to analyze businesses and let stock prices take care of themselves. They should suggest the stocks of businesses that they like (and set their price targets if they must), and warn about the stocks of businesses that they don't like. But there's no reason to state that certain stocks will be hitting new lows (or new highs). The market is its own determinant of such things, regardless of business performance.

Don't flame me for disagreeing with the world-renowned semiconductor analyst. I'm disagreeing with much of the practice of analysts as a whole. For all of the great things that so many analysts offer (some of the analysts' reports out there are absolutely superb), there are still too many analysts that tend to:

1. Change opinions too frequently.
2. Not be held accountable.
3. Not think long-term enough.
4. Not have the best interest of the investing public in mind.

To close, be sure to check out the Fool's new Stock Madness game. The chance to enter and play for prizes vanishes 10 days from Friday. Finally, if you've noticed that every time the stock market makes new highs, our shares of Spyders (AMEX: SPY) do as well, you're not alone. We enjoy owning the shares while we consider other investments. If you're looking to learn more about Spyders and index funds, the Fool Four column covered the topic well on Tuesday.

Have a Foolish weekend!

--Jeff Fischer

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TODAY'S NUMBERS

Stock Change Bid ---------------- AMZN +1 3/8 76.38 AOL +5 3/8 121.50 T + 5/16 61.00 DD +1 7/8 63.31 DJT - 1/16 10.25 XON - 5/16 62.63 INVX + 7/16 21.63 IP +1 48.88 IOM + 3/16 8.81 KLAC + 1/8 39.38 LU +3 5/8 107.88 COMS + 3/8 35.63 TDFX +1 7/8 25.63 SPY +2 3/32 105.94
Day Month Year History FOOL +2.80% -0.03% 5.91% 255.43% S&P: +1.99% 0.61% 8.79% 130.30% NASDAQ: +2.43% -0.96% 11.66% 143.48% Rec'd # Security In At Now Change 8/5/94 355 AmOnline 7.27 121.50 1570.59% 5/17/95 1960 Iomega Cor 1.28 8.81 588.26% 10/1/96 42 LucentTech 47.62 107.88 126.55% 9/9/97 290 Amazon.com 38.22 76.38 99.82% 8/12/96 130 AT&T 39.58 61.00 54.13% 1/8/98 115 S&P Depos. 95.91 105.94 10.46% 2/20/98 215 DuPont 59.83 63.31 5.81% 2/20/98 270 Int'l Pape 47.69 48.88 2.48% 1/8/98 425 3Dfx 25.67 25.63 -0.17% 2/20/98 200 Exxon 64.09 62.63 -2.29% 8/24/95 130 KLA-Tencor 44.71 39.38 -11.94% 4/30/97 -1170*Trump* 8.47 10.25 -21.03% 6/26/97 325 Innovex 27.71 21.63 -21.96% 8/13/96 250 3Com Corp. 46.86 35.63 -23.98% Rec'd # Security In At Value Change 8/5/94 355 AmOnline 2581.87 43132.50 $40550.63 5/17/95 1960 Iomega Cor 2509.60 17272.50 $14762.90 9/9/97 290 Amazon.com 11084.24 22148.75 $11064.51 8/12/96 130 AT&T 5145.11 7930.00 $2784.89 10/1/96 42 LucentTech 1999.88 4530.75 $2530.87 2/20/98 215 DuPont 12864.25 13612.19 $747.94 2/20/98 270 Int'l Pape 12876.75 13196.25 $319.50 1/8/98 425 3Dfx 10908.63 10890.63 -$18.00 2/20/98 200 Exxon 12818.00 12525.00 -$293.00 8/24/95 130 KLA-Tencor 5812.49 5118.75 -$693.74 6/26/97 325 Innovex 9005.62 7028.13 -$1977.50 4/30/97 -1170*Trump* -9908.50 -11992.50 -$2084.00 8/13/96 250 3Com Corp. 11715.99 8906.25 -$2809.74 1/8/98 115 S&P Depos. 11029.25 12182.81 $1153.56 CASH $11233.54 TOTAL $177715.54