Breeze Topples AOL...
Thursday, March 19, 1998
by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (March 19, 1998) -- It was a day ruled by analysts, as the stocks that moved in the Fool Port moved on word of analyst downgrades or upgrades.

The portfolio surrendered 0.53% mainly on the heels of a decline in the largest position, America Online -- even though our other stocks swam and kicked to get the portfolio above water. No such luck, though; AOL -- our own Titanic today -- was too heavy of a loss to overcome.

America Online (NYSE: AOL) will announce earnings on May 5, and $0.12 per share is expected (after accounting for the stock split). For the year ending in June the company is projected to earn $0.47 per share, and then $0.85 per share is hoped for in fiscal 1999. The $61 stock trades at 71 times those estimates. Alongside Yahoo! (Nasdaq: YHOO), AOL is one of the few Internet leaders expected to post profits throughout the next two years. Not even Netscape (Nasdaq: NSCP) is doing so.

But AOL was downgraded by Merrill Lynch today. Here's the deal: It was downgraded from "near-term accumulate" to "near-term neutral."

Hmm. Why even bother?

If anything, though, this menial news and the resulting stock fluctuation (a 3% drop after a significant gap down this morning) does show how volatile the shares continue to be, even several years after the stock's initial public offering. But the long-term Fool has won. Over the past five years, AOL's stock has compounded at a tear-jerking 105% annually. I find few companies that possess such an outstanding five-year performance; in fact, so far I've only found Dell Computer (Nasdaq: DELL). Meanwhile, Cisco Systems (Nasdaq: CSCO), a stock that came public at around the same time as America Online, has grown at a rate of 55% annualized over the past five years.

Elsewhere, KLA-Tencor (Nasdaq: KLAC) rose on an upgrade from Hambrecht & Quist to "buy" from "hold." This move by H&Q might be seen as aggressive, because it coddles the wounded semiconductor stocks and goes directly against Merrill Lynch's belief that these equities are headed for new lows. H&Q is well respected, though, so KLA-Tencor's stock responded accordingly.

Hambrecht & Quist analyst Gus Richard downgraded KLA last June when the stock was trading at $49 per share. With the upgrade having come today at $36, it appears that H&Q did some clients a favor. Our quest for accountability continues, and this chapter is a good one for H&Q.

Along with most of our stocks, we'll see KLA-Tencor's first quarter results in mid-April. The company is expected to post profits of $0.49 per share, while the stock trades at 17.9 times earnings estimates for the year ending in June.

Innovex (Nasdaq: INVX) rose nearly $1, or 4%, without news. This afternoon I called Mr. Douglas Keller, the company's Chief Financial Officer, but he was out of the office at the time. He's one of the most helpful public company officers that I've become acquainted with, anywhere -- he's always willing to talk and explain the company's situation. Currently, $0.41 per share in profit is expected to be announced by Innovex during the third week of April.

I plan to ask Mr. Keller if these estimates are accurate and if the company's visibility going forward (product orders for future quarters) has improved. Fools on the Innovex message board call Mr. Keller frequently and the answers to these questions can often be found on the Innovex board.

DuPont (NYSE: DD) has been on an almighty tear since the Fool bought the stock on February 20, having gained 15% in less than one month -- and tacking on nearly $12 billion in market value. This evening I clicked into our DuPont message board on AOL to see what was new at the company. In an amusing example of the message boards not always being very helpful, at least initially, the headline on the several DuPont posts that showed on my screen were:

"Those damb French." [Sic.]

Alongside these posts were a few other criticisms of the French, presumably in some vague relation to DuPont, while some posts used phrases that I can't repeat here. Finally, though, a Fool by the name of ABarr wrote:

"Of what value is this post [regarding "those damb French"]...? What does your opinion about the French have to do with this 150-year-old American Company???? Is there any earlier post I missed?"

I clicked through the next few posts and found little more about the French and DuPont, until coming to a message by FEOINTROL, who wrote:

"...Regarding DuPont and the French... Eleuthere Irenee (E.I.) duPont and family were French aristocracy who fled France during the revolution rather than lose their heads..."

So, apparently a DuPont shareholder on the message board is holding a grudge that goes back at least a few centuries, to 1789. I guess that's a great example of long-term thinking, at least. I didn't find out why DuPont rose today, but you know, it's a Foolish Four stock anyway, and what I did discover I find much more interesting than any company news could be.

Finally, Lucent Technologies (NYSE: LU) lost ground even as it announced a $500 million contract (over the next three years) with PrimeCo Personal Communications. Lucent won an exclusive contract to supply networking equipment. Word is that Lucent fled from AT&T (NYSE: T) in 1996 rather than lose its head.

The market reached new highs again today, but expect volatility tomorrow! Options are expiring. (That's probably a good reason for Fools to ignore the market tomorrow -- the price moves will largely be based on very short-term circumstances.)

Fool on!

--Jeff Fischer

WE DELIVER - Get Fool Portfolio Nightly Reports
delivered straight to your e-mailbox every evening!

Today's FoolWatch: all the latest in Fooldom.


TODAY'S NUMBERS

Stock Change Bid ---------------- AMZN -1 5/16 84.00 AOL -2 3/8 61.13 T + 7/8 66.00 DD +1 13/16 68.63 DJT - 1/8 9.69 XON + 3/16 64.81 INVX + 7/8 22.25 IP --- 50.00 IOM --- 7.25 KLAC +2 1/16 37.94 LU -1 1/16 119.50 COMS + 5/16 33.75 TDFX - 1/2 28.44 SPY + 9/32 109.25
Day Month Year History FOOL -0.53% 2.34% 8.42% 263.87% S&P: +0.39% 3.85% 12.29% 137.73% NASDAQ: +0.65% 1.66% 14.62% 149.93% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 61.13 1580.90% 5/17/95 1960 Iomega Cor 1.28 7.25 466.23% 10/1/96 42 LucentTech 47.62 119.50 150.97% 9/9/97 290 Amazon.com 38.22 84.00 119.77% 8/12/96 130 AT&T 39.58 66.00 66.76% 2/20/98 215 DuPont 59.83 68.63 14.69% 1/8/98 115 S&P Depos. 95.91 109.25 13.91% 1/8/98 425 3Dfx 25.67 28.44 10.79% 2/20/98 270 Int'l Pape 47.69 50.00 4.84% 2/20/98 200 Exxon 64.09 64.81 1.13% 4/30/97 -1170*Trump* 8.47 9.69 -14.39% 8/24/95 130 KLA-Tencor 44.71 37.94 -15.15% 6/26/97 325 Innovex 27.71 22.25 -19.70% 8/13/96 250 3Com Corp. 46.86 33.75 -27.98% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 43398.75 $40816.88 9/9/97 290 Amazon.com 11084.24 24360.00 $13275.76 5/17/95 1960 Iomega Cor 2509.60 14210.00 $11700.40 8/12/96 130 AT&T 5145.11 8580.00 $3434.89 10/1/96 42 LucentTech 1999.88 5019.00 $3019.12 2/20/98 215 DuPont 12864.25 14754.38 $1890.13 1/8/98 115 S&P Depos. 11029.25 12563.75 $1534.50 1/8/98 425 3Dfx 10908.63 12085.94 $1177.31 2/20/98 270 Int'l Pape 12876.75 13500.00 $623.25 2/20/98 200 Exxon 12818.00 12962.50 $144.50 8/24/95 130 KLA-Tencor 5812.49 4931.88 -$880.62 4/30/97 -1170*Trump* -9908.50 -11334.38 -$1425.88 6/26/97 325 Innovex 9005.62 7231.25 -$1774.37 8/13/96 250 3Com Corp. 11715.99 8437.50 -$3278.49 CASH $11233.54 TOTAL $181934.10