New
Where Wise Fail To Tread
Tuesday, April 21, 1998
by David Gardner ([email protected])
ALEXANDRIA, VA (April 21, 1998) -- The Fool Portfolio split the difference on the market averages Tuesday, crossing the finish line without hitting tape. Our portfolio gained half a percent to surpass the S&P 500's modest rise of 0.24%. But Tuesday's tape was hit by the surging Nasdaq, which accelerated through the finish line with a tally of +0.89%, closing at (get this) a 21.24% gain for the year.
Already!
Already more than a 21% gain. The Nasdaq:
1995: 39.9%
1996: 22.7%
1997: 21.6%
... and now, so far...
1998: 21.2%
Indeed, I must step away from our regularly scheduled market recap at this moment just to ask, "Do you realize how superb this market has been?" Nothing like it this century. Before 1997, we'd never ever seen three consecutive years of 20%+ gains; here we are now sitting on a fourth, and April isn't even done yet. Dear Fool, if you're reading this tonight and do not feel we're all currently living a charmed investment life, please go directly to jail, do not pass Go, and you can forget about the two hundred bucks. Jeepers.
As our online Fool Portfolio has beaten the Nasdaq every single year without exception, we're happy to be back up above it by 2 percentage points as of market close today. Don't expect many financial magazine writers to toss any credit our way, because like the catastrophe-driven news media, they prefer to write about negative things that stir up controversy. Months ago, a few articles appeared in the financial rags reporting on our portfolio's market-losing run through much of 1997, following softness in the second half of 1996. As today we set a new record -- and more importantly, ascend back over the Nasdaq for a fifth consecutive year (outpacing the S&P at present by more than 7 percentage points) -- we won't hold our breath waiting for National Wiseman Magazine to call us up to talk about the truth. The truth of 314% historical returns vs. 164% for the Nasdaq and 146% for the S&P. The truth of our doing so without seeking the guidance of company CEOs, Wall Street analysts or insiders, or (tellingly) financial magazine writers. The truth of our doing so simply as individual investors who use the Internet to make our investment decisions, maintaining our own self-crafted buy-and-hold strategy and Foolishly mixing large stocks and small stocks.
I'm not bragging, by the way. Many of you have outperformed us, which couldn't make me any happier!
But as I've gotten to know the media very well over the past four years, I do believe it instructive to point out exactly how the Wisest element of it works. Remember when the market had a mini-crash day last October? It was on the front page of all our daily newspapers. Within a few days, the market indices were practically back where they'd started before their one-day dropoff. But no front-page articles. Not enough negativity. Little controversy.
To adduce and update Mr. Kurtz's final words, with apologies to Joseph Conrad, "The Wisdom, the Wisdom."
Cut back to the chase. Take a look at these four of our darling stocks, and ask yourself how we made money today:
AMZN: -$1 1/16 AOL: -$1 1/8 T: -$1 13/16 TDFX: -$1 7/8Regular readers will know that those are the stocks that have been carrying the Fool Port for the past several weeks; America Online (NYSE: AOL) and Amazon (Nasadq: AMZN) represent the largest gross-profit earners in the portfolio. All lost more than a buck on an up day for the market.
But enter Iomega (NYSE: IOM).
Our star of the day gained $7/8 to close at a last trade of $8 3/8. That 12% gain came on more than 12 million shares changing hands. Why the sudden interest? Iomega announced a worldwide manufacturing partnership with NEC to manufacture the company's Clik! drives. Clik! now appears on schedule for a second half of '98 launch -- the press release on the web would appear to indicate such, anyway. Note this info-packed couple of sentences from the release:
"The mobile (external) and OEM Clik! drives are expected to be available in the U.S. during the second half of 1998. The mobile drive is expected to have a suggested U.S. retail price under $200. Clik! disks are expected to be available in the same time frame for a suggested U.S. retail price of $9.95."
It is nice to get confirmation that the product will be coming out in external and OEM configurations, that it will be priced under $200, and that the disks will each retail for under $10. The information is not really new and no great shakes, but what the NEC announcement has done is to calm the market. Fools know that the market never likes uncertainty, and Iomega has created a ton of uncertainty in recent months. Repeated new product delays, a CEO resignation, a first-quarter loss. Things couldn't have been much worse -- or much more beaten down, I think.
Heck, I was reading posts in our IOM folder on the Web today by people who were actually happy Iomega shareholders, showing healthy profits now after having bought in the range of $7! You dogs. Scurvy dogs! All of you.
If Iomega could continue to nail down the Zip as standard and successfully debut Clik!, I think it's quite possible the stock could achieve a stock multiple of at least two times sales. (We use sales multiples, as Jeff pointed out yesterday, in lieu of earnings multiples because the company will likely report losses for quarters two and three.) A two times multiple off of present sales levels puts the stock at $13 3/4.
Two more earnings announcements for Fool Port companies today. Exxon's (NYSE: XON) first-quarter sales came in at $30 billion, a decline of 14% from the $35 billion recorded in the first quarter of 1997. Fully diluted earnings per share of 76 cents dropped less -- 12% -- as margins slightly improved. Foolish Four stock that it is, Exxon reacted to these declines just fine, rising $3/8.
Since coming to the Fool Port on February 20th, Exxon has risen 14.39%. Care to take a guess at the S&P 500 over the same period? Those who guessed 8.90% are flat-out wrong; it's up 8.91%.
And Innovex (Nasdaq: INVX) shed a sixteenth today following the announcement of its second-quarter profits. (The Fool will have Innovex's conference call synopsis available within the next two days.) Our company maintained a profit of 28 cents per share in a tough market, right in line with estimates. The company's sales declined a not unexpected though still staggering 34% from 2Q '97. How many companies in the world do you know that could still score net profit margins of 16.9%, given that sales drop? Very few... at least one well-managed one, anyway.
Innovex announced that it'll be exiting the medical business, having reached an agreement in principle to sell off its InnoMedica subsidiary. That business "never achieved the profitability the Company had hoped for and its future prospects do not meet Innovex's financial performance targets." So the result is kaput. Gonzo. Sayonara. Stick a fork in it. Going, going, gone. Elvis leaves the building. And all that jazz.
Though InnoMedica never substantially mattered to the core business, I must say I do find it disappointing to see INVX be unable to really expand successfully beyond its extremely profitable one product. Our lucrative little niche business remains intact, but for Innovex to free itself from the cyclical shackles of the hard-drive industry, new applications and technologies must be developed. Innovex has $47 million in cash... heck, buy an Internet startup.
(Giggle.)
Fool on!
-- David Gardner, April 21, 1998
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TODAY'S
NUMBERS
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Day Month Year History FOOL +0.50% 10.02% 23.51% 314.48% S&P: +0.24% 2.23% 16.07% 145.71% NASDAQ: +0.89% 3.71% 21.24% 164.36% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 74.81 1957.30% 5/17/95 1960 Iomega Cor 1.28 8.38 554.09% 10/1/96 84 LucentTech 23.81 74.25 211.87% 9/9/97 290 Amazon.com 38.22 93.06 143.48% 8/12/96 130 AT&T 39.58 63.38 60.13% 2/20/98 215 DuPont 59.83 75.13 25.56% 1/8/98 425 3Dfx 25.67 31.13 21.26% 1/8/98 115 S&P Depos. 95.91 112.81 17.63% 2/20/98 270 Int'l Pape 47.69 55.19 15.72% 2/20/98 200 Exxon 64.09 73.31 14.39% 6/26/97 325 Innovex 27.71 27.50 -0.76% 4/30/97 -1170*Trump* 8.47 8.56 -1.11% 8/24/95 130 KLA-Tencor 44.71 41.63 -6.90% 8/13/96 250 3Com Corp. 46.86 35.06 -25.18% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 53116.88 $50535.01 9/9/97 290 Amazon.com 11084.24 26988.13 $15903.89 5/17/95 1960 Iomega Cor 2509.60 16415.00 $13905.40 10/1/96 84 LucentTech 1999.88 6237.00 $4237.12 2/20/98 215 DuPont 12864.25 16151.88 $3287.63 8/12/96 130 AT&T 5145.11 8238.75 $3093.64 1/8/98 425 3Dfx 10908.63 13228.13 $2319.50 2/20/98 270 Int'l Pape 12876.75 14900.63 $2023.88 1/8/98 115 S&P Depos. 11029.25 12973.44 $1944.19 2/20/98 200 Exxon 12818.00 14662.50 $1844.50 6/26/97 325 Innovex 9005.62 8937.50 -$68.12 4/30/97 -1170*Trump* -9908.50 -10018.13 -$109.63 8/24/95 130 KLA-Tencor 5812.49 5411.25 -$401.24 8/13/96 250 3Com Corp. 11715.99 8765.63 -$2950.37 CASH $11233.54 TOTAL $207242.10
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