Broken Record
Tuesday, June 16, 1998
by Jeff Fischer

ALEXANDRIA, VA (June 16, 1998) -- Summertime, when full-leaved trees sway gently in the breeze, bodies of water glint with sunlight, fireflies spark in the evening sky, and stocks storm up and down with irritable derision. After dipping sharply enough yesterday to nearly hit the ground, today the stock market ignited and blasted towards the sky, with the Nasdaq gaining over 2%.

In the midst of the volatility the Fool Port landed just shy of a new all-time high, ending less than a percentage point behind its record May 4, 1998 close. Up more than 4% today, the Fool Port has gained 324% vs. 137% for the S&P since August of 1994. Currently, the S&P is 4% from its all-time high and the Nasdaq is 9% below its peak.

We risk sounding like a broken record, but we have little choice. (Nasdaq: AMZN) presented another mind-blowing performance today in the wake of little news. The company did announce that it's using Muze's extensive music database on its site, as well as Muze's book and video content. Other clients of Muze include Barnes & Noble and Borders, so the stock didn't rise another 12% on this news alone.

Since June 1, Amazon has risen from $43 to $73, or 70%. With half of the shares sold short going into the month, and perhaps many of the other shares being held by long-term investors, shares available for purchase are difficult to come by. So most likely this rise isn't all due to a short squeeze. Remember that Yahoo! (Nasdaq: YHOO) quickly went from the so-called absurdity of a $1 billion market cap to what is today a $5.6 billion market cap. You can call it outright insanity, craziness, and a bull market gone wrong -- only time well tell -- but, it also seems that some Internet stocks are suddenly being blessed by the market as having staying power, or are being confirmed as the absolute niche leaders. Granted this green light of sorts, the stocks are bid aggressively higher in the following weeks and months.

It's similar to a movie star that jumps from the "C" list to the "A" list. Jim Carrey would perform at nightclubs for a few hundred bucks one year, but a short while later he wouldn't be in a movie for less than $20 million.

Over the past four years this column has likely written about the future of the Internet more than any other topic, while holding America Online (NYSE: AOL) through it all to a 2,300% gain. The stock suffered dozens of bearish media articles and sage warnings about its imminent doom for three years beginning in 1994. Then, oddly, about fifteen months ago, it all but stopped. Things quieted on the AOL bear front. Next, rather than bashing the stock, newspapers and magazines were praising it. And finally, when you researched AOL you found that dozens of analysts had begun to cover it with positive ratings.

Now America Online has twenty-two analysts covering it. All rate it a "buy" or "strong buy" except for one, who rates it a "hold." Amazon has nine analysts covering it. All rate it a "buy" or "strong buy" but for one, who rates it a "strong sell." When we bought Amazon it was virtually uncovered.

Where will AOL and Amazon be in three years? If both are down 50% they'll still be market beaters for us. We'll see where they are in ten years. AOL is now worth $20 billion and Amazon is valued at $3.6 billion -- both sound expensive on current valuation measures. Add ten years of Internet growth to the equation and we'll see.

3Com (Nasdaq: COMS) proved that dead cats can sometimes bounce twice, bouncing again today. Yesterday's buy out of Bay Networks (NYSE: BAY) for $7.1 billion by Northern Telecom (NYSE: NT) makes one wonder about the possibility of 3Com being acquired or merging with a larger company. Valued at only $9 billion and experiencing much more success in most areas than Bay Networks, 3Com's largest downfall might be its lower-margin business when compared to a Cisco Systems (Nasdaq: CSCO). Cisco, valued at $83 billion, could slurp up 3Com like an ant, but would it want to?

Lucent Technologies (NYSE: LU) is entering a potentially tough battle with Cisco in the higher segments of networking. Though overall Lucent has three times the sales of Cisco, that sales lead doesn't exist in many of Cisco's markets that Lucent is now targeting. (By the way, it appears that Fools favor Cisco for the next Cash-King stock in Tom Gardner's real money Cash-King portfolio. Have you cast your vote?)

KLA-Tencor (Nasdaq: KLAC) rose 10% today. It acquired VARS, an industry leader in image management software and systems for inspecting semi equipment during the manufacturing process. This good but minor news was released following the market's close. Meanwhile, Iomega (NYSE: IOM) announced a partner is building a digital camera with Iomega's Clik! technology.

Finally, our only short is again making money for the portfolio. Since we shorted the Donald, the S&P has risen about 30% while Trump (NYSE: DJT) has fallen over 8%. Sure, we would have made more money invested in the S&P, but I don't think we'd miss out on shorting Trump for that alone. Besides, we have plenty of time to see if Trump can fall further. All the time in the world.

So why don't we ever write about Trump? There isn't much going on. The company is like an incredibly boring relative that you'd rather not visit -- one that lives on the fringes of society; one that you're not even certain holds a job; and one that you'd rather not spend a full evening with.

On that note, have a great night. Fool on!

--Jeff Fischer

[Related message boards: I America Online I KLA-Tencor I Iomega I Trump Hotels]

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Stock Change Bid ---------------- AMZN +7 11/16 73.44 AOL +3 7/8 89.00 T +1 9/16 61.94 DD + 13/16 72.50 DJT - 5/16 7.75 XON +1 1/16 69.56 INVX --- 13.75 IP - 3/8 43.56 IOM + 1/16 6.31 KLAC +2 7/16 28.00 LU +2 7/8 73.88 COMS +1 7/16 25.56 TDFX --- 21.50 SPY +1 35/64 109.19
Day Month Year History FOOL +4.57% 9.90% 26.62% 324.93% S&P: +0.98% -0.30% 12.07% 137.26% NASDAQ: +2.18% -1.45% 11.64% 143.43% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 89.00 2347.45% 5/17/95 1960 Iomega Cor 1.28 6.31 393.01% 9/9/97 580 19.11 73.44 284.27% 10/1/96 84 LucentTech 23.81 73.88 210.29% 8/12/96 130 AT&T 39.58 61.94 56.50% 2/20/98 215 DuPont 59.83 72.50 21.17% 1/8/98 115 S&P Depos. 95.91 109.19 13.85% 2/20/98 200 Exxon 64.09 69.56 8.54% 4/30/97 -1170*Trump* 8.47 7.75 8.49% 2/20/98 270 Int'l Pape 47.69 43.56 -8.66% 1/8/98 425 3Dfx 25.67 21.50 -16.24% 8/24/95 130 KLA-Tencor 44.71 28.00 -37.38% 8/13/96 250 3Com Corp. 46.86 25.56 -45.45% 6/26/97 325 Innovex 27.71 13.75 -50.38% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 63190.00 $60608.13 9/9/97 580 11084.24 42593.75 $31509.51 5/17/95 1960 Iomega Cor 2509.60 12372.50 $9862.90 10/1/96 84 LucentTech 1999.88 6205.50 $4205.62 8/12/96 130 AT&T 5145.11 8051.88 $2906.77 2/20/98 215 DuPont 12864.25 15587.50 $2723.25 1/8/98 115 S&P Depos. 11029.25 12556.56 $1527.31 2/20/98 200 Exxon 12818.00 13912.50 $1094.50 4/30/97 -1170*Trump* -9908.50 -9067.50 $841.00 2/20/98 270 Int'l Pape 12876.75 11761.88 -$1114.88 1/8/98 425 3Dfx 10908.63 9137.50 -$1771.13 8/24/95 130 KLA-Tencor 5812.49 3640.00 -$2172.49 6/26/97 325 Innovex 9005.62 4468.75 -$4536.87 8/13/96 250 3Com Corp. 11715.99 6390.63 -$5325.37 CASH $11662.57 TOTAL $212464.01

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