Trump Contest Winner
Plus, 3Com, 3Dfx, Iomega and Amazon
by Jeff Fischer
([email protected])
ALEXANDRIA, VA (Aug. 7, 1998) -- For the week, the S&P ended 2.8% lower, the Nasdaq dropped 1.4%, and the Fool Port actually gained a fraction thanks to a 4.7% jump on Friday. The Nasdaq market was particularly strong on Thursday and Friday, rising over 3% to cover some of its losses. All of our Nasdaq stocks benefited.
3Com (Nasdaq: COMS) was our second-largest percentage gainer on Friday (behind KLA-Tencor) following a networking conference in which the company outlined its plan to maintain its lead in the small- to mid-size business market. Also, the company shared that Wal-Mart (NYSE: WMT) recently implemented 3Com technology in its network. 3Com trades at 21 times the 1999 earnings estimate of $1.28 per share. Its fiscal year ends next May.
Our other stocks bounced without the benefit of news. 3Dfx (Nasdaq: TDFX) arguably doesn't need news to bounce, though. The stock trades at only 7.9 times the 1998 earnings estimate of $1.88 per share. Plus, given the way that 3Dfx's Voodoo is selling, the estimates are almost a shoe-in, especially as the fourth quarter is expected to be the strongest. 3Dfx has already earned $1.04 per share in the first half of the year.
One Fool stock that didn't rise much this week was Iomega (NYSE: IOM), despite the fact that on Friday one of its competitors, Syquest (Nasdaq: SYQT), essentially "announced that it's going out of business," to quote a half-joking David Gardner. Syquest is laying off 44% of its employees while reporting that the quarter will be even worse than last quarter's loss of $29 million on sales of $47 million. The fact that it's difficult to make a buck in the industry doesn't sooth our concerns about Iomega's earnings power, though. Currently mired in losses itself, Iomega is expected to earn $0.30 per share next year after reporting losses in 1998. The stock trades at 17 times the 1999 earnings estimate.
Our only small stock losing ground this week was, thankfully, our short position -- Trump Hotels (NYSE: DJT). Trump declined nearly $1, or a hefty 14%, on zip for news. The company should announce its quarterly loss soon, but -- more importantly -- today we announce our "Cover the Donald?" contest winner! Who wins the free Coca-Cola stock, and why? Let's see...
Last week we asked readers for three things: Their thoughts on closing our short sale of Trump Hotels, why or why not, and what is the best vacation spot in the world and why? We received over 140 responses on our Trump message board. Reading them was a delight. First, the important part: The favored vacation spots appear to be Lake Tahoe (with several mentions), San Francisco, Colorado, and New Orleans. Europe received a few mentions, as did Australia. Overall, though, in general the most popular vacation spot is any island. Island after island was mentioned -- some very obscure, many well known.
Some of the most interesting vacations mentioned included a camping site in the northeast that is surrounded by lakes, and a canoe trek off the coast of Washington that allows for the sighting of bald eagles, whales, and seals. Your canoeing destination: a small island. It sounds wonderful. Another paradise mentioned that struck a chord was Lake Bled, in the recently independent country of Slovenia. The contributor notes its obscurity, but I was there two years ago. Lake Bled and Slovenia are indeed everything that the Trump message board claims them to be.
As for Trump itself: 80 Fools voted that we should take the profit and close the position, while 45 voted to let it ride and hope for a lower price. Most of the votes to cover the short said to do so because the stated 20% has been reached -- and greed is bad. All of the posts had interesting insight, jokes, or at least something Foolish to share. Choosing a winner was difficult, but in the end it came to one concise post that said we should let the short continue to wilt, with interesting reasons why. A Fool by the name of Conehead made the contest-winning post on the Web, linked here.
Congratulations, Conehead! You've got a free share of Coca-Cola coming your way, and you'll be enrolled in the company's dividend reinvestment plan.
There were several runner-up posts, notably one from a Fool by the name of "end718." This good Fool presented several tables on compounding, showing how a short position underperforms, on an annualized basis, just about any successful stock investment over the years because with a short the most you can earn is 100%. Many others also posted that we should cover the short and invest "the money" in something that will outperform it. The oversight, though, is that we don't have any of our money in the short. And when we cover, we won't get money with which to buy another stock. We instead must pay to cover the short.
When you short a stock, you borrow shares to sell -- your capital expense is nothing. That being the case, there is no way that we can beat the short by buying something long with "the money" -- because there's no money there. We have zippo of our money in Trump, so this short has been a great way to turn essentially nothing into money. Granted, we could now take the modest profit and invest it conventionally -- at some point, we will.
Other fun posts include this rhyme by rsanborn, a Faux Fool Flash sell report by ToddK1, and this one that concludes, "For the love of God, please cover your short now so that Mr. Trump can get on with his life!" We enjoyed reading all of the posts and thank all of the contributors. We're thinking about our position in Trump and are aided by the insights provided. Also, there's now a place on the Fool to cull great vacation ideas! To read the posts, simply visit the Trump message board.
To close, on Tuesday David Gardner wrote about the Fool's four year anniversary, as well as touching on AOL's earnings and Amazon.com's (Nasdaq: AMZN) new acquisitions of PlanetAll.com and Junglee. Amazon rose $6 this week. The company is far ahead of any other retailer (in my opinion) in the quest to build an online retailing community (and more) that becomes a daily and integral part of peoples' lives. If you don't think that's what it is aiming to do, then, well... perhaps you should work for Borders.
That said, this doesn't mean that we're justifying the stock price with our positive comments. We love Amazon.com the company, but the stock will do what it may. I have little idea how it should be valued right now. Luckily, valuing it to a T isn't my job -- that's the market's job. Owning Amazon for a decade, or for as long it leads its market, is an easy job -- and that's part of my job. That being the case, I think I'm going on vacation. I can use the great vacation ideas from -- where else -- the Trump message board.
Have a Foolish weekend!
--Jeff Fischer
WE
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Day Month Year History Annualized FOOL +4.77% 0.12% 47.25% 394.16% 49.01% S&P: -0.02% -2.79% 12.26% 137.66% 24.13% NASDAQ: +0.94% -1.37% 17.60% 156.43% 26.50% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 111.88 2976.50% 9/9/97 580 Amazon.com 19.11 115.75 505.68% 5/17/95 1960 Iomega Cor 1.28 5.31 314.91% 10/1/96 84 LucentTech 23.81 91.44 284.06% 8/12/96 130 AT&T 39.58 58.31 47.34% 4/30/97 -1170*Trump* 8.47 6.38 24.72% 2/20/98 215 DuPont 59.83 63.00 5.29% 2/20/98 200 Exxon 64.09 66.94 4.44% 2/20/98 270 Int'l Pape 47.69 43.25 -9.31% 7/2/98 235 Starbucks 55.91 42.06 -24.77% 8/24/95 130 KLA-Tencor 44.71 32.31 -27.73% 8/13/96 250 3Com Corp. 46.86 27.69 -40.92% 1/8/98 425 3Dfx 25.67 14.81 -42.29% 6/26/97 325 Innovex 27.71 13.88 -49.93% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 79431.25 $76849.38 9/9/97 580 Amazon.com 11084.24 67135.00 $56050.76 5/17/95 1960 Iomega Cor 2509.60 10412.50 $7902.90 10/1/96 84 LucentTech 1999.88 7680.75 $5680.87 4/30/97 -1170*Trump* -9908.50 -7458.75 $2449.75 8/12/96 130 AT&T 5145.11 7580.63 $2435.52 2/20/98 215 DuPont 12864.25 13545.00 $680.75 2/20/98 200 Exxon 12818.00 13387.50 $569.50 2/20/98 270 Int'l Pape 12876.75 11677.50 -$1199.25 8/24/95 130 KLA-Tencor 5812.49 4200.63 -$1611.87 7/2/98 235 Starbucks 13138.63 9884.69 -$3253.94 6/26/97 325 Innovex 9005.62 4509.38 -$4496.25 1/8/98 425 3Dfx 10908.63 6295.31 -$4613.31 8/13/96 250 3Com Corp. 11715.99 6921.88 -$4794.12 CASH $11876.47 TOTAL $247079.72
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