Plus 3Com rumors persist
by Paul Larson (TMFParlay@aol.com)
CHICAGO, IL (Sept. 16, 1998) -- Continuing its volatile ways, the Fool Port rose 5.21% on the backs of strong moves from Amazon.com (Nasdaq: AMZN) and America Online (NYSE: AOL), the two largest holdings in the portfolio. The rest of the market was relatively quiet with the Nasdaq and S&P 500 respectively rising 0.70% and 0.75%. Before hitting some of the news of the day, let's take a peek at the volatility scoreboard and see just how wild the market has been of late:
Since 8/26/98 (15 trading days)
Daily moves... over 1% over 2% over 3% Dow 30 11 6 5 Nasdaq 12 8 5 S&P 500 9 7 4 Fool 11 8 6On the surface it appears that the Fool Port has been just as volatile as the market, not more so, but look deeper through some of the numbers and you learn that the Fool Port has had some real zingers the past couple weeks. For instance, August 31 saw the portfolio lose almost 13% of its value in one day while the Tuesday after Labor Day saw Fool Port ascend over 7%. Not that this volatility has any bearing on our decision process, but it is interesting to watch.
Concerning the Fool Port stocks, rumors surrounding an acquisition of 3Com (Nasdaq: COMS) continue to make the rounds this week. The rumored suitor is, in case you missed it, none other than Intel (Nasdaq: INTC). The story goes that Intel is interested in seeing 3Com's networking business flourish in order to drive demand for Intel's massively powerful chips. Simply said, slow networks and modems are now the major bottleneck in making computers faster overall. Metaphorically, it does not make much sense to drive an Indy-car on the bumpy dirt road that most are using to access the superhighway that is the Internet. It's in Intel's interest to get rid of the bottleneck, and the speculation is that buying and beefing up 3Com may be the way to do just that.
Intel's president, Craig Barrett, didn't exactly try to squelch the rumors when asked about 3Com at a conference yesterday. Barrett said, "I never comment on speculation about speculation. We are not particularly interested in the backbone aspect of connectivity. Obviously, we keep our eyes open, and look around, but we cannot comment on speculation."
Make what you will of the rumors and the comments from Intel, but we're Fools and we're planning to do what we've been doing with our 3Com stock for over two years -- watching the news with interest, and holding. As I stated last week, we keep an interested ear out for rumors, but our investment decisions are strictly based on facts. Should Intel and 3Com produce a joint press release tomorrow, well, we will consider the consequences then. Until that time comes we will just continue to hold steady and wonder if the rumors have a shred of truth or if they are speculation run amok.
In other news surrounding 3Com, it was announced today that the International Telecommunications Union has finally ratified the V.90 standard for modems connecting at 56K. The standard had been agreed upon back in February, but was just now made official. One of the major delays in getting consumers and service providers to upgrade to 56K had been the confusion over what the final standard was going to be. Now that this hurdle has been crossed, it opens the door for 3Com to continue to benefit from the upgrade path to 56K modems.
According to PC Data, modem sales for June 1998 were up 15% compared to June 1997. This is no doubt thanks in part to the standards confusion being lifted this year. In any case, 3Com's modem business appears to be slightly healthier than it has been in the recent past. Furthermore, Prudential slightly raised its rating on 3Com today, providing more lift under the company's wings. All together, 3Com was up $7/16 on the day.
Beyond 3Com, there were some other Fool Portfolio stocks in the news this Wednesday. It was announced that there has been some shuffling at not only the blackjack tables of Trump (NYSE: DJT), but also in the executive suites. First, Barry Cregan, the president of the company's Trump Plaza unit, has resigned. More importantly, Bruce McKee, the chief financial officer at Trump, has also left the company for greener pastures.
The reasons for the two departures were not disclosed, but they rarely are. In any case, executives seldom jump ship if they expect smooth sailing ahead, and having a revolving door at the top ranks of any company is often a signal of trouble. On the news, Trump was the worst performing stock in the portfolio (good for our short position) as it dropped 8.7% to $3 15/16.
Continuing, one of the competitors of Amazon made results of their online site public today. In an SEC filing, Barnes & Noble (NYSE: BKS) noted that its online site has generated $22 million in sales in the first half of the year, but that operating losses stood at a steep $13.6 million. Ouch. Does this mean that Internet retailing is going to be an extremely competitive market with copious amounts of red ink across the board, or do the continued losses at Amazon's competitors mean Amazon is cleaning up? Knowing the answer to that, dear Fool, would be like hitting the jackpot.
For comparison's sake, Amazon has booked $203 million in sales in the first half of the year, which currently stands head and shoulders above any of its competitors. Unfortunately, operating losses at the company are also among the largest in the industry at $26 million for the first six months of 1998. It remains to be seen whether or not the company will be able to start posting black ink in the near future, but the thinking around the Fool Port seems to be that Amazon's significant traffic on the Web will start to be positively leveraged before too much longer. Always the volatile one, Amazon tacked on $11 9/16 to its bidding price today. Look for Jeff to continue his Amazon prognostications next week.
Finally, 3Dfx (Nasdaq: TDFX) recovered a tad after getting chopped at the knees yesterday. The stock was up $3/8 after dropping $2 (18.5%) on Tuesday following the warning to investors of an impending operating loss in the third quarter. You can read Jeff's response to the company's earnings warning by clicking here for Monday's portfolio recap.
That's about all the news fit to print this Wednesday. If you're looking for further reading, make sure to check out the five-part series we have running on the Year 2000 Problem. I guarantee you won't be disappointed if you read it.
Finally, tonight the Drip Port announces a new buy, the fourth in its history.
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Today's FoolWatch: all the latest in Fooldom.
Day Month Year History Annualized FOOL +5.21% 11.93% 28.85% 332.43% 42.74% S&P: +0.75% 9.19% 7.73% 128.07% 22.18% NASDAQ: +0.70% 12.72% 7.61% 134.65% 23.03% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 102.38 2715.26% 9/9/97 580 Amazon.com 19.11 84.50 342.16% 5/17/95 1960 Iomega Cor 1.28 4.44 246.57% 10/1/96 84 LucentTech 23.81 76.50 221.32% 4/30/97 -1170*Trump* 8.47 3.94 53.51% 8/12/96 130 AT&T 39.58 58.31 47.34% 2/20/98 200 Exxon 64.09 69.81 8.93% 2/20/98 215 DuPont 59.83 60.63 1.32% 2/20/98 270 Int'l Pape 47.69 44.50 -6.69% 8/13/96 250 3Com Corp. 46.86 30.75 -34.38% 7/2/98 235 Starbucks 55.91 31.31 -43.99% 8/24/95 130 KLA-Tencor 44.71 23.38 -47.72% 6/26/97 325 Innovex 27.71 10.50 -62.11% 1/8/98 425 3Dfx 25.67 9.19 -64.21% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 72686.25 $70104.38 9/9/97 580 Amazon.com 11084.24 49010.00 $37925.76 5/17/95 1960 Iomega Cor 2509.60 8697.50 $6187.90 4/30/97 -1170*Trump* -9908.50 -4606.88 $5301.63 10/1/96 84 LucentTech 1999.88 6426.00 $4426.12 8/12/96 130 AT&T 5145.11 7580.63 $2435.52 2/20/98 200 Exxon 12818.00 13962.50 $1144.50 2/20/98 215 DuPont 12864.25 13034.38 $170.13 2/20/98 270 Int'l Pape 12876.75 12015.00 -$861.75 8/24/95 130 KLA-Tencor 5812.49 3038.75 -$2773.74 8/13/96 250 3Com Corp. 11715.99 7687.50 -$4028.49 6/26/97 325 Innovex 9005.62 3412.50 -$5593.12 7/2/98 235 Starbucks 13138.63 7358.44 -$5780.19 1/8/98 425 3Dfx 10908.63 3904.69 -$7003.94 CASH $12005.75 TOTAL $216213.00