Trump Refinancing Fails
Starbucks Storming the World
by Paul Larson (TMFParlay@aol.com)
CHICAGO, IL (Sept. 18, 1998) -- Fool Port is our name, and volatility is our game.
Well, that has been the case lately, but not today. On this triple-witching Friday the markets were unusually quiet on what is supposed to be one of the wildest days of the trading year due to various options expiring at the same time. Nevertheless, the Nasdaq and S&P rose a mere 1.06% and 0.12% respectively. The Fool Portfolio, on the other hand, only trotted to a 1.37% gain.
I was hoping to put away the volatility scoreboard for this recap, but I had no such luck. The portfolio continued to gyrate wildly in place this week. Just how crazy are the ups and downs? Here's the current score:
Since 8/26/98 (17 trading days)
Daily moves... over 1% over 2% over 3% Dow 30 11 7 5 Nasdaq 14 9 5 S&P 500 10 8 4 Fool 13 9 7The short-term turbulence really does not affect the long-term value of the companies held in the portfolio, and don't be surprised when we start saying "ho hum" when the portfolio rises or falls a few percentage points. Let's now take a gander at how the portfolio stacked up to the market for the week:
Fool +2.54% Nasdaq +1.35% S&P 500 +1.09%Let me be the first to say it -- ho hum.
Getting to the news in the portfolio holdings, Starbucks (Nasdaq: SBUX) had a good Friday after it rose $7/8 to $30 1/16. Today it was announced that the coffee retailer will open its first Chinese store in Beijing by the second quarter of 1999. It will be interesting to see how the company fares in this venture since the Chinese now generally prefer using tea over coffee as their "wake up juice." Regardless, Starbucks does sell tea as part of their product mix, and if any company is able to addict people on a new drink, it's Starbucks.
The Chinese deal comes on the heels of yesterday's announcement that Starbucks opened its first London store this week. Although, Starbucks did acquire Seattle Coffee Company earlier this year, and Seattle Coffee already has a significant presence in the United Kingdom. All the current Seattle Coffee locations will be transformed into Starbucks over the next year. So while Starbucks technically owns stores in the UK already, the store opened this week marks the first Starbucks-branded store the company has opened in Britain. (For Foolishness UK style, visit the Fool UK.)
There is little doubt among our minds that Starbucks is well on its way to becoming a successful world brand. The company now plans on having 80 locations in the UK by the end of the calendar year, with 500 total locations in Europe and another 500 in Asia by 2003. If you've ever listened to Tom and David talk about what kind of companies they like to own, they talk about things like brand, consumer-orientation, and repeat purchases. To be sure, Starbucks has these three important qualities in spades.
Speaking of spades, Trump (NYSE: DJT) announced after the close of trading yesterday that it has terminated its offer to purchase the 11 3/4% Mortgage Notes issued by the company's Castle Funding subsidiary. This news hit soon after the announcement on Wednesday that some of Trump's top executives, including the CFO, had jumped ship.
In any case, the company had originally planned on buying the mortgage notes for $940 each (bonds typically have a $1000 face value), then turning around and refinancing the debt with a revolving credit line that charged a lower interest rate. To make a long story short, not enough of the bondholders liked the offer, and the deal fell through.
Make no mistake; the debt holders are the ones that really own the keys to Trump's casinos, not the shareholders. Any bullish case made for Trump is almost ludicrous unless the word "refinancing" is used. And as the news of the past couple weeks has shown, getting concessions on the debt is not going to be a walk in the park. Banking 101 says that the higher risk a potential borrower is, the higher the rate the lender must charge to be compensated for that risk. With Trump just barely able to fund interest payments alone from its operations at the moment, it is going to be extremely difficult to persuade lenders to lower their rates. Good luck with the refinancing, Donald. You're going to need it.
The Fool Port's short position in Trump reached an all-time high today as Trump's stock reached an all-time low of $2 3/4 before closing at $3. Almost 65% of the stock's value has evaporated since the Fool shorted the stock in April of last year, and it certainly looks like we might be leaving some money on the table if the position was covered at these levels.
While we're talking about troubled companies, Iomega (NYSE: IOM) was in the news late this week. The company announced last month that it has shipped 100 million Zip disks since the launch of the popular product. Although, I also noticed that the company said they have "shipped over 15 million drives" with their press release. Meanwhile, one of the company's earnings releases back in January said the company had shipped over 12 million drives at that time. Writing on a deadline, I did not have the chance to go through the company's archive to mark all the million-drive milestones, but my initial calculations seem to show the inevitable -- Zip drive sales are slowing.
Of course, the company still has many years of disk sales to look forward to after a drive is sold, but slowing sales of its flagship product with no suitable replacement in sight cannot make those holding the stock feel very comfortable. Nor can the fact that the company is being sued over the "Click of Death" be a good sign. The company has said in response to the lawsuit that less than one in two hundred customers have called the company to ask Iomega about clicking noises in their Zip drives, but that's still a larger number of problem drives than desired. Altogether, Iomega closed the day at $4 1/8, down an eighth from Thursday.
While I was reading a real-life soap opera about one of my local politicians last night (the new American hobby), I happened across an excellent article having to do with 3Com (Nasdaq: COMS). The article is an interview with Donna Dubinsky, one of the people that was behind the design of 3Com's immensely popular Palm Pilot. The article is interesting reading concerning how 3Com and Palm are beating the pants off Microsoft (Nasdaq: MSFT) in the mini-computing arena with over 80% of the market in the sector. You can check out the interview by clicking here.
For some further Foolish reading, make sure to check out our Year 2000 series we ran this week. Great stuff in there. Furthermore, If you're interested in the 3Dfx (Nasdaq: TDFX) story, make sure to read Louis Corrigan's article on Thursday about the company, as well as the Fool's own interview with the company's CEO.
Have a Foolish weekend!
DELIVER - Get Fool Portfolio Nightly Reports
delivered straight to your e-mailbox every evening!
Today's FoolWatch: all the latest in Fooldom.
Day Month Year History Annualized FOOL +1.37% 8.13% 24.47% 317.73% 41.48% S&P: +0.12% 6.53% 5.12% 122.53% 21.43% NASDAQ: +1.06% 10.97% 5.95% 131.02% 22.53% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 97.92 2592.80% 9/9/97 580 Amazon.com 19.11 79.69 316.98% 5/17/95 1960 Iomega Cor 1.28 4.13 222.16% 10/1/96 84 LucentTech 23.81 72.75 205.57% 4/30/97 -1170*Trump* 8.47 3.00 64.58% 8/12/96 130 AT&T 39.58 59.00 49.07% 2/20/98 200 Exxon 64.09 68.13 6.30% 2/20/98 215 DuPont 59.83 57.94 -3.17% 2/20/98 270 Int'l Pape 47.69 43.56 -8.66% 8/13/96 250 3Com Corp. 46.86 30.44 -35.05% 7/2/98 235 Starbucks 55.91 30.06 -46.23% 8/24/95 130 KLA-Tencor 44.71 22.38 -49.96% 6/26/97 325 Innovex 27.71 10.63 -61.66% 1/8/98 425 3Dfx 25.67 9.13 -64.45% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 69524.53 $66942.66 9/9/97 580 Amazon.com 11084.24 46218.75 $35134.51 4/30/97 -1170*Trump* -9908.50 -3510.00 $6398.50 5/17/95 1960 Iomega Cor 2509.60 8085.00 $5575.40 10/1/96 84 LucentTech 1999.88 6111.00 $4111.12 8/12/96 130 AT&T 5145.11 7670.00 $2524.89 2/20/98 200 Exxon 12818.00 13625.00 $807.00 2/20/98 215 DuPont 12864.25 12456.56 -$407.69 2/20/98 270 Int'l Pape 12876.75 11761.88 -$1114.88 8/24/95 130 KLA-Tencor 5812.49 2908.75 -$2903.74 8/13/96 250 3Com Corp. 11715.99 7609.38 -$4106.62 6/26/97 325 Innovex 9005.62 3453.13 -$5552.50 7/2/98 235 Starbucks 13138.63 7064.69 -$6073.94 1/8/98 425 3Dfx 10908.63 3878.13 -$7030.50 CASH $12005.75 TOTAL $208862.53