Fool Port Loses Altitude
Gardners provoke Cubs fans
by Paul Larson (TMFParlay@aol.com)
CHICAGO, IL (Oct. 8, 1998) -- The turbulence in the market continued today, and the Airship Fool Port lost more than its fair share of altitude. The S&P and Nasdaq closed off their lows of the day, but still ended up losing 1.15% and 2.97% respectively. The Fool Portfolio, on the other hand, was rattled for a 5.34% loss today. Not exactly a good day, but we've seen worse.
Without a doubt, these are some rather tough times to be in the market. I'm sure more than a few average Americans are looking at their quarterly and monthly brokerage statements as they come in the mail and not exactly smiling. When the market goes through periods like this I think it's important to stress to Fools everywhere to not skip the first few steps in the 13-Steps to Investing Foolishly, especially step two. Many times the temptation for new investors is to jump right in and invest in the riskier but potentially more rewarding small-capitalization stocks right away. Without a sound financial strategy underneath, this can be a rather painful and expensive experience to go through.
Those who skipped these first steps or those who got greedy with margin are the ones who are getting whacked the hardest in this gloomy market. If you are a true Fool, you expect volatility and times where stocks will be down, sometimes down significantly. But a real Fool also knows that the bias in the market is strongly up. Plus, there's always a tomorrow. That is, there's always a tomorrow if you have the proper perspective (long term) and don't need your money next month or even next year.
Let's stop talking about the market as a whole right here and get to discussing some of the news concerning our companies. Two companies in the portfolio unveiled new looks on the Internet this week. America Online (NYSE: AOL) now has a spiffy looking new website that should increase traffic. The other company to release a new design was not Amazon.com (Nasdaq: AMZN), as some might have guessed, but Starbucks (Nasdaq: SBUX), which opened for business a new site that sells coffee over the Internet, among other things. Yup, that's right, the Fool Port now has another Internet-related stock in its ranks.
Unfortunately, the days are over where a company could announce they were selling anything over the Internet and cause their stock to pop up thirty percent. The market is a little more picky these days, to say the least. I somehow doubt that the amount of coffee and goods Starbucks will sell over the web will be more than a microscopic fraction of the company's total sales, but you never can tell, can you? Starbucks, like the rest of the market, was roughed up and sold down $1 1/4 to $34 1/8.
Speaking of Internet stocks, we did get a small peak as to the relative valuation of one of Amazon's competitors yesterday. European conglomerate Bertelsmann announced that they will take a 50% stake in Barnes & Noble's (NYSE: BKS) online operation for a cool $200 million. Considering barnesandnoble.com had $22 million in revenue for the first six months of the year, the back-of-the-envelope calculations show that on a price-to-sales basis Internet book retailers are going for slightly more than 9x trailing 6-month sales. Since Amazon had $203 million in sales over the same period, this valuation would put the company worth roughly $1.9 billion.
Back out $300 million for the company's debt, divide by 50 million shares, and the quick and dirty valuation of Amazon puts its value in the private market at approximately $32. Even though this price is significantly below where Amazon closed today (just north of $86) it goes to show there is more than just pure air under the company as some would claim. Additionally, there are some darn compelling reasons why Amazon should deserve a premium for its business while barnesandnoble.com may not. Better visibility and a broader product-mix are two things that come to mind. This valuation, of course, only uses one sales comparison, but it does give some good insight into what has been a valuation void surrounding the company.
We do have some earnings to digest in this recap today. After the close yesterday Trump (NYSE: DJT) announced what it seems to do once every year -- post a quarter with bona fide profits. The company came out with positive earnings of $.24 versus the mean estimate that was half the real number.
With the stock at $3, it would appear that the stock is cheap relative to the earnings the company just posted. If every quarter were as good as this one for the company, we might even consider covering the short position now held in the stock. Unfortunately for Trump, it's the third quarter only once a year, and Atlantic City's casinos business is a highly seasonal one. The other side of the coin with these good earnings is that the company has to grapple with vats of red ink the other nine months of the calendar.
In other words, we're not panicking about one good quarter. The $.24 looks impressive by itself, until you note that the company has lost $2.52 in the three quarters before the one just reported, and things do not look nearly as rosy. The trailing twelve-month earnings, by the way, now stands at negative $2.28 per share. Likewise, the company is expected to lose roughly $1.50 again next year. When there's more time and space to write, we'll do a closer analysis of the earnings and where the company is headed.
And for some final and lighthearted words, I'd like to say that this Cubs fan is a little perturbed at David and Tom at the moment. You see, the Gardner brothers, true Fools that they are, love to appear on national television either wearing jester caps or baseball hats with "FOOL" boldly written across the top. However, today on CNBC's Squawk Box the pair appeared on the show wearing Cubs hats. When asked about their choice of headgear, they essentially said that the mutual fund industry with its high fees is as bad as the Cubs. Blasphemy!
Guys, everyone in Chicago knows the Cubs tend to lose more than they win. We've come to almost expect them to lose. (Wait, we here at the Fool fully expect mutual funds to underperform the market. Maybe they have a point!) Nevertheless, even the track record of the Cubs is not as bad as that of many mutual funds. If you wanted to talk about funds being as bad as the Bears, well, then you might really have a point.
Hang in there, Fools.
- Paul Larson
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Today's FoolWatch: all the latest in Fooldom.
Day Month Year History Annualized FOOL -5.34% -16.55% 19.02% 299.43% 39.33% S&P: -1.15% -5.66% -1.13% 109.31% 19.35% NASDAQ: -2.97% -16.22% -9.63% 97.05% 17.64% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 85.25 2244.33% 9/9/97 580 Amazon.com 19.11 86.19 350.99% 10/1/96 84 LucentTech 23.81 59.25 148.86% 5/17/95 1960 Iomega Cor 1.28 3.06 139.18% 4/30/97 -1170*Trump* 8.47 3.00 64.58% 8/12/96 130 AT&T 39.58 58.50 47.81% 2/20/98 200 Exxon 64.09 71.63 11.76% 2/20/98 270 Int'l Pape 47.69 44.13 -7.48% 2/20/98 215 DuPont 59.83 55.06 -7.97% 7/2/98 235 Starbucks 55.91 34.13 -38.96% 8/13/96 250 3Com Corp. 46.86 25.31 -45.99% 8/24/95 130 KLA-Tencor 44.71 21.88 -51.08% 1/8/98 425 3Dfx 25.67 9.00 -64.94% 6/26/97 325 Innovex 27.71 9.31 -66.39% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 60527.50 $57945.63 9/9/97 580 Amazon.com 11084.24 49988.75 $38904.51 4/30/97 -1170*Trump* -9908.50 -3510.00 $6398.50 5/17/95 1960 Iomega Cor 2509.60 6002.50 $3492.90 10/1/96 84 LucentTech 1999.88 4977.00 $2977.12 8/12/96 130 AT&T 5145.11 7605.00 $2459.89 2/20/98 200 Exxon 12818.00 14325.00 $1507.00 2/20/98 270 Int'l Pape 12876.75 11913.75 -$963.00 2/20/98 215 DuPont 12864.25 11838.44 -$1025.81 8/24/95 130 KLA-Tencor 5812.49 2843.75 -$2968.74 7/2/98 235 Starbucks 13138.63 8019.38 -$5119.25 8/13/96 250 3Com Corp. 11715.99 6328.13 -$5387.87 6/26/97 325 Innovex 9005.62 3026.56 -$5979.06 1/8/98 425 3Dfx 10908.63 3825.00 -$7083.63 CASH $12005.75 TOTAL $199716.50