Iomega Riddles Syquest
Plus, Starbucks music
& ol' Blue Lights
by Jeff Fischer (TMFJeff@aol.com)
ALEXANDRIA, VA (Nov. 2, 1998) -- We flew our Foolish tri-plane over the month of October without incident, despite warnings that, during October, there is often heavy turbulence. Instead of suffering the feared "October nosedive," the stock market soared last month and the Fool Port with it: we were up 12% and the S&P gained 8%.
The afterburners on our wooden tri-plane kicked in to start November -- the Fool rose 3.33% to a new all-time high today, and the S&P climbed 1.18%. The S&P index is only 6.6% below the record high that it reached this summer in a daring assault on altitude. Meanwhile, the Fool Port is enjoying its strongest annual lead ever, up 65% vs. the S&P at 14%.
Like two planes crisscrossing during a dogfight, with one eventually falling from the blue sky, Iomega (NYSE: IOM) and Syquest (NYSE: SYQT) have fired shots back and forth over the past several years. Today Syquest fired one at itself. The company announced that it has suspended operations and could file for bankruptcy protection. Its stock will be halted as of... NOW.
This culminates several years of struggle as Iomega stormed the portable storage market and Syquest swam to catch up. Iomega showed such savvy, though, that the Fool considered shorting Syquest while holding Iomega. Today Syquest's drowning is significant in that it removes a lower-priced competitor from the landscape. Syquest had undercut Iomega's prices and even sold product at a loss.
Still pulling punches on the opposite side of the ring, today Iomega announced a new wide-spread marketing strategy for its Zip, making the drives available for several non-PC devices, including scanners, printers, and set-top boxes. To start, the company unveiled a scanner with a Zip drive built-in -- that's 100MB of convenience. The Zip Built-In will also be available on set-top boxes for Web surfers, a large emerging market.
The ongoing criticism one hears about Iomega is that Zip has existed for well over three years and hasn't much changed -- so it's going to be left behind by new technology. Yet, those positing this argument must be forgetting that the floppy disk has existed for twenty years. So why couldn't Zip last as well? The answer: it can. Especially because the company will introduce improved Zip technology in the future. Meanwhile, its user-base continues to grow.
Speaking of Iomega, exactly two months ago we covered it and three other beaten-down stocks in a Fool Port column titled "Blue Light Specials." Two months is hardly time enough to measure, but apparently the Blue Light was indeed spinning over these stocks (AOL, INVX, TDFX and IOM) on September 2. In that Fool column, we explained how America Online (NYSE: AOL), then at $87, could be valued at $150 by fiscal 1999. Today it's at $135, up 55% in two months.
We then considered the book value of Innovex (Nasdaq: INVX), 3Dfx (Nasdaq: TDFX) and Iomega (NYSE: IOM), noting that they were all potentially Blue Light specials. The stock market has bounced since then, granted, but these stocks have bounced much more since that column. Innovex, at $10.50 that day, is up 34%. 3Dfx, then at $10 3/8, is up 23%. Iomega, trading at $3 5/8 on September 2, is up 56%.
This isn't to gloat. (In fact, the Fool is still losing money on two of these positions.) Instead, it's only to remind that, as much fun as we try to have in this space, the end aim of the Fool Port and its column is still to beat the market and to provide useful information that can help you in your decisions as you strive to beat the market, too.
In that vein, we recently discussed Starbucks (Nasdaq: SBUX) as being at its lowest valuation to earnings and book value since coming public when the stock traded at $31 last month. Today Starbucks ended at $46 13/16, up 51% since the column sharing the Foolanalysis of the stock. Though the long-term is what matters, your long-term return is based on your purchase price, hence the Blue Light column and other columns (they're rare) that are written when we think our stocks have been unfairly trampled.
We might be Fools, but we're serious about investing, because with successful investing comes the opportunity to live better, to help others live better, and -- perhaps more important than anything else -- to eventually use your time as you wish while helping others do so, too. Some define success as owning your time such that you can do whatever your heart desires. Money is but one catalyst toward that end.
Back to The Coffee...
Starbucks continued to rise last week following a 5% same-store sales increase in September on strong revenue. How fickle money mangers are: one 3% month and they all sell. One 5% month and they all buy.
I'd rather focus on the company's new music. Starbucks has new CDs available, including a jazz collection and a World Music collection. Both are great in my opinion. You can buy either from the Starbucks website (visit the retail music section) or from Starbucks stores. If you like jazz, you'll enjoy the new jazz collection called Unrehearsed Perfection. And if you like Peter Gabriel's "Passion" and WOMAD work, you'll probably appreciate the unusual Starbucks WOMAD World Music collection, Volume 1. Starbucks has won awards for its music collections, and if the CDs were charted like traditional releases many would top the charts.
Starbucks trades at 39 times fiscal 1999 earning estimates while it's expected to grow 35%. The company will announce earnings around November 12, and $0.28 per share is anticipated. We'll have coverage of the Starbucks conference call -- the second call open to all of us. Innovex announces earnings on November 10, and $0.14 per share is expected. I'm always on that conference call, too. The Little Company That Could hit the top of a tunnel last year (imagine it's a train) and has been stuck ever since, but it might eventually plow through.
KLA-Tencor (Nasdaq: KLAC) was downgraded today and Dale wrote about it in the Fool's Lunchtime News. And finally, Amazon.com (Nasdaq: AMZN) announced surprisingly strong revenue last week of $153 million, up sharply sequentially from $116 million. The stock market was obviously surprised and impressed (revenue expectations were generally much lower). The company's immediate grab of market share in music sales indicates at least one thing: customers are using Amazon for shopping convenience, selection, and price, and their consumption can extend to any logical product that Amazon wishes to sell, not just books.
The instant hit of music at Amazon is like Starbucks achieving success in selling lunchtime food at its stores (which is yet to be absolutely proven). Once a new product is successfully introduced and a product "barrier" is crossed at a company, future product barriers can be scaled, too, and usually with much more certainty.
To close, I now realize one aspect that I dislike about today's column: it wasn't very interactive. Too often the Internet is subverted into a form of one-way communication, and tonight I didn't do much better. However, this didn't happen in the Drip Port today -- nor has it during the past months. In Drippy, readers have decided which industry we should study next, and now they're deciding which companies in that industry we should focus on. Finally, today we asked them to begin posting all of their knowledge on those companies and the industry. The Drip Port is building itself with input from Fools around the world. Foolishness at its best often takes place on our Web message boards.
Fool on! (Often done best by visiting the message boards and helping others to "Fool on!")
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Today's FoolWatch: all the latest in Fooldom.
Day Month Year History Annualized FOOL +3.33% 3.33% 65.30% 454.74% 49.74% S&P: +1.18% 1.18% 14.55% 142.50% 23.21% NASDAQ: +1.67% 1.67% 14.68% 150.06% 24.11% Rec'd # Security In At Now Change 8/5/94 710 AmOnline 3.64 134.88 3608.99% 9/9/97 580 Amazon.com 19.11 131.00 585.48% 5/17/95 1960 Iomega Cor 1.28 5.75 349.08% 10/1/96 84 LucentTech 23.81 83.25 249.67% 8/12/96 130 AT&T 39.58 61.56 55.55% 4/30/97 -1170*Trump* 8.47 5.56 34.32% 2/20/98 200 Exxon 64.09 72.06 12.44% 2/20/98 215 DuPont 59.83 59.00 -1.39% 2/20/98 270 Int'l Pape 47.69 45.19 -5.25% 7/2/98 235 Starbucks 55.91 46.81 -16.27% 8/13/96 250 3Com Corp. 46.86 36.25 -22.65% 8/24/95 130 KLA-Tencor 44.71 34.56 -22.70% 6/26/97 325 Innovex 27.71 14.13 -49.02% 1/8/98 425 3Dfx 25.67 12.75 -50.33% Rec'd # Security In At Value Change 8/5/94 710 AmOnline 2581.87 95761.25 $93179.38 9/9/97 580 Amazon.com 11084.24 75980.00 $64895.76 5/17/95 1960 Iomega Cor 2509.60 11270.00 $8760.40 10/1/96 84 LucentTech 1999.88 6993.00 $4993.12 4/30/97 -1170*Trump* -9908.50 -6508.13 $3400.38 8/12/96 130 AT&T 5145.11 8003.13 $2858.02 2/20/98 200 Exxon 12818.00 14412.50 $1594.50 2/20/98 215 DuPont 12864.25 12685.00 -$179.25 2/20/98 270 Int'l Pape 12876.75 12200.63 -$676.13 8/24/95 130 KLA-Tencor 5812.49 4493.13 -$1319.37 7/2/98 235 Starbucks 13138.63 11000.94 -$2137.69 8/13/96 250 3Com Corp. 11715.99 9062.50 -$2653.49 6/26/97 325 Innovex 9005.62 4590.63 -$4415.00 1/8/98 425 3Dfx 10908.63 5418.75 -$5489.88 CASH $12005.75 TOTAL $277369.06