<THE RULE BREAKER PORTFOLIO>
Thanks Yoda, Thanks Tracy
By Louis Corrigan (TMFSeymor)
ATLANTA, GA (June 17, 1999) -- Call me crazy, but I love Federal Reserve Chairman Alan Greenspan. Methinks he's Yoda in the making with his furrowed brow and funny way of talking. But today he spoke rather plainly, suggesting he's worried about the economy being unsustainably strong but that inflation looks pretty much in check for now. As I surmised earlier today, G's comments mean the Fed will likely raise interest rates by a quarter point when it meets in two weeks to discuss things. Still, a series of rate hikes isn't necessary, at least for now.
"Feel The Force, Luke, it's all around you." The stock market liked the news, adding to yesterday's gains, as the bonds rallied 1 10/32 to 90 4/32, dropping yields to 5.95%, their first trip below 6% in the last two weeks. The Rule Breaker jumped another 2.23%, lapping the Nasdaq's 1.05% gain and the S&P 500's 0.71% increase.
On the news front, the continuing Open Access cable saga took another predictable turn late yesterday with word of AT&T's (NYSE: T) appeal of the recent Portland ruling. AT&T asked the Ninth Circuit U.S. Court of Appeals in San Francisco to overturn the lower court's ruling in expedited fashion. In theory, at least, the Portland court decision could make it easier for local governments to force cable operators to lease access to their pipes to all competing Internet service providers on an equal footing. FCC Chairman William Kennard said Tuesday that such a state of affairs would amount to "chaos."
The Portland ruling was good news for America Online (NYSE: AOL) since it potentially gave the online access king some leverage in negotiating high-speed cable access deals with AT&T and other major cable operators, most of whom have entered exclusive broadband marketing deals with Excite@Home (Nasdaq: ATHM). Yet, shares of AOL shrugged off news of AT&T's appeal as the Big Dog of the online world continued to benefit from a change in investor sentiment regarding Net stocks following yesterday's benign Consumer Price Index (CPI). AOL rose $3 7/8 to $110 5/8.
However, Excite@Home did add $3 69/74 (I kid you not) to $51 5/16, with shares reflecting the recent 2-for-1 stock split. The stock got a boost from respected BancBoston Robertson Stephens analyst Keith Benjamin and his assistant Michael Graham. Benjamin and Graham (unrelated to Ben Graham) reiterated a "Buy" rating, saying there's "substantial room for the stock to appreciate" with a good chance the company will top its estimates calling for 7.5 million customers by the end of 2002 and earnings per share of $1.50 for that year.
"We believe the combination of @Home and Excite is a winning formula for growing a leading broadband Internet service. In our view, the combination of connection and content will help the company grow and develop deep customer relationships," the analysts said in unison, before looking at each other all freaked out and exclaiming, "Is there an echo in here? Omagod!"
Meanwhile, Amazon.com (Nasdaq: AMZN) has decided it will no longer let a day go by without making news. The latest is that Amazon has signed a marketing pact with Liquid Audio, whose technology Amazon is using to allow customers to download digital music from its website. Terms of the deal weren't disclosed in the press release, but Bloomberg reported that Amazon will get options to buy 381,203 shares of Liquid Audio at $6.56 each, which would amount to less than a 10% stake in the company. Liquid Audio would apparently get, well, exposure to Amazon's 10 million customers. Liquid Audio is privately held but has filed for an IPO. Seattle billionaire and media magnate Paul Allen also has a stake in the firm. Amazon added $1 1/4 to $112 15/16.
While we're in Seattle... Starbucks (Nasdaq: SBUX) fell $1/4 to $37 1/8 despite news that it's forming a strategic alliance with Oxygen Media, a much-discussed new Internet and cable television company targeting a female audience. Oxygen is led by Geraldine Laybourne, a former top Disney (NYSE: DIS) executive, with high-profile participation from celebs such as Oprah Winfrey and Candice Bergen. (Incidentally, Paul Allen's Vulcan Ventures recently invested $100 million in Oxygen, too.)
The Starbucks press release indicates that the alliance will include both jointly developed Internet content and community features as well as cross-promotions. CEO Howard Schultz said that this deal, plus others to be announced, will allow Starbucks "to provide a seamless consumer experience through our retail stores, cable and the Internet." I've been a bit skeptical of Starbucks' pursuit of an Internet presence, but the rumblings suggest Schultz may indeed be up to something pretty interesting. Starbucks has 10 million weekly customers, 70% of whom are already online.
Iomega (NYSE: IOM) popped up another $1/4 to $4 3/8 today after saying it's now shipping its Clik! drive designed for the PC Card slot on notebook and sub-notebook computers. Announced June 2, the product costs $199.95 and uses the standard 40 MB Clik! disks.
On Tuesday, the stock had dipped below $4 for the first time since October after a spate of, well, disconcerting departures from the executive suite. Iomega said Tuesday that COO Scott Flaig was "retiring to pursue consulting and academic roles." His duties are being assumed by John Conely, VP of worldwide manufacturing, who now takes on the title of executive VP. However, TheStreet.com's Herb Greenberg, an old Iomega fan (NOT!), has recently reported that Treasurer Rob Simmons and spokesman Tyler Thatcher have left Iomega to join a new Internet company. Simmons cashed out a nice chunk of options-related stock on May 21. Typically, such departures aren't good news, though they're not always bad news either.
And for out last news item, 3dfx (Nasdaq: TDFX) announced yesterday that its board has authorized the repurchase of up to 2 million shares, in part to "reduce the long-term potential dilution that might result from issuances under the Company's stock benefit plans." The latest company filing indicates there are 24.4 million shares outstanding, which seems to include shares issued as part of the acquisition of STB Systems, Inc. on May 13. So the buyback could amount to 8.2% of the existing shares. 3Dfx had nearly $79 million in cash at the end of April, so it can afford the repurchase. The stock rose $13/16 yesterday but gave back $9/16 today to close at $15 11/16.
Finally, I wanted to thank Tracy Taft, a friend from my days in Chapel Hill and a Fool, for inviting me to speak to her investment club in Dunwoody, Georgia the other night. Unlike David and Tom G., I don't have that many opportunities to meet Foolish investors in person. And this was my first experience with an investment club. I must confess, I was mightily impressed by how savvy everyone was. How much fun can it be to get together with a bunch of "middle-aged suburban women" (Tracy's term) and talk stocks? Pretty darn fun, I found out. And looking at their diversified portfolio, it's clear that the interaction has paid off well for Tracy's group.
In fact, it made me think that participating in a local investment club, in addition to participating in our own Foolish message board community, would be a great way to become a better investor -- and make some good friends in the process. For those interested in investment clubs, check out this link: The Motley Fool: Investment Clubs. The Fool also has published a guide to investment clubs, which is available in FoolMart.
Day Month Year History Annualized R-BREAKER +2.23% -7.34% 24.01% 1144.64% 67.91% S&P: +0.71% 2.93% 9.59% 206.59% 25.89% NASDAQ: +1.05% 2.98% 16.03% 253.27% 29.62% Rec'd # Security In At Now Change 8/5/94 2200 AmOnline 0.91 110.63 12071.98% 9/9/97 1320 Amazon.com 6.58 112.94 1616.57% 5/17/95 1960 Iomega Cor 1.28 4.38 241.69% 12/4/98 900 Excite@Hom 28.04 51.31 83.00% 2/26/99 300 eBay 100.53 146.75 45.98% 4/30/97 -1170*Trump* 8.47 4.81 43.17% 7/2/98 470 Starbucks 27.95 37.13 32.80% 12/16/98 580 Amgen 42.88 55.44 29.30% 2/23/99 300 Caterpilla 46.96 58.88 25.36% 2/23/99 290 Goodyear T 48.72 60.25 23.68% 2/20/98 260 DuPont 58.84 71.25 21.08% 2/23/99 180 Chevron 79.17 93.69 18.34% 1/8/98 425 3Dfx 25.67 15.69 -38.88% Rec'd # Security In At Value Change 8/5/94 2200 AmOnline 1999.47 243375.00 $241375.53 9/9/97 1320 Amazon.com 8684.60 149077.50 $140392.90 12/4/98 900 Excite@Hom 25236.13 46181.25 $20945.12 2/26/99 300 eBay 30158.00 44025.00 $13867.00 12/16/98 580 Amgen 24867.50 32153.75 $7286.25 5/17/95 1960 Iomega Cor 2509.60 8575.00 $6065.40 7/2/98 470 Starbucks 13138.63 17448.75 $4310.13 4/30/97 -1170*Trump* -9908.50 -5630.63 $4277.88 2/23/99 300 Caterpilla 14089.25 17662.50 $3573.25 2/23/99 290 Goodyear T 14127.38 17472.50 $3345.13 2/20/98 260 DuPont 15299.43 18525.00 $3225.57 2/23/99 180 Chevron 14250.50 16863.75 $2613.25 1/8/98 425 3Dfx 10908.63 6667.19 -$4241.44 CASH $9924.87 TOTAL $622321.43Note: The Rule Breaker Portfolio was launched on August 5, 1994, with $50,000. Additional cash is never added, all transactions are shared and explained publicly before being made, and returns are compared daily to the S&P 500 (including dividends in the yearly, historic and annualized returns). For a history of all transactions, please click here.
</THE RULE BREAKER PORTFOLIO>