Fool Portfolio Report
Tuesday, April 15, 1997
by Jeff Fischer (TMF Jeff)
ALEXANDRIA, VA, (April 15, 1997) -- Typing the date line on this thing, I was inclined to write February or March. It's April already? Tax day, no less?
Oops.
Imagine one hundred million envelopes, all flowing through the mail, each one addressed to THE MAN. Big Brother. Picture a giant magnet drawing cash from the pockets of Americans in every corner of the country, then spending a good portion of the money on interest payments for the National Debt.
A bizarre day of trading on Wall Street. The S&P and Dow soared, dropped, then soared again. Nasdaq gained handsomely, stumbled, and stayed down. Somewhere in the country is a man or woman who today bought SCOPUS TECHNOLOGIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SCOP)") else Response.Write("(Nasdaq: SCOP)") end if %>, a growing software firm, at $32 3/4, only to see it suddenly fall to $26, and close bidding $28. A 15% loss in one day. They're fretting, or they're long-term and don't mind. Either way, they're out there somewhere.
In another part of the country is an investor who ate at RAINFOREST CAFE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: RAIN)") else Response.Write("(Nasdaq: RAIN)") end if %> last fall, enjoyed it, and so investigated the stock. They ran the PEG at $34 per share and it came out around 0.79, with 1.0 being the implied "fair value." There was some room for growth. They bought the stock.
In the past six months their money has, with stench, with humidity, dripped down a descending green vine into a stagnant river, to wash away and disappear. Slash-and-burn farming turned slash-and-burn investing. Now, at $18 1/2, the stock has a PEG of only 0.49. The investor nods his head. He'll wait for the money to return one day. He goes out to eat. Orders $800 worth of food at the nearest Rainforest Cafe. Either way, showing confidence in the long-term.
Some of our fellow investors. Tax-paying Americans.
Let's look at today.
The Dow rose 135 points, recovering nearly everything it lost on Friday, while the stocks of Coca Cola, JNJ, and Disney all gained at least $2. The S&P rose 1.48%, the Nasdaq Comp lost 0.29%, and the Fool lost to both, dropping 0.83%. Nothing doing at the Fool. 3M was the only stock to make a significant move upward, while America Online and Iomega floated lower.
KLA INSTRUMENTS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: KLAC)") else Response.Write("(Nasdaq: KLAC)") end if %> reported earnings this morning and the earth did not move. Comparing the year-over-year numbers, one is inclined to say, "Awesome, awesome!" until you realize you have the years reversed. KLA's earnings and sales decreased from last year, as was expected. The company earned $23.7 million, or $0.44 per share, beating estimates by a penny. Sales were $157 million, compared to $187 million last year. Sales peaked in June of 1996 at $192 million. Nature of the cyclical beast. For the best view of the past twelve months, check out KLAC's "Snapshot" on the Fool's Homepage, at www.fool.com.
David G. read off da numbahs to me this evening, citing the strong cash-flow KLA is experiencing. From June 30th of 1996, accounts receivable dropped from $203 million to $122 million, while sales have increased over the past six months. Since June, cash and equivalents have grown from $260 million to $418 million. Moola is flowing into the KLA bank. Inventory remained steady, while net margins rose to 15% from last quarter's 14%. The KLA-Tencor merger is expected to take place May First. The stock will continue to trade as KLAC. The stock rose in the morning but ended down $1 1/8, to $39 7/8.
All things considered, the quarter looked fine -- right on track. (Though "tracks" are not laid straight in cyclical industries). After the merger with TENCOR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TNCR)") else Response.Write("(Nasdaq: TNCR)") end if %>, KLA will be a $2 billion giant, providing equipment that nobody else in the industry offers. KLA by itself is on track to earn $1.74 for the year ending in June. The stock trades at 22.9 times that estimate, while trading at 17 times the estimate of $2.25 for fiscal year 1998, which ends in five quarters. If the industry cycle turns up, and the merger goes well, perhaps KLA will outperform expectations. The full press release is available on the Fool's Web site.
INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> was part of the reason that the Nasdaq market and tech stocks fell. Though the industry leader topped published earnings estimates by 6%, it supposedly missed the "whisper numbers." Whisper numbers have become increasingly prevalent over the past seven months, in part due to the Internet. Cloy Jenkins, who volunteered for the Fool as MF Maui for a long amount of time, wrote the following letter to the folks at CNBC regarding whisper numbers. The letter says it all.
I'll leave -- to get to my taxes -- with this quote, and then with Cloy's excellent letter:
"Where secrecy or mystery begins,
vice or roguery is not far off."-- Samuel Johnson
"Dear Mr. Haines (CNBC morning anchor),
This whisper number thing is getting totally out of hand. I know there are certain aspects of investing in the stock market that smack more of gambling than true investing. This "whisper" item is pushing fast into that nefarious territory. An analyst who posts an estimate number but then delves into putting out a different whisper number is doing the investment community no service. Much like a CPA producing 2 sets of books. It smacks of "inside information" which often the "little guy" is excluded from or easily taken to the cleaners by. It only contributes to confusion, not clarity. Why should we tolerate these boys and girls being paid big bucks to inject this kind of obfuscation into the picture? "Put up and then shut up" - I say!!!
Furthermore, the whisper number is prime fodder for the short sellers and rumor mongers. The more attention and credibility it gains, the easier it is to be nefariously manipulated. It becomes a moving target with no one really being held responsible for its constant revision into the "impossible to meet" territory. We have recently witnessed it being revised upward minute by minute as companies post stellar earnings that even beat what was believed to be the whisper number -- only to find out -- no, there is now an even higher whisper number out there that the company did not meet. We saw that with many companies during the last quarter earnings report. It makes it virtually impossible for an investor to have any sense of evaluating what these earnings figures really mean and how to make sound investment decisions based on them.
Which brings me to the media's role. I know you guys primarily wear the hat of being the reporter. But we all know you also carry tremendous influence in how you approach these things. Merely reporting only fuels the fire in this case, contributing to enhanced credibility where none was due in the first place. You guys get unwittingly sucked into this whole charade.
I'm sure you recognize what a dilemma this whisper number poses. I've seen you guys struggle over this on Squawk Box numerous times. I've watched as these earnings reports come out, David, you, Joe and others having these uncomfortable discussions over this whisper thing -- well, why doesn't someone take the bull by the horns on this idiotic thing and call a spade a spade? This has become blatant manipulation. Don't be a party to granting credence to the rumor mill and manipulators. I think you should quite properly give the analytical community a good sound scolding for delving into this highly questionable practice. At this point, the whisper number has now taken on greater significance than the published number. This is ABSURD. And no one to point to as standing behind the number.
I think you should do your darndest to blow this silliness out of the water before it gets any worse rather than play into it by merely reporting it. It galls me to see Joe Kernan come back to update a sudden reversal in a stock price following the earnings report and say something like, "Now we are hearing that the real whisper number was not xxx but yyy and the stock has suddenly begun to sell off." Unwittingly letting the media to be manipulated into this sham is not the kind of solid crack reporting you guys are capable of. I think you could do the entire investment community a great service by exposing this erroneous and shoddy practice for what it really is. I know that everyone I discuss this issue with is very troubled by it. I know I would certainly appreciate your efforts in that direction.
Case in point: Intel - regardless of whatever stellar number they report, they probably will not meet the final revised and re-revised whisper number. Need I say more???
Thank you for considering this and any contribution you make to bringing us back to sound and sane investment analysis and reporting.
Cloy Jenkins
Maui, Hi."
--- April 15, 1997
Stock Change Bid -------------------- AOL - 3/4 45.25 T --- 33.50 ATCT - 1/8 5.25 CHV + 1/4 64.13 GM + 3/4 54.25 IOM - 3/8 17.13 KLAC -1 39.75 LU +1 5/32 52.41 MMM +2 83.13 COMS - 3/8 31.00Day Month Year History FOOL -0.83% 1.27% -6.02% 150.81% S&P: +1.48% -0.32% 1.89% 64.64% NASDAQ: -0.29% -0.72% -6.05% 68.41% Rec'd # Security In At Now Change 5/17/95 2010 Iomega Cor 2.52 17.13 579.84% 8/5/94 680 AmOnline 7.27 45.25 522.17% 8/11/95 125 Chevron 50.28 64.13 27.52% 8/12/96 110 Minn M&M 65.68 83.13 26.57% 10/1/96 42 LucentTech 47.62 52.41 10.06% 8/12/96 280 Gen'l Moto 51.97 54.25 4.38% 8/24/95 130 KLA Instrm 44.71 39.75 -11.10% 8/12/96 130 AT&T 39.58 33.50 -15.36% 8/13/96 250 3Com Corp. 46.86 31.00 -33.85% 10/22/96 600 ATC Comm. 22.94 5.25 -77.11% Rec'd # Security In At Value Change 8/5/94 680 AmOnline 4945.56 30770.00 $25824.44 5/17/95 2010 Iomega Cor 5063.13 34421.25 $29358.12 8/12/96 110 Minn M&M 7224.44 9143.75 $1919.31 8/11/95 125 Chevron 6285.61 8015.63 $1730.02 8/12/96 280 Gen'l Moto 14552.49 15190.00 $637.51 10/1/96 42 LucentTech 1999.88 2201.06 $201.18 8/24/95 130 KLA Instrm 5812.49 5167.50 -$644.99 8/12/96 130 AT&T 5145.11 4355.00 -$790.11 8/13/96 250 3Com Corp. 11714.99 7750.00 -$3964.99 10/22/96 600 ATC Comm. 13761.50 3150.00-$10611.50 CASH $5240.09 TOTAL $125404.28