<THE FOOLISH FOUR>
by Robert Sheard
LEXINGTON, KY. (July 2, 1998) -- It's probably a little bit of an understatement to say that the last week and a half has been rough for AT&T <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: T)") else Response.Write("(NYSE: T)") end if %> shareholders. Since its recent closing high on June 23, Ma Bell stock has shed more than $10 a share (over 16%).
Shares were backing off the June 23 high a little bit when AT&T announced the acquisition of Tele-Communications, Inc. 'A' <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TCOMA)") else Response.Write("(Nasdaq: TCOMA)") end if %> the next day, and it's been a downdraft ever since. AT&T dropped more than $2 a share again today.
CEO C. Michael Armstrong is simply having a devil of a time selling the Wall Street analysts on the fact that this is a move AT&T can make work. The real issue is whether AT&T can effectively leverage TCI's cable television network as an access vehicle into the local telephone market.
In addition to $43 billion for the purchase of TCI, AT&T is facing nearly $6 billion more to upgrade TCI's network to handle local phone calls. And what's worse, there's still some skepticism over whether providing phone access over cable television lines is even feasible.
If you're holding AT&T as part of a Foolish Four portfolio, though, should you sell? I'll give you the same answer I always give: stick with the system. The 16% downdraft may simply be an overreaction, and this might present a bargain opportunity. No one can really predict how it'll play out. But let me remind you that people were ready to write off AT&T at the beginning of 1997, too, and were proven wrong in a big way by the end of the year.
The beauty of the Dow Approaches is that, if you'll let them do the work for you, they free you of the responsibility for becoming a Wall Street analyst every time one of these types of stories comes along. Let's face it; even the analysts never agree, so you and I are much better off playing the odds and letting the approach work for us rather than fighting it by micro-managing every stock decision. The approach isn't always right, but it does a fine job in the long run.
Model Portfolio Note: Today's returns for the Foolish Four model were boosted by the accounting for the four dividend payments from the second quarter getting included today. Have a terrific Independence Day and celebrate your own financial freedom along with our national freedom.
Current Dow Order | 1998 Dow Returns
[Robert Sheard is the author of the The Unemotional Investor (Simon & Schuster, 1998) available now at Amazon.com and your local bookseller.]
07/02/98 Close
Stock Change Last -------------------- UK + 1/2 54.38 IP + 1/16 43.38 MO - 5/16 40.19 EK + 1/8 73.31 |
Day Month Year
FOOL-4 +0.81% 1.87% 10.61%
DJIA -0.26% 0.82% 14.12%
S&P 500 -0.19% 1.11% 18.14%
NASDAQ -1.07% -0.04% 20.61%
Rec'd # Security In At Now Change
12/31/97 291 Union Carb 42.94 54.38 26.64%
12/31/97 206 Eastman Ko 60.56 73.31 21.05%
12/31/97 289 Int'l Pape 43.13 43.38 0.58%
12/31/97 276 Philip Mor 45.25 40.19 -11.19%
Rec'd # Security In At Value Change
12/31/97 291 Union Carb 12494.81 15823.13 $3328.31
12/31/97 206 Eastman Ko 12475.88 15102.38 $2626.50
12/31/97 289 Int'l Pape 12463.13 12535.38 $72.25
12/31/97 276 Philip Mor 12489.00 11091.75 -$1397.25
CASH $754.73
TOTAL $55307.36
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