The Bull Market Report - bull-market.com
NEWS FLASH - THE BULL MARKET REPORT TO SELL AOL
For some time now, AOL (AOL, $66) has been at the core of some of our
toughest decisions. The time has come to make another tough decision, and
this time it is to sell all of our holdings in AOL.
This is sparked by the recent merger with Time-Warner (TWX, $86). While
the new merged entity is an awe-inspiring company, it is not one that we
feel is an appropriate investment for us at this time. Success in the New
Economy will be dependent on speed and flexibility, but we do not feel
that the management and bureaucracy at Time-Warner will allow AOL to
maintain that level of corporate nimbleness. Old line management will be
slow to relinquish the reins to their Internet counterparts and conflicts
could result in corporate sluggishness and execution. In other words,
things may not go as smoothly as AOL management indicated yesterday.
Regardless of corporate control, there is also the issue of valuation.
AOL's valuation, in terms of Price-Earnings ratio (200), is that of an
Internet company, while Time-Warner (145 now, 110 on Friday before the
merger announcement) is valued as a media company. The combination of the
two will be valued less as an Internet company than AOL was previously, so
the valuation and PE ratio will drop over time. It has to. In addition,
we don 't believe a $260 billion market cap company can sustain a PE in
the triple digits for very long.
We have long held AOL in high esteem. They are a great company with a
great future. We faltered briefly with the advent of free ISPs, but were
quick to jump back in. This time however, AOL itself, and not its
surroundings, has fundamentally changed forever.
We hereby place a sell-stop on AOL at 64, Good until Canceled (GTC).
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