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Monday, March 09, 1998

Cash-King Portfolio Report
by Phil Weiss
(pweiss@homemail.com)

TOWACO, NJ (Mar. 9, 1998) -- Today, we announced the intent to purchase our Foolish Four stocks for the Cash-King Portfolio. We'll be buying all four at some point in the next five business days. You can read our Buy Report by clicking here: Cash-King Buys Foolish Four with a Twist. I think you'll enjoy our justification for adding these four to our portfolio.

It’s hard to believe that four weeks have passed since I last graced this digital page. Since then, 1) our portfolio has added two more stocks – Intel and Coca-Cola; 2) I have celebrated another birthday; and 3) we've charged into one of my favorite times of the year -- March Madness, the college basketball tournament, and hour after hour of basketball games for a few weekends to come. (Is it time to buy Pepsi and take advantage of my investments in Frito Lay this March?)

Non-basketball fans may get less out of the beginning of today's column than they'd like, but stick with me... I think there are some important principles here for Cash-King investors.

This March my favorite basketball team, the Duke Blue Devils, takes a run at another national championship. You might not believe it, but during the first few years of his tenure at Duke, the fans were wondering why the athletic department ever hired Coach Krzyzewski (you have to be an alum to spell that one correctly).

In his third season at the helm, the team struggled once again -- even after we had what was considered to be the nation’s best recruiting year. And at the end of that season, one of our key freshman elected to transfer. Rumors had it that a host of others would leave, too. And Duke fans began agitating for Coach K's fair brow to be garnished on a platter.

But, just one short year later, the team was playing for a national championship, and a legend was born. Whether or not you like Duke basketball, you have to agree that Krzyzewski is one of the greatest all-around coaches in the history of the game.

Now you may wonder both why I'm prattling on about Duke basketball in a column about Cash-King stocks and how the story of Coach K's rise applies to public companies. Well, for starters, talking about the Blue Devils reminds me that I’m a Fool -- one who loves investing but has interests beyond the stock market. One of the beauties about Cash-King investing is that it leaves time for numerous other activities.

Secondly, I think that Coach K's rise and the school’s approach provide an example of what we’re talking about when we say that, as investors, the quality of a business is 1000 times more important to us than the present value of its stock.

Here's a bit more history on Duke to provide context for that claim. In the late 1970s right through to the year before Coach K’s arrival for the 1980-1981 season, Duke was a national powerhouse in basketball. Their program, in every way, met our Cash-King criteria... excellence of performance matched with a focus on the long-term.

But if we'd purchased Duke stock in 1978, after the freshman-laden team lost in the final game of the NCAA Tournament, we'd have seen our shares rise briefly but then fall consistently for a couple of years. It would've been painful. It might have seemed the world was ending. But, after that few-year slump, Duke rose up out of mediocrity and stormed to a string of Final Four appearances from the late eighties right up to today.

What could have led us to weather the storm and hold Duke stock through its slump? We'd have had to poke around and ask a few questions. What we would have found is that other than the change in coaches, Duke's management and its philosophy about athletics remained steady. They'd demonstrated an ability to execute their mission in the past, based on time-honored simple principles of competition. Even though the program had to change a bit with the times, the underlying strategy remained the same -- attract disciplined, bright students who love and excel at the game.

That's a perfect explanation of why North Carolina’s program has thrived, as well, for so many years. And how about this year? Despite the resignation of Carolina coaching icon, Dean Smith prior to the start of the season, North Carolina is the #1 seed heading into this weekend. And -- dag! -- they beat Duke on Sunday. (Thankfully, no one will ever remember that loss if Duke wins the NCAA Tournament!)

So what's the principle here? Well, as with Duke and North Carolina, so too with the companies we invest in as Cash-King investors. Even were we to buy them at their short-term high, even were their stock prices to fall over a few-year period, we'd be concentrating intently on the steadiness of the business philosophy and the financial management of the enterprise.

Duke...Carolina...Kansas...Kentucky.

Microsoft...Coca-Cola...Intel...Pfizer.

We'll be watching the business developments intently in the years ahead.

Today being Monday, it’s time for the update of what happened to the stocks in our portfolio last week. We’ll start nearby in New York City where Pfizer (NYSE: PFE) was down 2 ¼ points on the week. On Friday, the company announced its plans to build a $19 million research laboratory at the University of Connecticut. The lab will be used to speed the development of vaccines. As you can tell from my moniker on the Web Message Boards -- MrShihTzu -- I think that's great news.

Also in the news this week is a discussion about Pfizer’s Alzheimer’s drug, Aricept, and its role in keeping those that suffer from this terrible disease out of nursing homes for longer periods of time. The drug increases cognition in Alzheimer's patients by 20 percent. There's a ton of work left to be done on this disease. Pfizer is helping to lead the fight. For more information on this drug, (click here) Reuter's on Alzheimer Drugs.

Then on Tuesday, a competitor for a potential blockbuster Pfizer drug announced that it expects to have problems in both the 2nd and 3rd quarter of 1998 due to our company's entry. The drug is Viagra, used to treat male impotence. The competitor is Vivus. Pfizer's pill has substantial advantages over the competing product manufactured by Vivus (Nasdaq: VVUS), which must be implanted into the urethra.

On our way to Coca-Cola’s Atlanta headquarters, we’ll make a quick stop at T. Rowe Price (Nasdaq: TROW). I couldn’t find any news on our financial-services provider, but the stock did go up $2 5/8 points last week. That's the way we like it!

Next up is Atlanta-based Coca-Cola (NYSE: KO) which rose $1 7/8 points last week (and is up another $2 1/2 today to $73 as of this writing). There were a few announcements this week. The company is releasing a new product – Citra – a citrus soft drink. Seattle will be one of the first test markets for the drink. If you own this stock, hey, tip back a couple Citras and tell us what you think in our Coca-Cola message folder.

The company also achieved a milestone last Monday when CEO Doug Ivester announced that the consumption of the company’s products has now reached 1 billion servings per day. If you want to see where Coke is being sold click here for that press release -- incredible!: Reuters on Coke's Billionth Daily Serving.

Your author notes here that Buffalo, NY has the lowest number of servings per person per year in North America, at 93. Maybe if they’d had a Coke and a smile a bit more often they'd have won a Super Bowl or two (ouch, that was unfair, but might make for a colorful, playful advertisement from Coke). At the other end of the continuum, Rome, Georgia rang up 608 servings per person last year (1.5x servings per day), marking the highest consumption in North America.

On Tuesday Coke fired out more news. The company announced that it has now surpassed sales of Pepsi in the Middle East and North Africa, one that had been dominated by Pepsi for many years. Not surprisingly, Pepsi immediately challenged Coke's claim, using a different boundary definitions for the region. The battle rages on.

Next up, our Seattle-based software king, Microsoft (Nasdaq: MSFT), which was down $2 for the week. We were treated to the usual assortment of news related to Softy’s battle with the Justice Department, as well as a face off among Bill Gates and a few of his rivals this week. All in all, though, nothing new. The only difference this time was that the battling was aired before the House Committee.

Elsewhere, the company said that it expects Windows 98 to be released by the middle of this year. Based upon the company’s track record of releasing software on time, we're looking for a late-1998 delivery at the earliest!

Finally, it was nice to see that Softy is continuing to team up in a big way with another of our portfolio holdings, Intel (Nasdaq: INTC). The two are working to assist workstation vendors in developing and optimizing powerful applications for the 32-bit Windows NT and Intel architecture platform. The two companies are also helping to prepare for the anticipated release in 1999 of Intel’s 64-bit Merced™ processor. Here are two interesting stories on those:

WinTel Battles Unix

WinTel to Assist Workstation Developers

And last but not least, we head down to Silicon Valley, where Intel fell $11 9/16 points last week. I know that’s a rather significant drop, but in the true spirit of Cash-King investing and humility, I’m going to both focus on the long-term and recognize that Fools brighter than I have already written intelligently on Intel's earnings warning. If you missed what happened last week, you can check Thursday night’s Drip Report on Intel and Thursday’s Lunchtime News, as well as read what Fools are saying in our Intel stock folder.

Finally, Intel did announce that it has licensed the StrongArm chip which analysts say could become a key component for handheld devices and Internet appliances, ranging from $10 to $40. The chip runs nine different operating systems. If you want to read more, click here: Intel's StrongArm Chip.

I know there are a ton of links in today's report, but I think they all provide useful information for investors in Intel, Coke, Microsoft, T. Rowe Price, and Pfizer. Boy, I just love saying those company names. To my eye, these business models are just so enduringly strong. To my ear, that's music.

Go Duke!

Phil Weiss (pweiss@homemail.com)


TODAY'S NUMBERS
Stock  Change    Bid 
 ---------------- 
 KO    +2 1/16  72.56 
 INTC  -3       75.06 
 MSFT  -3 1/8   79.56 
 PFE   +  5/8   86.88 
 TROW  -  1/8   68.50 
 

                  Day   Month    Year  History 
         C-K      -0.37%  -1.50%   0.23%   0.23% 
         S&P:     -0.32%   0.28%   5.09%   5.09% 
         NASDAQ:  -1.62%  -2.56%   4.37%   4.37% 
  
     Rec'd    #  Security     In At       Now    Change 
    2/3/98    22 Pfizer        82.30     86.88     5.56% 
    2/27/98   27 Coca-Cola     69.11     72.56     5.00% 
    2/6/98    28 T. Rowe Pr    67.35     68.50     1.71% 
    2/3/98    24 Microsoft     78.27     79.56     1.65% 
    2/13/98   22 Intel         84.67     75.06   -11.35% 
  
  
     Rec'd    #  Security     In At     Value    Change 
    2/27/98   27 Coca-Cola   1865.89   1959.19    $93.30 
    2/3/98    22 Pfizer      1810.58   1911.25   $100.67 
    2/6/98    28 T. Rowe Pr  1885.70   1918.00    $32.30 
    2/3/98    24 Microsoft   1878.45   1909.50    $31.05 
    2/13/98   22 Intel       1862.83   1651.38  -$211.46 
  
                               CASH  $10696.94 
                              TOTAL  $20046.25 
   
 *The year for the S&P and Nasdaq will be as of 02/03/98 
       

 

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