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Monday, April 20, 1998

Cash-King Portfolio Report
by Rob Landley
(landley@flash.net)

Austin, TX (Apr. 20, 1998) -- It's a beautiful spring day in Austin. So naturally, being a programmer, I'm inside typing away on the computer. Yeeesh! Someday I have to buy a laptop.

Every Monday, the Cash-King Portfolio takes a historical look at the week that was. However recent it was, still we can't go back there now. But we can learn from it. So look through the viewing glass with me, first at our stock-by-stock performance for the week. It was a nice little run for us there, eh?

Cash-King Last   This    Change 
 Pfizer    $99.25 $105.19 + 6.0% 
 T R Price $72.25  $75.38 + 4.3% 
 Microsoft $88.94  $92.13 + 3.6% 
 Intel     $73.69  $75.19 + 2.0% 
 Coca-Cola $78.56  $77.00 - 2.0% 
  
 Fool Four Last    This   Change 
 E Kodak   $64.06  $70.63 +10.3% 
 Exxon     $66.75  $72.13 + 8.1% 
 Chevron   $80.31  $83.38 + 3.8% 
 GM        $67.44  $68.94 + 2.2% 
  
 S&P 500  1110.67 1122.72 + 1.1% 
 

Not a bad week. Eight of our nine Cash-King stocks beat the market, with Eastman Kodak (NYSE: EK) marching ahead fairly dramatically after meeting analyst earnings estimates and further driving cost-cutting measures on the quarter. Beyond Kodak, our Foolish Four stocks performed better than at any point since we've owned them. The four stocks act as the ballast for this portfolio. We'll be tracking the performance of our Cash-King investments against both the S&P 500 and the Foolish Four. We expect to beat them both, but if we can't beat 'em over a decade, we'll ponder joining 'em!

Off in C-K land, it was a busy week.

We'll start with Pfizer (NYSE: PFE), whose main news is still Viagra-centric. The male impotence drug stormed the market last week. Sales have already been described as "enormous" and "over $75 million on the first day," and our company literally hasn't even started advertising the product yet. Viagra even has its own website now, at www.viagra.com. Pfizer's stock leapt to a new high yet again today, on Monday, due to more publicity for Viagra. Viagra is one of fastest-selling drugs in history since its launch.

Pfizer may also be benefiting from the record pollen levels in Oregon, Arizona, Florida, Southern California, Colorado, New York City, and North Carolina. Oh, and here in Texas, too. (Achooooo!) Our company certainly isn't holding back on advertisements of its allergy product, Zyrtec. It looks to me like Pfizer can clean up on this one. Drop by the company's resource center on allergies for more info at www.allergy-info.com.

Oh yeah, Pfizer also released a solid earnings report, with first quarter revenues up 11% from last year and net earnings up 15%. Our company held its cost of sales flat on that growth, which made for an improvement in gross margins of nearly two percentage points. Pfizer's gross margins for the quarter rang in at a whopping 83.7%. For a look at its Q1 earnings report on the Web, click here: PFE Reports First Quarter.

If I sound enthusiastic, it's because Pfizer rose another $4 1/2 on Friday to $105 3/16 per share. The stock has now risen 27.8% for us since early February (and much more following the update of today's numbers this afternoon). Pfizer stock has doubled over the past year, and is trading at Himalayan multiples. Its prospects, however, may be even higher. Of course, our eyes are trained on the next ten years, not months, with a focus on the strength of its balance sheet and product line.

Elsewhere in high-gross-margin land, Microsoft (Nasdaq: MSFT) announced that it still doesn't intend to rename Windows 98. It expects to ship the application to stores on June 25. An early delivery of the product might serve to redirect attention from the legal troubles that are presently dogging our company.

The cover story in the April 20th issue of Business Week features an article about Microsoft's antitrust problems. Meanwhile, even as the Justice Department has several new avenues of attack available to it, The Wall Street Journal reports that the DOJ is currently concentrating on the good ole Sherman Antitrust Act. (I apologize for saying this, but... I'm enjoying this whole process. So sue me!)

Hey, T. Rowe Price (Nasdaq: TROW) is having fun this spring. The company's first quarter earnings per share rang in 25% higher than the same period last year. Our company's net margins streaked higher, from 22.1% last year to 25.2% this year -- with growth in sales of 26.6%. Sales racing higher, margins improving... it's not surprising that T. Rowe has more than doubled off its lows.

More broadly, according to Reuters, in March alone $27.5 billion was invested into the stock market through mutual funds, up from $24.2 billion in February. Business is booming, in part due to the new Roth IRA. Our company is there with catcher's mitt on, baskets open, and nets cast wide. With its brand name and the merits of its customer base, one wonders what consolidation in the industry will do here.

Coca-Cola (NYSE: KO) posted earnings last week, too. Our company's fully diluted earnings, after removing extraordinary items, rose from 31 to 34 cents per share. In the style of the late Roberto Goizueta, Coke drove its gross margins ever higher, from 68.7% in the same period last year to 70.4% today. Not every business model generates economies of scale. Coca-Cola has made the decision over the past two decades to demand just that from its model. Thus, on 8% sales growth, the company generated 10% of earnings growth -- and extremely pure earnings growth based off the low rates of inventory and collectibles.

That focus on the bottom line is what continues to draw the marketplace of buyers over to the Coca-Cola table.

Oh, and I hate to pile on, but I'm helping out my fellow C-K managers in a gang tackle by bemoaning the fact that Big Red -- possibly our favorite holding in the C-K portfolio -- is sporting a 3rd-rate website. As one reader wrote to us last week, "Can't they sit a young programmer and designer in the basement of Coca-Cola HQ for a week and come up with something professional? They explain their business so well in their financial reports... shouldn't the Web enable even more sophistication here?"

Yep.

In the meantime, here's a link to Coca-Cola's earnings report on the Web (click here: Coke's 1st Quarter Report.)

Finally, Intel (Nasdaq: INTC) inched higher this week. I think this business is markedly undervalued here, and I make no bones about saying so. I've dedicated much, if not all, of this week's C-K reports to Intel -- the business, its new products, and the company valuation. Tune in for coverage on our worst performing stock to date (Intel is down 11.2% since we bought it).

Fool on... oh and if anybody wants me, I'll be in the pool. It's too nice to spend ALL day at my computer!

- Rob Landley


TODAY'S NUMBERS
Stock  Change    Bid 
 ---------------- 
 CHV   +  3/8   83.75 
 KO    -1 11/16 75.31 
 EK    +2 13/16 73.44 
 XON   +  13/16 72.94 
 GM    +  1/2   69.44 
 INTC  +1 1/4   76.44 
 MSFT  +2 7/16  94.56 
 PFE   +8 1/8   113.31 
 TROW  +1 1/2   76.88 
 

                  Day   Month    Year  History 
         C-K      +1.63%   4.19%   8.30%   8.30% 
         S&P:     +0.08%   1.99%  12.22%  12.22% 
         NASDAQ:  +1.10%   2.80%  14.17%  14.17% 
  
     Rec'd    #  Security     In At       Now    Change 
    2/3/98    22 Pfizer        82.30    113.31    37.68% 
    2/3/98    24 Microsoft     78.27     94.56    20.82% 
    3/12/98   20 Eastman Ko    63.15     73.44    16.30% 
    2/6/98    28 T. Rowe Pr    67.35     76.88    14.15% 
    3/12/98   20 Exxon         64.34     72.94    13.37% 
    2/27/98   27 Coca-Cola     69.11     75.31     8.98% 
    3/12/98   15 Chevron       83.34     83.75     0.49% 
    3/12/98   17 General Mo    72.41     69.44    -4.10% 
    2/13/98   22 Intel         84.67     76.44    -9.73% 
  
  
     Rec'd    #  Security     In At     Value    Change 
    2/3/98    22 Pfizer      1810.58   2492.88   $682.30 
    2/3/98    24 Microsoft   1878.45   2269.50   $391.05 
    2/6/98    28 T. Rowe Pr  1885.70   2152.50   $266.80 
    3/12/98   20 Eastman Ko  1262.95   1468.75   $205.80 
    3/12/98   20 Exxon       1286.70   1458.75   $172.05 
    2/27/98   27 Coca-Cola   1865.89   2033.44   $167.55 
    3/12/98   15 Chevron     1250.14   1256.25     $6.11 
    3/12/98   17 General Mo  1230.89   1180.44   -$50.45 
    2/13/98   22 Intel       1862.83   1681.63  -$181.21 
  
                               CASH   $5666.26 
                              TOTAL  $21660.39 
   
 *The year for the S&P and Nasdaq will be as of 02/03/98 
       

</THE CASH-KING PORTFOLIO>

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