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Drugs and Technology

by Tom Gardner
(TomG@fool.com)

ALEXANDRIA, VA (Sept. 28, 1998) -- The Cash-King Portfolio had a wild week, with our stocks shakin' up, down, and all the way around. The Gap fell an eye-turning 11.8%, all the way down to $53 3/8 last week, as the market continues to assess whether Gap is a pure-growth business or one reliant on economic cycles. Meanwhile, Pfizer nearly matched that decline with a 9.9% rise, on news... well... on news that we'll cover below.

Here are the stats for the past week...

 
  
 Cash-King    Last    This  Change 
 Pfizer     $97.00  $106.63 + 9.9% 
 Cisco      $61.06   $66.44 + 8.8% 
 Microsoft $105.38  $113.06 + 7.3% 
 Intel      $83.00   $88.31 + 6.4% 
 T Rowe     $28.66   $29.88 + 4.3% 
 S Plough   $97.81  $101.25 + 3.5% 
 AmEx       $84.50   $80.50 - 4.7% 
 Coca-Cola  $61.38   $56.25 - 8.4% 
 Gap Inc.   $60.50   $53.38 -11.8% 
  
  
 Fool Four   Last     This  Change 
 GM         $57.06  $58.69  + 2.9% 
 Exxon      $68.13  $68.38  + 0.4% 
 Chevron    $83.38  $83.38  + 0.0% 
 Kodak      $85.00  $80.88  - 4.8% 
  
 S&P 500      1020    1045  + 2.5% 
 Total C-K $23,100 $23,418  + 1.4% 
 

Last week, the Cash-King Portfolio lost by slightly more than one percentage point to the S&P 500, dropping us to a 3.5 percentage point lead over the market's average return. The total returns since our February birthing now read:

S&P 500 up 3.85%. Cash-King Portfolio up 7.48%.

In the spirit of following what matters most, this week I'm only going to report on news from those companies that have outperformed the market in 1998. It may appear the unprofessional rah-rah promotion of our winners, but I'm actually doing this to champion the idea that the largest positions in your portfolio are the ones you ought to study most closely. So, let's do just that today -- striking Gap out of the group because of its performance today.

Microsoft Corporation (Nasdaq: MSFT), up 44.5% percent for us, announced last Monday that its MSN Online service has struck one-year deals totaling $60 million with four Web search engines: AltaVista, Infoseek, Lycos, and Cnet's Snap! Each agreed to pay for premiere placement on the MSN Start portal site. Conspicuously absent from the group were the Internet's two search engine leaders, Yahoo! and Excite.

The Redmond steamroller is charging its engines.

Also this past week, Microsoft founder, chairman, and CEO Bill Gates placed first on the Forbes 400 list of America's wealthiest citizens. Gates is now worth $58.4 billion, after helping his company dominate the highest-margin segments in technology for more than a decade. His actions as a philanthropist in America over the next few decades will have profound repercussions.

From technology to pharmaceuticals, Schering-Plough (NYSE: SGP) had an exciting week, and saw its stock rise another 3.5%. The Plough is up 5.5% for us since our August purchase, and it ran a few dollars higher today. Early last week, Schering-Plough announced that President and CEO Jay Kogan would complement his present responsibilities by ascending to the Chairman-of-the-Board post.

In his first action as The Plough's chairman, Kogan announced a 2-for-1 stock split, set for December 2nd. In his second action, Kogan dispelled rumors that Schering will merge with a larger drugmaker, citing the wherewithal and the product line to go it alone. And in his third and most important action since taking over as chairman, Kogan told Reuters that sales of The Plough's drug Intron A had risen significantly since its recent launch as part of a combination therapy for hepatitis-C.

From pharmaceuticals back to technology, Cisco Systems (Nasdaq: CSCO) -- up 15.4% for us -- released its 10-K report for 1998; it will be the entire focus of my report this Wednesday. Elsewhere, Cisco Systems CEO John Chambers capped off his journey through Asia by announcing that he plans to "expand substantially in Asia over the next six months." This advance will be driven not despite Asia's current economic woes, but because of them. Chambers told attendees at a Business Week conference last week:

"I believe you gain market share when you catch markets in transition. Whether their economy recovers in two years or in five years, we'll be positioned well."

Thinking long-term.

From pharmaceuticals back to technology, Pfizer (NYSE: PFE) -- up 30.0% for us -- announced last week that it will repurchase up to $5 billion of its own stock over the next two years. The market embraced the news, with almost as much enthusiasm as it embraces stock splits. The market, you see, is getting smarter. While stock splits present no meaningful, fundamental change to the value of a business, share buybacks do. Off today's prices, Pfizer will repurchase and retire up to 3% of the company. That acts as a driver to the value of our ownership position as it narrows the number of tradable shares outstanding.

And, from pharmaceuticals back to technology one more time, Intel (Nasdaq: INTC) -- up 4.3% for us -- last week announced that it is seeking "organic and acquisitive growth" in the networking area, but that it would not look to merge with a company like Cisco Systems. Simultaneous to that announcement, Intel would not deny rumors that it has considered taking an equity stake in memory-chipmaker Micron Technology (NYSE: MU). Finally, Intel reported that it will take an equity position in Linux distributor, Red Hat Software... something which, no doubt, warms the heart of CK manager, Rob Landley.

There it is -- the week that was in Cash-King news. In the week ahead, tomorrow I'll be sharing a few Foolish points on mutual funds. On Wednesday, I'll run all the numbers on Cisco's recently-released financial statements. On Thursday, I'll speak a bit about Microsoft as a natural monopoly. And on Friday... to be honest, I don't yet know what I'll have to blather on about on Friday.

In the meantime, bask in the glory of long-term business ownership... so long as you're doing so in more than name (cf. The (ahem) Long-Term Capital Management Hedge Fund).

Tom Gardner, Fool

Cash-King Strategy Folder
Cash-King Companies Folder


09/28/98 Close
Stock  Change    Bid 
 AXP   +2 1/2   83.00 
 CHV   +1 3/8   84.75 
 CSCO  -  3/16  66.25 
 KO    +  7/8   57.13 
 GPS   -  7/8   52.50 
 EK    -1 3/4   79.13 
 XON   -  5/16  68.06 
 GM    +  13/16 59.50 
 INTC  -1 5/16  87.00 
 MSFT  -1 3/4   111.31 
 PFE   -  9/16  106.06 
 SGP   +3 1/2   104.75 
 TROW  +  3/4   30.63 
 

 
             Day      Month    Year    History 
 C-K      +0.16%   9.33%   7.65%   7.65% 
         S&P:     +0.38%   9.52%   4.24%   4.24% 
         NASDAQ:  -0.25%  16.01%   4.37%   4.37% 
  
 Cash-King Stocks 
  
     Rec'd    #  Security     In At       Now    Change 
     2/3/98   24 Microsoft     78.27    111.31    42.22% 
     2/3/98   22 Pfizer        82.30    106.06    28.87% 
    6/23/98 34.5 Cisco Syst    57.56     66.25    15.09% 
    8/21/98   22 Schering-P    95.99    104.75     9.13% 
     5/1/98   37 Gap Inc.      51.09     52.50     2.76% 
    2/13/98   22 Intel         84.67     87.00     2.75% 
     2/6/98   56 T. Rowe Pr    33.67     30.63    -9.05% 
    2/27/98   27 Coca-Cola     69.11     57.13   -17.34% 
    5/26/98   18 AmExpress    104.07     83.00   -20.24% 
  
 Foolish Four Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Eastman Ko    63.15     79.13    25.30% 
    3/12/98   20 Exxon         64.34     68.06     5.79% 
    3/12/98   15 Chevron       83.34     84.75     1.69% 
    3/12/98   17 General Mo    72.41     59.50   -17.82% 
  
 Cash-King Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
     2/3/98   24 Microsoft   1878.45   2671.50   $793.05 
     2/3/98   22 Pfizer      1810.58   2333.38   $522.80 
    6/23/98 34.5 Cisco Syst  1985.95   2285.63   $299.68 
    8/21/98   22 Schering-P   2111.7   2304.50   $192.80 
     5/1/98   37 Gap Inc.    1890.33   1942.50    $52.17 
    2/13/98   22 Intel       1862.83   1914.00    $51.17 
     2/6/98   56 T. Rowe Pr  1885.70   1715.00  -$170.70 
    2/27/98   27 Coca-Cola   1865.89   1542.38  -$323.52 
    5/26/98   18 AmExpress   1873.20   1494.00  -$379.20 
  
 Foolish Four Stocks 
  
     Rec'd    #  Security     In At     Value    Change 
    3/12/98   20 Eastman Ko  1262.95   1582.50   $319.55 
    3/12/98   20 Exxon       1286.70   1361.25    $74.55 
    3/12/98   15 Chevron     1250.14   1271.25    $21.11 
    3/12/98   17 General Mo  1230.89   1011.50  -$219.39 
  
                               CASH     $48.07 
                              TOTAL  $23477.45 
   
 *Please note: On 8/4/98 $2,000 cash was added to the
portfolio for future investment. This will be reflected
in the numbers as soon as possible.

*The year for the S&P and Nasdaq will be as of 02/03/98

</THE CASH-KING PORTFOLIO>

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