Cisco as Microsoft
Glendale, CA (Nov. 9, 1998) -- The Cash-King portfolio did well last week, picking up an even 5%. We ended the week ahead 16.75% for the year, and over 3 full percentage points above the S&P 500 and over 5 percentage points above the Nasdaq. It may seem like just a distant memory, but it was just a month ago that we were losing money for the year, and that the C-K portfolio was only slightly better than the S&P.
On a stock-by-stock basis, this is how the portfolio performed last week:
Cash-King Last This Change Gap Inc. $60.13 $67.13 + 11.6% AmEx $88.09 $97.31 + 10.5% Coca-Cola $67.63 $72.63 + 7.4% Cisco $63.00 $67.44 + 7.0% Intel $89.19 $95.44 + 7.0% S Plough $102.88 $107.25 + 4.2% Microsoft $105.88 $109.31 + 3.2% Pfizer $107.31 $109.31 + 1.9% T. Rowe $35.56 $35.75 + 0.5% Fool Four Last This Change GM $63.06 $67.06 + 6.3% Exxon $71.63 $73.50 + 2.6% Chevron $81.50 $83.31 + 2.2% Kodak $77.50 $78.00 + 0.6% S&P 500 1099 1141 + 3.8% Total C-K $24,295 $25.519 + 5.0%
Now let's take a look at what happened with the companies. I will go with my usual format and examine the companies by industry groups. I'll start with the technology group of Microsoft (Nasdaq: MSFT), Intel (Nasdaq: INTC), and Cisco (Nasdaq: CSCO). The big news out of this group last week came from Cisco, which released earnings after the market closed on Wednesday.
Cisco beat consensus estimates -- no surprise there. Earnings for the first quarter of 1999 were $0.34 a share vs. $0.26 a share for the first quarter of 1998. The First Call consensus estimate was for $0.33. More importantly, the company also performed well on a few of the "secondary" items that analysts were looking for beyond the earnings, namely:
The balance sheet was also very tidy, with a flowie of 1.13, Phil's new pure flowie of 1.17, and debt equal to that magical number: $0. This earnings release is another example of how, in my opinion, Cisco is becoming the Microsoft of networking. The Fools who know me know that I don't toss around compliments like that without meaning them.
As far as Microsoft itself is concerned, there was news last week, but nothing earth shattering. I will refrain from reporting on it because I will be devoting Thursday's column to Microsoft. Rumor has it that Oak will have a column on Friday about Mr. Softy as well (the slant may be a little different than mine). That's definitely enough Microsoft for one week.
Intel had a busy week. On Wednesday, it teamed up with FORE Systems (Nasdaq: FORE) and announced that they will be working together to enhance the videoconferencing solutions that they first announced last May. On the same day, Intel was demonstrating its "PC of the future" to reporters. The PC is a small eight-pound, pyramid-shaped design, with external ports that enable users to add on devices such as printers, storage devices, and DVD and CD players. Finally, on Thursday, Intel and IBM teamed up to promote an industry-wide, standard framework upon which to build Internet security software.
Intel is now up at $96. We're still waiting on Merrill Lynch analyst Tom Kurlak to either restate his short-term target price of $60 or to back off of it.
In the drug group, we saw several announcements from Pfizer (NYSE: PFE):
Things look very good for Pfizer, indeed. There was no news of note last week for Schering-Plough (NYSE: SGP). But... have you taken a look at its last earnings report? Holy cow.
In the financial group, there wasn't any news about American Express (NYSE: AXP), but the positive investment performance of the market as a whole has helped out both AmEx and T. Rowe Price Associates (Nasdaq: TROW). Investors had been leaving stock mutual funds in August, but they came back into international funds in September and to domestic funds in October. The Cash-King portfolio reaped some benefits from this, but we'd gladly give those benefits back if these people would just get out of funds altogether and invest for themselves! Of course, to the extent that people HAVE to invest in funds, and most 401(k) plans force you to go that way, there is no reason why we small investors shouldn't be able to profit from the funds' management fees!
Last but not least, we examine the retail group. There was quite a bit of activity in Coca-Cola (NYSE: KO) on Tuesday, as it was widely reported that Coke would start competing with PepsiCo (NYSE: PEP) by selling bottled water in gas stations. There was only one problem. The reports were wrong, and Coke issued a denial, of sorts, on Tuesday evening. It seems that the margins in bottled water simply aren't what they are in Coca-Cola, so bottled water doesn't fit into Coke's (or the Cash-King, for that matter) business model. On Tuesday, Coke went up when the market was flat. On Wednesday, after the correction, Coke came back while the market went up. So it goes over the short term -- this way and that, forward and back, blah and blah. Over the long term, I believe that Coke's decision only to enter those businesses that match its long-term business targets (high gross and net margins among them) is the way to go.
Finally, Gap (NYSE: GPS) reported that same-store sales increased 18% in October 1998 compared to the comparable period in 1997. Analysts had been predicting a much smaller increase. Total sales were up 40% from the prior year. Christmas came a little early for Gap this year, and it just might stick around until the end of the year! Our Gap shares are on a serious rebound from the low-$40s not long ago.
That's it for today. Tomorrow, I'll be sharing with you how my family dealt with the market turmoil last month. We handled it a little differently than Phil's family did, although I think that both of our approaches were pretty Foolish. Until then,
The book doesn't come out until January, but you can reserve your copy today!
Day Month Year History C-K -0.49% 4.52% 16.18% 16.18% S&P: -0.95% 2.87% 12.35% 12.35% NASDAQ: +0.24% 5.06% 11.68% 11.68% Cash-King Stocks Rec'd # Security In At Now Change 2/3/98 24 Microsoft 78.27 110.69 41.42% 5/1/98 37 Gap Inc. 51.09 68.25 33.59% 2/3/98 22 Pfizer 82.30 108.25 31.53% 6/23/98 34 Cisco Syst 58.41 67.00 14.71% 2/13/98 22 Intel 84.67 96.00 13.38% 8/21/98 22 Schering-P 95.99 106.94 11.41% 2/27/98 27 Coca-Cola 69.11 71.56 3.55% 2/6/98 56 T. Rowe Pr 33.67 34.69 3.01% 5/26/98 18 AmExpress 104.07 95.00 -8.71% Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 63.15 79.19 25.40% 3/12/98 20 Exxon 64.34 72.00 11.91% 3/12/98 15 Chevron 83.34 82.44 -1.09% 3/12/98 17 General Mo 72.41 66.00 -8.85% Cash-King Stocks Rec'd # Security In At Value Change 2/3/98 24 Microsoft 1878.45 2656.50 $778.05 5/1/98 37 Gap Inc. 1890.33 2525.25 $634.92 2/3/98 22 Pfizer 1810.58 2381.50 $570.92 6/23/98 34 Cisco Syst 1985.95 2278.00 $292.05 2/13/98 22 Intel 1862.83 2112.00 $249.17 8/21/98 22 Schering-P 2111.7 2352.63 $240.93 2/27/98 27 Coca-Cola 1865.89 1932.19 $66.30 2/6/98 56 T. Rowe Pr 1885.70 1942.50 $56.80 5/26/98 18 AmExpress 1873.20 1710.00 -$163.20 Foolish Four Stocks Rec'd # Security In At Value Change 3/12/98 20 Eastman Ko 1262.95 1583.75 $320.80 3/12/98 20 Exxon 1286.70 1440.00 $153.30 3/12/98 15 Chevron 1250.14 1236.56 -$13.58 3/12/98 17 General Mo 1230.89 1122.00 -$108.89 CASH $120.62 TOTAL $25393.50 *Please note: On 8/4/98 $2,000 cash was added to the