<FOOLISH FOUR PORTFOLIO>
Real-Money Portfolio UP!
And a look at CAT
Alexandria, VA (Dec. 28, 1998) -- In its first full day of trading (last Thursday the market closed early), our fledgling portfolio is up a bit over $55, mostly due to Caterpillar's (NYSE: CAT) rise of two bucks and change (4.6%). A rise like that makes Chris Rugaber's profile of CAT below look pretty darn sharp, especially so considering it was written last week.
3M (NYSE: MMM) was up a half a point last Thursday and almost a point today. That's a one percent gain in the business since we bought it a day and a half ago. Let's see, one per cent per day and a half for a year would be... let's not go down that road! International Paper (NYSE: IP) showed a modest rise, and J.P. Morgan (NYSE: JPM) dropped a few sixteenths.
Here's how our new Portfolio looked at the close of trading today: (scroll down for table)
Closing Pur. %Gain/ Symbol Shares Price Change Price Loss Value CAT 24 45.06 +2 1/8 42.75 +4.59 $1,081.50 IP 22 43.69 +5/16 43.19 +0.307 $961.12 JPM 9 104.81 -3/16 104.65 -0.6882 $943.31 MMM 14 74.38 +7/8 73.00 +1.09 $1,041.25 Cash $28.26 TOTAL $4,055.44 Initial Position Total invested: $3,971.74 (includes commissions paid) Cash in account: $28.26 Account total: $4,000.00
Meanwhile, our paper portfolio continues to occupy the place of honor in our spreadsheet area. It will stay there through the end of this week (i.e., the end of the year) for the convenience of those who are following it. Next week the real-money positions will be reported in our spreadsheet area.
Apparently some people were confused by our stock picks last week. I received several emails wondering why we picked JP Morgan and 3M since they were definitely not on the Low Priced list. Here's the link to the column that explains why we changed to the RP variation when we selected our Foolish Four stocks for the coming year: Strategy Talk.
Now, I know some of you are thinking that we are devoting a lot of space to reporting on the daily price movements of a strategy that eschews such devotion to the numbers, but bear with us this week as we juggle two portfolios. I promise we will not be dwelling on the slightest movement of each stock. Next week we will go back to ignoring them most of the time.
Before we start ignoring them, though, let's get to know them just a bit. Chris Rugaber, who normally writes the Thursday column, has helped prepare a brief profile of each company in our 1999 Foolish Four. We aren't going to get into great details -- that's the beauty of this strategy, you don't have to worry about Current Ratios and Returns on Equity, but it is fun to know a bit about a company you may have cash on the line with. For those of you who are thinking "What Have I Done!" we will speculate just a smidge on the turnaround prospects for each. Today we look at our first Dog of the Dow, Caterpillar.
Caterpillar is the world's leading manufacturer of earth-moving equipment, and also makes construction equipment and other industrial machinery. Last year, Caterpillar received 51% of its revenue from outside the United States: 14% of it was from Asia. In a nutshell, CAT has been hard hit by the global financial crisis but it also may have created at least one problem on its own.
Caterpillar recently announced that its fourth-quarter earnings will decline by about 25%, citing economic problems in Asia, price battles with its rivals, and a fine by the Environmental Protection Agency as the primary causes. Its agreement with the EPA includes a $60 million payment to settle allegations that it had cheated on anti-pollution tests. (Tsk, tsk, if true.) It has also suffered as sales of its smaller, lower-margin construction equipment have increased more than its bigger-ticket items.
Caterpillar is using Asia's economic problems as an opportunity to make capital investments, especially in China. It's also expanding into some of the former Soviet Republics and into Central Europe. Its EPA fine will only impact fourth quarter results, and as economies in Asia and Latin America recover, sales in those regions should rebound. In addition, lower interest rates in the United States and Europe should lead to greater capital spending on the kind of durable equipment Caterpillar makes.
With a P/E hovering around 10, and healthy financial statements, CAT has all of the earmarks of a typical Dow Dog. If it makes nice with the EPA and continues to take advantage of international opportunities, it would seem poised for a return to its previous price levels which are about 50% higher than today's.
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Stock Change Last -------------------- UK + 13/16 44.31 IP + 3/8 43.69 MO - 15/16 54.00 EK - 7/8 72.25
Day Month Year FOOL-4 -0.17% -1.17% 12.80% DJIA +0.10% 1.21% 16.67% S&P 500 -0.06% 5.32% 26.28% NASDAQ +0.80% 11.84% 38.84% Rec'd # Security In At Now Change 12/31/97 276 Philip Mor 45.25 54.00 19.34% 12/31/97 206 Eastman Ko 60.56 72.25 19.30% 12/31/97 291 Union Carb 42.94 44.31 3.20% 12/31/97 289 Int'l Pape 43.13 43.69 1.30% Rec'd # Security In At Value Change 12/31/97 276 Philip Mor 12489.00 14904.00 $2415.00 12/31/97 206 Eastman Ko 12475.88 14883.50 $2407.63 12/31/97 291 Union Carb 12494.81 12894.94 $400.13 12/31/97 289 Int'l Pape 12463.13 12625.69 $162.56 Dividends Paid YTD $1092.81 TOTAL $56400.94
</FOOLISH FOUR PORTFOLIO>