FOOLISH FOUR PORTFOLIO

<FOOLISH FOUR PORTFOLIO>

Stocks in the News
IP, JPM and CAT

by Chris Rugaber (TMF RFK@aol.com)

Alexandria, VA (January 14th, 1999) -- A couple of our Foolish Four stocks have been in the some news recently. Unfortunately, not for very good reasons.

Let's begin with Caterpillar (NYSE: CAT), which traded down on Tuesday and Wednesday this week. Cat announced the ascension of its new CEO, Glen Barton, on Tuesday. Barton is a 37-year Cat employee who will replace Donald Fites, who is retiring at 65 as company policy requires.

This change, or at least the retiring of Fites, was announced in mid-October, so it seems unlikely that this had any effect on the stock price. Some on our Caterpillar message boards have speculated that the inclusion of the stock into the Dogs of the Dow may have given it an artificial boost from which it is now retreating. Looking at a one-year price and volume chart certainly shows a noticeable increase in price since mid-December, and the stock's trading volume is up as well. But there are clearly larger jumps in trading volume surrounding earnings releases, as was the case for most Foolish Four stocks last year. So the effect of Cat's inclusion into the Foolish Four, if any, was pretty modest.

Certainly there are more substantive reasons behind the declines in other Foolish Four stocks. J.P. Morgan (NYSE: JPM) was hit by the recent devaluation of the Brazilian currency. Fortunately, Morgan is not as "exposed" to Brazil as some of the other bank stocks, which may have been why it was down a little less Wednesday afternoon than some of the other financials.

Nevertheless, according to Bloomberg, Morgan had about $2.2 billion in loans to Brazil as of the most recent quarter, while Chase (NYSE: CMB) had $3.8 billion and BankAmerica (NYSE: BAC) $3.3 billion. Overall, U.S. banks have $65 billion in loans to Latin America and the Caribbean, with $18.6 billion of that to Brazil, according to the Federal Reserve. Hopefully, Brazil's problems won't immediately spread to its neighbors, since clearly U.S. banks have a lot of exposure there.

Finally, on Tuesday International Paper (NYSE: IP) released its fourth quarter 1998 earnings, which were down from the previous quarter. The company earned $66 million, or $0.21 a share, before special items, compared to $77 million in the third quarter. Overall 1998 earnings came in at $308 million, or $1.00 per share, which is just exactly what the company needs to cover its dividend payments. Earnings for 1997 were $1.03 a share.

The company claims in its press release to have made progress in reducing costs and managing "supply/demand relationships." Regarding cost reductions, the company's third quarter report did show a 2.3% reduction in costs of goods sold and a 5.9% reduction in sales, general, and administrative (SG&A) costs. Yet declining sales and restructuring charges kept these gains from adding to the bottom line.

When International Paper talks about managing the "supply/demand relationship," it's referring to the company's efforts to reduce capacity by taking "unprecedented� downtime at facilities that in the past would have continued to run and build inventory." These efforts to manage inventory and demand may be working, since the company also announced upcoming "price increases in linerboard and printing papers." Not coincidentally, these two products were some of the main products manufactured by Union Camp, a company International Paper purchased last year.

International Paper may very well be gaining more control over production capacity, which it could then reduce in order to drive up demand, giving the company some pricing power. Thanks are due to Foolish reader David C. who mentioned this possibility to me in a recent e-mail, even before the announcement of a price increase.

Don't get too excited, though. International Paper is still largely in the commodities business so its profit margins will never be huge. Nevertheless, the announced price increases and the company's efforts to manage demand may enable its margins to get a little bigger. We'll keep our eye on the company's progress, of course, as the year moves forward.

Minnesota Mining & Manufacturing (NYSE: MMM) was down Wednesday, too, but on no real news. Until next week, Fool on!

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Today's Stock Lists | 1998 Dow Returns

01/14/99 Close
Stock  Change   Last
--------------------
CAT  -1  5/16  46.75
JPM  -4 15/16  101.63
MMM  -3  1/8   72.13
IP   -   9/16  44.06
                   Day   Month    Year   History
        FOOL-4   -3.16%  -0.38%  -0.38%   1.10%
        DJIA     -2.45%  -0.66%  -0.66%  -1.05%
        S&P 500  -1.80%  -1.39%  -1.39%   0.00%
        NASDAQ   -1.73%   3.84%   3.84%   5.26%

    Rec'd   #  Security     In At       Now    Change

 12/24/98   24 Caterpillar   43.08     46.75     8.52%
 12/24/98   22 Int'l Paper   43.55     44.06     1.18%
 12/24/98   14 3M            73.57     72.13    -1.96%
 12/24/98    9 JP Morgan    105.51    101.63    -3.68%


    Rec'd   #  Security     In At     Value    Change

 12/24/98   24 Caterpillar 1034.00   1122.00    $88.00
 12/24/98   22 Int'l Paper  958.12    969.38    $11.26
 12/24/98   14 3M          1030.00   1009.75   -$20.25
 12/24/98    9 JP Morgan    949.62    914.63   -$35.00


                             Cash     $28.26
                            TOTAL   $4044.01

</FOOLISH FOUR PORTFOLIO>