FOOLISH FOUR PORTFOLIO

Foolish Four Portfolio
Look Out Below!
Philip Morris dives for cover

By Ann Coleman (TMF AnnC)

ALEXANDRIA, VA (Oct. 21, 1999) -- Just when I was thinking Philip Morris (NYSE: MO) couldn't get any lower, it drops through the floor. The stock dropped almost 14% today after a similarly disastrous drop yesterday. Philip Morris is down 28% since last Friday and 56% since the beginning of the year.

The good news (and it's not much to smile about) is that, for anyone buying at this point, the yield is now over 7%. That is bound to attract buyers, maybe not today, but eventually.

For anyone not avoiding Philip Morris because of socially responsible scruples, a 7% yield is highly attractive. (Heck, it's highly attractive to many who are avoiding it for socially responsible reasons. Hang tough, guys!) That's a higher yield than many bonds, with the possibility of a capital gain at some point in the future. There is also, of course, the possibility of legal awards so high that they might crush the company like the Marlboro Man mashes a cigarette butt into the dust with his boot.

I think the big question in many shareholders' minds might be whether Philip Morris could cut its tobacco divisions loose in order to free the rest of the company from that threat. Right now, with a P/E of 9 and a market cap that has shrunk from it's last year near $140 billion to under $60 billion today, it is quite likely that the market is valuing the tobacco portion of Philip Morris at close to zero already.

The company reported quite respectable third-quarter earnings on Tuesday, but a Florida court sent packing any hope of benefiting from the stable growth that the report showed. The court refused the tobacco industry's request to settle punitive damages from Florida smokers on a case-by-case basis and set a November 1 trial date for the punitive damage portion of the Florida class action suit. Shareholders reacted negatively to the possibility of a massive award coming by year's end rather than being dragged out over decades in individual courts.

Unfortunately, Philip Morris is still in some Foolish Four investors' portfolios. About this time last year, Philip Morris was #3 on our Foolish Four list and I was telling investors that they skipped it at their own risk. I guess this is one case where investors who followed their consciences were rewarded, but I wouldn't draw any long-term conclusions from that.

For now, Philip Morris is single-handedly managing to make mincemeat out of all of the Dow Investing strategies that included it. I'm glad the RP skipped it, but lest anyone think I am crowing about the Foolish Four's better performance, let me refer you to this article, on the role of dumb luck, where that choice is put into perspective.

By the way, please feel free to discuss Philip Morris on its message board or on our socially responsible investing message board. I will check in for any comments addressed to me, but I can't engage in one-on-one e-mail discussions about the company's moral responsibility or the smoking issue in general.

Last time I swore I would never type the words Philip Morris again! If you want to know what I think, here it is: I'm tempted, but I just can't make myself buy the company. It doesn't feel right. I also hope that current shareholders manage to do better in the future. And if you disagree, I think your opinion is just as valid as mine. Can't we all just get along?

Fool on and prosper!

Today's Stock Lists | 1999 Dow Returns

Read More Foolish Four Reports


Top Dow Stocks
( RP Order )

10/21/99

1. Philip Morris
   (NYSE:MO)
2. * Sears
   (NYSE:S)
3. * Goodyear Tire & Rubber
   (NYSE:GT)
4. * General Motors
   (NYSE:GM)
5. * Caterpillar
   (NYSE:CAT)
6. Eastman Kodak
   (NYSE:EK)
7. JP Morgan
   (NYSE:JPM)
8. AT&T
   (NYSE:T)
9. International Paper
   (NYSE:IP)
10. DuPont
   (NYSE:DD)

NOTE: Today's Foolish Four stock selections are marked with an asterisk.

Foolish Four Portfolio

10/21/99 Closing Numbers
Ticker Company Dly Pr Chg Price
CATCATERPILLAR INC-1 1/2$52.13
IPINTL PAPER-3/4$49.06
JPMMORGAN (JP)11/16$117.19
MMMMINNESOTA MIN'G/MFG5/8$91.00

  Day Week Month Year
To Date
Since
12/24/98
Annualized
Foolish Four -.79% 1.47% -1.80% 16.75% 18.49% 22.77%
S&P 500(DA) -.45% 2.90% .07% 5.00% 5.06% 6.15%
NASDAQ .50% 2.57% 2.03% 27.79% 28.97% 36.03%
DJIA (DA) -.91% 2.77% -.38% 13.07% 13.24% 16.23%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
12/24/9814MMM73.571$91.0023.69%
12/24/9824CAT43.083$52.1320.99%
12/24/9822IP43.551$49.0612.66%
12/24/989JPM105.514$117.1911.06%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
12/24/9814MMM$1,030.00$1,274.00$244.00
12/24/9824CAT$1,034.00$1,251.00$217.00
12/24/9822IP$958.12$1,079.38$121.25
12/24/989JPM$949.63$1,054.69$105.06
  Cash: $80.43  
  Total: $4,739.50  

Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.
• DJIA (DA) = dividend adjusted. Dividends have been added to the total return of the DJIA.

Note
The Foolish Four Portfolio was launched on December 24, 1998, with $4,000. Additional cash is never added, all transactions are discussed and explained publicly before being made, and returns are compared daily to the S&P 500 and the Dow. (Dividends are included in the yearly, historic and annualized returns.) Stocks are chosen once per year using a formula based on dividend yield and price. See The Foolish Four Explained for details.