<THE DRIP PORTFOLIO>
Entering the Foolish Zone
...and Touchstone Friday
by Vince Hanks (TMFElwood@aol.com)
NORTHVILLE, MI (Jan. 29, 1999) -- I found five good stocks on my way to work today.
The day began much like any other wintry morning with me rushing out the door, shoes untied, a breakfast bagel in my hand, and my still wet hair crystallizing in the arctic air. But today would be different. Unbeknown to me, I wasn't traveling along my normal path on this journey, I had instead entered the Foolish Zone! (Eerie music here.)
The Foolish Zone is more a state of mind than it is a tangible realm. In the Foolish Zone, everyday objects around you sublimate into potential investments to be compared and contrasted with their peers. The Foolish Zone, or FZ as scientists called it for years, is a dimension of tremendous potential wealth for those who stumble upon it.
My first encounter with the FZ phenomena was when a biker in the lane next to me on the freeway glanced over. He noticed my Fool ballcap, and after a brief hesitation, he gave me the "thumbs up" signal. I smiled and returned the gesture, and that's when I noticed the logo on his ride: Harley-Davidson.
Since going public in 1986, production at Milwaukee-based Harley-Davidson (NYSE: HDI) has grown from 37,000 to 148,000 in 1998, with 160,000 planned for next year. The company hopes to build 200,000 motorcycles in its centennial year of 2003. Over the past ten years Harley has more than doubled the market, as measured by the S&P 500 index. It sports net margins of 10.34%, little debt, and a five-year estimated earnings growth rate of 18.8%.
The friendly biker sped off as I finished my bagel. (Gotta remember to vacuum my car soon.) Traffic was light today, giving me time to stop off at Tim Horton's for a coffee. For those of you unfamiliar with this Canadian legend, the coffee and donut store's namesake was a Hall of Fame hockey player who played in more games (1,446) as a defenseman than any other in the NHL. Until now. Barring a misfortunate incident, Larry Murphy of the Detroit Red Wings will surpass this accomplishment on February 3, 1999.
As I pulled out into traffic, I thought to myself that it would only be appropriate for Wendy's International (NYSE: WEN), the parent company of Tim Horton's, to rename its restaurants Larry Murphy's after next Wednesday. Remind me to drop Dave Thomas a note about that.
Wendy's has been somewhat stagnant of late, returning only 39% to its investors (not including reinvested dividends) over the past five years, compared to 158% for the S&P 500. I decided to keep driving. Not everything in the FZ will be a good investment, but keeping your eyes open and then researching the companies fully can unearth some tremendous gems among the zirconias.
It was just then that a semi-truck with the ubiquitous Coca-Cola name painted along the side passed me traveling in the other direction. The Coca-Cola Co. (NYSE: KO) is one of nation's most dominant and successful businesses. Over the last ten years, Coke has demonstrated consistent sales and earnings growth along with widening margins and steadily increasing positive cash flow. The company has driven net profit margins from 12% to 22% over the past decade and has also historically enhanced the returns to its shareholders through thirty-five consecutive years of dividend growth and its habit of buying back shares.
My eyes returned to the road just in time to see the giant pothole my right front tire was about to do battle with. The resulting jolt sent almond-mocha java spewing from its cup and all over my leather car seat. This is one of those times I'm glad I use Armor All protectant on my seats and dash. I keep a bottle in the glove compartment, and as I reached past it for a rag, I noticed Armor All is a brand name of the Clorox Co. (NYSE: CLX).
I remembered reading in the Breakfast With the Fool morning news feature that Clorox, in its most recent quarter, had reported a net sales increase of 6% to $685.9 million. Net income rose 15% to $85.4 million. Net margins rose to 11.2%, and due to implemented cost savings programs, gross margins had risen to 56.75%. Over the past decade Clorox shareholders have been brightened by share appreciation of over 350%.
Finishing what was left of my coffee, I reached into my coat pocket for a stick of chewing gum. Cinnamon-flavored sugarless Extra is my usual brand of choice for chewing gum, and on any other day I may have returned the pack to my pocket without giving it any further thought. But this morning I looked more closely at the label and thought a bit about the William Wrigley Jr. Co. (NYSE: WWY), the makers of Extra sugar-free gum.
Just Wednesday Wrigley's announced another estimate-topping quarter, with profits rising 13% due to higher sales and lower ingredient costs. Wrigley's has annual sales of over $2 billion, net profit margins of nearly 15%, not a speck of debt, and a projected five-year annual earnings growth rate of 13%.
Despite my eventful voyage, I managed to arrive at work on time. However, upon turning into the parking lot, I was dismayed to find my normal parking space occupied by a Pitney Bowes repair truck. Our fax machine has been acting up lately, and we had placed a call for service today. I was left with no choice but to park way in the back. The longer than normal walk to the door gave me a chance to ponder the maker of our facsimile machine.
Pitney Bowes (NYSE: PBI) is the leading provider of informed mail and messaging management. The company's annual revenues have risen to over $4 billion, while maintaining profitability with net and gross margins of 13% and 60%, respectively. Earnings have grown an average of 12.6% annually over the past five years and are projected to maintain that growth, with an estimated annual growth average of 13.5% in the next five years.
During the thirty-five minute trip from my home to my place of employment, I directly encountered six consumer brand businesses. All but one of these companies is near or at the top of its field and has grown its share price at market-beating levels for the past decade. There will be dozens more that I'll encounter throughout the day and on my way home from work. When professional money mangers assert that the average small investor cannot pick market-beating stocks, and are risking their money by managing it themselves, it leads me to this conclusion: They must not have left their offices in a number of years.
Each of the five promising stocks above has another thing in common, as well. Each offers a fee-free Dividend Reinvestment Plan for shareholders of record and all but Pitney Bowes can be purchased in increments of $50 or lower each month (Pitney's minimum is $100), making them affordable to virtually anyone with a long-term savings plan.
Just for the sake of fun and Foolishness, I'm going to track the five favorable stocks I found almost accidentally on my way to work today against the market. I'll call this the "Drive to Work" portfolio, and I'll look in on it from time to time to see how it compares to the market, and by default, more than 80% of the managed mutual funds that lose to the market each year. I'll begin tracking this fictional portfolio using the opening prices on Monday. I think when I check back in ten years I'll like what I see.
Touchstone Friday Lite! I've rambled on quite a bit already, so I'll keep this brief. Very brief.
Monday was merger mania day as Frank Bosley (racerboy) took us inside the world of corporate mergers. Tuesday was J&J day, as Jeff looked at Johns & Johnson's strong yearly finish. On Wednesday, Jeff talked about the marketing, or lack thereof, of energy in the U.S., and on Thursday, Brian revisited Oil & Gas accounting 101.
Have a great weekend and don't be frightened if you find yourself in the Foolish Zone!
Make a Living Foolin' Around.
|Recent Drip Portfolio Headlines|
|12/27/00||Eight Lessons from a Down Market|
|12/26/00||Fools Share Their Blessings|
|12/21/00||Amazon Dropped from Study|
|12/20/00||Ciena's Not Like Other Telecoms|
|12/19/00||They Say You Can't Invest|
|Drip Portfolio Archives »|