Monday, April 27, 1998
Cash-King Portfolio
Report
by Tom Gardner
([email protected])
Alexandria, VA (Apr. 27, 1998) -- The Cash-King Portfolio notched another strong week last week, with Pfizer and Intel leading the charge, and with ongoing strength from our Foolish-Four holding, Eastman Kodak. It was just one week, but we did wallop the averages, as the S&P 500 fell 1.3%.
In a poignant reminder that short-term thinking gets punished in the public markets, the S&P 500 fell today and our stocks fell sharply along with it. At market close, Pfizer had fallen more than $4 13/16, T. Rowe Price was off $4 5/8, and Microsoft had given up $1 11/16. So, this week is off to a slow start. Thankfully, we're going to be managing this portfolio for two decades, and more.
It's my charge to report on the news and performance of our holdings last week, not today, so let's take a look at the stock-by-stock performance for the week ending April 24, 1998:
Last This %-
Cash-King Week Week Change
Pfizer $105.19 $117.63 + 11.8%
Intel $75.19 $82.00 + 9.1%
T R Price $75.38 $76.38 + 1.3%
Microsoft $92.13 $92.06 + 0.0%
Coca-Cola $77.00 $73.63 - 4.4%
Last This %-
Fool-Four Week Week Change
E Kodak $70.63 $72.19 + 2.2%
Exxon $72.13 $73.50 + 1.9%
Chevron $83.38 $82.44 - 1.1%
GM $68.94 $67.50 - 2.1%
S&P 500 1122.72 1107.90 -1.3%
All told, it was quite a fine week, as seven of our nine investments beat the market. Let's look at some of the news starting with our best-performing investment to date.
Pfizer (NYSE: PFE) announced, at its packed-house shareholders meeting on Thursday, that it would spend in excess of $2 billion on research & development this year to fund 170 research ventures. CEO William Steere gave an upbeat report on the performance of the company's leading drugs while repeatedly emphasizing the great potential for Pfizer to heal infirmities with new treatments in the years ahead.
Earlier in the week, Pfizer announced that it had been granted a temporary restraining order in a Viagra trademark-infringement lawsuit filed in U.S. District Court in Atlanta. The lawsuit, filed April 20 against American Urological Clinic and related parties, challenges the organization's marketing of "Vaegra," a vitamin and herbal supplement, as a treatment for erectile dysfunction. Fighting ridiculous trademark infringements like this is an unfortunate consequence of success.
Finally this week, Pfizer announced its quarterly dividend of 19 cents per share, payable to shareholders on June 11. We, of course, would welcome any dividend reductions from our Cash-King companies... since we'll be taxed on them at the end of the year and since we believe each of our companies has huge opportunities for growth around the world (toward which they can direct these funds).
Ringing up an extremely strong week was Intel (Nasdaq: INTC), which announced on Wednesday 1) that it saw its business strengthening in Asia, 2) that growth in China's personal computer market was robust, and 3) that Taiwan would boost Intel's growth in the East.
Intel's Asia-Pacific general manager John Davies told Reuters, "There's no doubt that the market became smaller in South Korea, Indonesia, and Thailand. But China and India are strong." Interestingly, Davies went on to say that Asia now makes 60% of the world's motherboards, 40% of the world's notebook computers, and 50% of the world's graphics cards. Asia, he added, has emerged as the world's PC development center.
T. Rowe Price (Nasdaq: TROW), our third best performer of the week, had a busy time of it. The company announced first quarter earnings of $41.3 million on sales of $210.4 million. The performance marked a rise in net margins to 19.6%. One of the features we look for in our businesses is earnings rising more rapidly than sales, which of course makes for net margins rising into growing demand.
T. Rowe finished the quarter with total assets under management of $139 billion, up 36% over the same quarter last year. Over 50% of the new assets landed in T Rowe's stock funds. Finally, TROW closed the quarter with $215 million in cash on the balance sheet.
(Editor's Note: We could mention that T. Rowe's stock split will take effect on May 1st, but we don't consider that news!)
Microsoft (Nasdaq: MSFT) also announced earnings this past week, posting extraordinary numbers, which were reviewed in Friday's report (cf. Microsoft's Money). Microsoft's chief financial officer Greg Maffei did say Wednesday that he expects fourth-quarter revenues to run flat with the $3.77 billion reported in the third quarter. Further, he noted that earnings would actually be down slightly from the 50 cents per share reported for the third quarter, due to higher sales and marketing expenses.
Microsoft also announced this week that, along with Sony Corporation, it would soon open Microsoft SF, the first Microsoft-branded store. (Disney Stores look out?! NikeTown, beware?!) The store, where consumers can have a hands-on experience with Microsoft and other computer-related products, will be located on the second floor of a huge Sony Entertainment Center now under construction in San Francisco's South of Market area. Get out your checkbooks.
Additionally last week, in a sharp reminder of Microsoft's authority in the software industry, Israel's Check Point Software Technologies (NASDAQ: CHKPF) swiftly fell more than 20% after Mr. Softy warned that it would compete with the network security company. Microsoft's Steve Ballmer said that Check Point should coordinate development of its products with Microsoft if it wanted to avoid direct competition. "If they want to cooperate, to create products for our platforms, we will be happy to tell them our plans," said Ballmer. "If they wish to compete, they are invited to compete with us."
Yikes.
Finally, this past week we had a live discussion on America Online with CFO Greg Maffei. If you're a shareowner of Microsoft today or considering it, and even if you hate Microsoft, you should take five minutes to read through the transcript (cf. Maffei Talks to The Fool). The talk turned up some interesting information about its business model and approach to the industry.
Coca-Cola (NYSE: KO) announced this past week that sales volumes in Mexico, via its bottler Coca-Cola Femsa, grew 25% over the same period last year. Demand continues to grow swiftly abroad as Coca-Cola balances its bottlers' domestic demands versus the need to continue sparking worldwide addiction to caramelized, carbonated corn syrup.
Elsewhere in Cokeville, SunTrust Banks, among the largest holders of KO stock, announced that Coca-Cola CEO M. Douglas Ivester had been elected to the Board of Directors of SunTrust.
To close, Fools, tomorrow evening we'll be announcing our sixth Cash-King purchase. Please look for the report after 6 p.m. tomorrow. As always, we will be purchasing the stock within five days of our announcement. How Foolish -- announcing buys before making them. What would the Wise say to that?
See you tomorrow evening,
Tom Gardner
TODAY'S
NUMBERS
Stock Change Bid ---------------- CHV + 15/16 83.38 KO - 7/8 72.75 EK - 15/16 71.25 XON + 13/16 74.31 GM + 7/16 67.94 INTC -2 80.00 MSFT -1 3/4 90.31 PFE -4 3/16 113.44 TROW -4 1/2 71.88 |
Day Month Year History
C-K -1.41% 3.51% 7.59% 7.59%
S&P: -1.93% -1.38% 8.51% 8.51%
NASDAQ: -2.60% -0.84% 10.13% 10.13%
Rec'd # Security In At Now Change
2/3/98 22 Pfizer 82.30 113.44 37.84%
3/12/98 20 Exxon 64.34 74.31 15.51%
2/3/98 24 Microsoft 78.27 90.31 15.39%
3/12/98 20 Eastman Ko 63.15 71.25 12.83%
2/6/98 28 T. Rowe Pr 67.35 71.88 6.72%
2/27/98 27 Coca-Cola 69.11 72.75 5.27%
3/12/98 15 Chevron 83.34 83.38 0.04%
2/13/98 22 Intel 84.67 80.00 -5.52%
3/12/98 17 General Mo 72.41 67.94 -6.17%
Rec'd # Security In At Value Change
2/3/98 22 Pfizer 1810.58 2495.63 $685.05
2/3/98 24 Microsoft 1878.45 2167.50 $289.05
3/12/98 20 Exxon 1286.70 1486.25 $199.55
3/12/98 20 Eastman Ko 1262.95 1425.00 $162.05
2/6/98 28 T. Rowe Pr 1885.70 2012.50 $126.80
2/27/98 27 Coca-Cola 1865.89 1964.25 $98.36
3/12/98 15 Chevron 1250.14 1250.63 $0.48
3/12/98 17 General Mo 1230.89 1154.94 -$75.95
2/13/98 22 Intel 1862.83 1760.00 -$102.83
CASH $5801.16
TOTAL $21517.85
*The year for the S&P and Nasdaq will be as of 02/03/98
