FOOLISH FOUR PORTFOLIO
The Foolish Four for 2000
Announcing the next portfolio picks

By Ann Coleman (TMF AnnC)

TAMPA, FL (Dec. 23, 1999) -- I've still got Christmas shopping to do, so this is going to be short. The stocks for next year's Foolish Four Portfolio will be -- TA DAH -- Caterpillar (NYSE: CAT), Eastman Kodak (NYSE: EK), General Motors (NYSE: GM), and JP Morgan (NYSE: JPM).

Caterpillar and JP Morgan should look familiar. They were in this year's portfolio. Caterpillar stumbled a few weeks ago when the company announced that earnings for this quarter would not be up to expectations. The stock promptly lost most of the value it had gained during its yearlong tour of duty as a Foolish Four company.

JP Morgan is something of a surprise. The stock has done well for us this year, but its high yield is saying that it can do better. Financial companies have dropped recently due to the increases in the interest rate, and that reined in JP Morgan enough to keep it on the list for next year. I'm rather happy to have it.

By the way, this is typical. On average, two or three stocks stick around for a second year. See the Foolish Four History to see how that looks year by year.

Newcomers Eastman Kodak and General Motors have actually been on the Foolish Four lists for several months. Kodak has been dropping very steadily, but the company is a classic Dow Dog -- a fantastic brand known the world over that is having some problems. Unfortunately, I can't figure out what those problems are; other than the falling stocks price, the company appears to be going like gangbusters.

I reviewed two months' worth of news stories and found not a negative word. The most recent quarterly report looks good, and the company is announcing one partnership, digital initiative, and PR coup after another.

All I can conjecture is that the market expects newer companies with digital imaging technology to erode Kodak's customer base. That's the kind of trouble I like. One of these days, the market will slap its collective forehead and say: Duh! Kodak! Great brand! Huge resources! Early adopter of digital technology! What were we thinking?

General Motors is a different story. The company has been fairly flat over the last year if you mentally correct the chart for divestiture of Delphi Automotive (NYSE: DPH). The price dropped on June 1 when GM spun off the remainder of its stake in the auto parts company, but the drop was a "paper" one since shareholders received the same value in Delphi stock on that day.

There are actually a couple of good reasons why we could have not included GM in this year's Foolish Four. You might want to consider them before you make your own choices. First, the divestiture of Delphi is really the only reason GM "made the list." The company maintained its full dividend after the spinoff. That acted like a dividend increase which is good, but the lower price boosted its RP value, propelling GM into the upper half of our Top Ten list.

However, thanks to the research conducted by Ethan Haskel, we now know that companies who end up on the list just because of a stock split don't really fit the "profile" of true Foolish Four company. The drop in price is an artificial one, not a market overreaction to a problem. GM didn't split, but the spin-off is essentially the same thing, an artificial lowering of the price (that is, the combined price of GM and Delphi remained the same when the spin-off occurred).

We will probably incorporate Ethan's findings in some future version of the Foolish Four, but, since we haven't officially done that, we're stuck with GM. I'm not particularly worried about that, by the way. But you should make up your own mind. It would certainly be reasonable to skip it and buy DuPont (NYSE: DD) instead.

There's another controversy raging about GM that was discussed last year by Robert Sheard. Supposedly, GM's dividend policy is more like European companies that pay dividends that are closely tied to company performance rather than trying to maintain a nice, even, ever-rising dividend stream. Some have seen that as reason to eliminate GM from consideration since it isn't typical of other Dow companies. GM hasn't been a star performer, and certainly anyone who wants to reconsider it on that basis can do so. I've committed to following this mechanical strategy "by the book," though, and that's what I am doing.

So what happens now? Well, first thing Monday morning, I will call up my discount brokerage's website and sell International Paper (NYSE: IP) and 3M (NYSE: MMM). Thanks, guys, you've done well by me, although not as well as I'd hoped. Then I will call up our nifty new Foolish Buy Calculator and buy the number of shares it advises me to buy of GM and Kodak. I will buy additional shares of JP Morgan and Caterpillar only if I can do that without going over my expense limit of 2%. Then I'll sit back and relax for next year. Yeah, right!

Gotta go, my sleigh is waiting.

Fool on and prosper!

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Top Dow Stocks
( RP Order )

12/23/99

1. Philip Morris
   (NYSE:MO)
2. * Caterpillar
   (NYSE:CAT)
3. * Eastman Kodak
   (NYSE:EK)
4. * General Motors
   (NYSE:GM)
5. * JP Morgan
   (NYSE:JPM)
6. DuPont
   (NYSE:DD)
7. SBC Comm.
   (NYSE:SBC)
8. 3M
   (NYSE:MMM)
9. Int'l Paper
   (NYSE:IP)
10. AT&T
   (NYSE:T)

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

Foolish Four Portfolio

12/23/99 Closing Numbers
Ticker Company Dly Pr Chg Price
CATCATERPILLAR INC7/16$44.81
IPINTL PAPER1/4$55.81
JPMMORGAN (JP)3/16$128.69
MMMMINNESOTA MIN'G/MFG3/4$93.06

  Day Week Month Year
To Date
Since
12/24/98
Annualized
Foolish Four 2.39% .50% -.41% 20.31% 22.10% 22.12%
S&P 500(DA) 1.56% 2.62% 4.99% 19.22% 19.28% 19.30%
NASDAQ .82% 5.77% 18.98% 81.03% 82.71% 82.79%
DJIA (DA) 1.80% 1.32% 4.85% 25.62% 25.77% 25.79%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
12/24/9822IP43.551$55.8128.15%
12/24/9814MMM73.571$93.0626.49%
12/24/989JPM105.514$128.6921.96%
12/24/9824CAT43.083$44.814.01%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
12/24/9814MMM$1,030.00$1,302.88$272.88
12/24/9822IP$958.12$1,227.88$269.75
12/24/989JPM$949.63$1,158.19$208.56
12/24/9824CAT$1,034.00$1,075.50$41.50
  Cash: $119.51  
  Total: $4,883.95  

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.