<THE DRIP PORTFOLIO>
Our Interest List
Plus, Campbell earnings and J&J news
by Jeff Fischer (TMFJeff)
by Jeff Fischer (TMFJeff)
ALEXANDRIA, VA (May 18, 1999) -- Of the major industries, we're invested in four. However, we're actively investing in only three: healthcare, computers and technology, and financial services. Our investment in food and beverages is frozen, leaving a gap we need to fill. We don't want to avoid the industry for the next 18 years, so we'll look to replace Campbell Soup (NYSE: CPB).
We don't buy Campbell Soup regularly anymore because its direct stock plan has high fees in relation to what we invest each month. The $5 fee is 5% of our $100 monthly investment. Even if we invest $200 we'd pay a 2.5% fee. The stock would need to return over 13.5% annually (including dividends) just for us to beat the market's average return.
Rather than extensively lament the fees, we'll consider new investments in the food and beverage industry. To round out the Drip Portfolio (as we shared when we launched, we could eventually own about 6 to 8 stocks), we'll also consider other industries. In fact, we're compiling an Interest List that includes companies from our recent oil industry study. Our Interest List currently holds:
Abbott Labs (NYSE: ABT)
BP Amoco (NYSE: BPA)
Coca-Cola (NYSE: KO)
Clorox (NYSE: CLX)
Pennzoil-Quaker State (NYSE: PZL)
Pfizer (NYSE: PFE)
Wrigley (NYSE: WWY)
Coca-Cola and Wrigley stand out as leading food and beverage possibilities; Pfizer and Abbott represent our potential for another pharmaceutical investment. Rather than over-diversify, we believe in concentrating our investment dollars in the best ideas and the most promising opportunities available. The Boring Port argued very effectively for concentration investing last year, reminding that "Dilution Kills."
We don't want to own too many companies -- so many that we invest in mediocre ones and dilute our returns. We want to concentrate on building a small handful of successful holdings. Therefore, if we put more focus on one industry (pharmaceuticals, for example) that'll be because we like its outlook best.
The industries that I'm most interested in are pharmaceuticals, technology and computers, food and beverage for more stability, and telecommunications -- an industry that the Drip Port doesn't yet "own." Could AT&T (NYSE: T), now the largest cable company in the world, be a strong 20-year investment? Perhaps. In our port information pages, we list the qualities that we look for in companies.
The industries that I'm less interested in are oil, utilities, and gas because these are generally difficult to understand and it is almost impossible to make long-term earnings projections that you can hang your hat on. I also have relatively little interest in construction or other "heavy" businesses, including automobiles -- these are businesses that demand intensive capital investment. Before you question Intel (Nasdaq: INTC) as being one such business, we presented numbers in 1997 showing that Intel is much less capital intensive than most people believe.
So, where will the Drip Port go next? I like pharmaceuticals and telecommunications and recognize that we need a new food and beverage investment. We've already taken one-day looks at Coca-Cola and Wrigley. The current situation at Coke isn't attractive enough to rush into buying, as strong as the company is for the long term. Wrigley is impressive and we need to take a closer look. Overall, I initially consider pharmaceutical and telecommunication industries more attractive, though. Both industries probably stand to grow considerably more than food and beverages over the next two decades.
I'll iron out with Brian what we'll consider next. Meanwhile, we're not in a hurry to "go" anywhere, of course. We're Foolish investors and we already like our current holdings very much, Campbell being the unfortunate exception.
Speaking of which...
Campbell Soup announced third quarter results today. The company reported earnings of $0.37 per share, matching estimates and up 9% from last year. U.S. soup consumption rose 3%, although Campbell's shipping volume dropped as the company reconfigured inventories. Management expects volume to rise in the next quarter and earnings per share to rise 10% next year. We'll slurp up more numbers tomorrow after they "cool."
Finally, Johnson & Johnson (NYSE: JNJ) reported that the FDA cleared for sale its cholesterol-reducing food additive, Benecol, which is derived from plants. J&J should begin selling the product in a margarine spread on May 26. Benecol could be a $200 million product by 2002.
If you have any comments or questions, please visit the Drip Companies board. For some thoughts on today's Federal Reserve news regarding interest rates, please visit tonight's Rule Breaker column.
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