DRIP PORTFOLIO

The Drip Portfolio
Sharp-Clawed Cats
Our port is full of 'em. Plus, e-business.

By Jeff Fischer (TMF Jeff)

JUPITER, FL (Oct. 5, 1999) -- All of the big cats in our house are keeping their claws sharp. Johnson & Johnson (NYSE: JNJ) board members will likely vote to approve the company's $4.9 billion merger with Centocor (Nasdaq: CNTO) tomorrow. This morning, the company set the stock ratio for the deal. For thoughts on what Centocor brings to J&J, see Brian's "In Drugs We Trust" column from this summer.

The $4.9 billion acquisition is far from all that's going down at "House J&J." Having several irons in the fire, this afternoon Johnson & Johnson's Topamax drug was approved by the FDA for use on "gran mal" seizures that affect at least 50% of epilepsy sufferers. Topamax is already used as an add-on treatment for partial-onset seizure patients. There's more, but not to report today. J&J, a cat older than any of us, is one lively cat.

Our youngest and spunkiest feline, Intel (Nasdaq: INTC), is not your usual cat. This guy is far from nocturnal. All day it cranks out news regarding the progress of its advancing business. Today the company announced the approximately $500 million purchase of privately held IPivot, Inc. IPivot designs and manufactures what it calls "Internet commerce equipment." This product category includes "special function devices that manage information crossing the Internet to help ensure faster, more efficient, more secure, and more reliable transactions."

Groovy. $500 million makes only a small dent in Intel's $10 billion in cash and equivalents (as of last quarter), but it reconfirms the company's commitment to an e-commerce business. Not that we had any doubts.

Over the weekend, Intel was lambasted in Barron's when an article effectively said that the best days are now behind Intel. On Monday, several company analysts spoke to denude the Barron's article and to call it what it was: basically, inaccurate analysis (in the analysts' opinions). The net effect was that Intel rose on Monday.

Barron's likes to take on the largest market leaders (AOL, Intel, Cisco, Amazon) and predict bad times ahead. This sells papers. The analysis is often spotty enough and built on such a weak foundation, however, that it almost always demands a response if you read it. I don't read Barron's. I haven't for at least three years because it doesn't concern me, so I can't respond to the recent Intel article. Others Fools did. You can read about it on the Intel message board.

Not one to chase its own tail, Mellon Bank (NYSE: MEL) continues to run ahead steadily, too, selling its less attractive divisions and focusing on the sweet stuff. (The company's name will change to Mellon Financial Services to reflect that its focus is on global -- you got it -- financial services.) Yesterday it was announced that Mellon is rated among the top five banks and financial services organizations in the country regarding technology innovation.

One of Mellon's large goals is to become "the best performing financial services company in the country." In that vein, a focal point of its technology strategy is Web-enabled functionality. From yesterday's press release: "'E-commerce is just one way we enhance and extend our business strategies,' said Janey A. Place, executive vice president and manager of e-commerce strategy. 'In practical terms, this means integrating our products and services at the customer's desktop, providing Internet access to Mellon people, products and services, and creating a context in which to make financial decisions.'"

In watching C-SPAN's coverage of the recent 1999 Internet and Technology Conference somewhere in California (who cares where -- it could simply be online), Cisco Systems (Nasdaq: CSCO) was, not surprisingly, one of the most impressive companies on stage.

Cisco CEO John Chambers discussed the company's internal Web-utilization strategy that not only helps train, empower, and connect Cisco employees, but also allows company management to know where everything in the business "stands" at any given moment. The company now can close its books within 24 hours of the quarter's end, rather than having to wait the usual few weeks. Even more powerful, at any given time during the quarter, management can calculate the quarter's numbers to see where it stands in every way -- which divisions are not performing, which are outperforming, how profitability and cash flow is running, and so forth.

Such fast and accurate snapshots of a business were impossible five years ago. Cisco is already using the knowledge made possible by the Internet to create billions of dollars in extra market value. (I already believe that the stock is much higher because the company has had increased ability to hit or beat goals every quarter.)

Intel is another company that understands that the Internet isn't just about the consumer out there -- it's about the company "in here." Intel is using the Internet to streamline communication, operations, and to account for its daily and quarterly results in an all-but-immediate fashion. Outside the company, Intel foresees at least 80% of its sales taking place online in a few years. Costs savings: giant.

I suggest that companies that are slow to move online internally are going to have an increasingly difficult time regaining a competitive footing. The competition will jump by leaps and bounds far, far ahead. It is reassuring to know that Mellon and Intel have Internet-based and e-commerce-centric business plans. We can rest easier with this knowledge.

Now, if only Cisco Systems had a direct investment plan....

Earnings Ahead

If the news seems busy now, just wait! It's October. Earnings season is descending upon us like a swarm of frenzied bats (or like one of Brian's awkward teenage heartthrobs looking for a kiss). Johnson & Johnson should report its Q3 results on October 19, as should Mellon Bank, while Intel is said to report on October 12. We'll talk results right here.

Tomorrow, H. J. Heinz (NYSE: HNZ).

To discuss the companies in this column, or others, please visit the Drip Companies message board linked in the top right of this page. Fool on!

Drip Portfolio

10/5/99 Closing Numbers
Ticker Company Dly Pr Chg Price
CPBCAMPBELL SOUP5/16$39.06
INTCINTEL CORP-13/16$76.19
JNJJOHNSON & JOHNSON-5/16$94.19
MELMELLON BANK CORP-5/16$34.25

  Day Week Month Year
To Date
Since
7/28/97
Annualized
Drip -.68% 1.70% 2.12% 10.71% 25.92% 11.10%
S&P 500 -.25% 1.45% 1.45% 5.87% 38.62% 16.08%
S&P 500(DA) -.25% 1.45% 1.45% 6.45% 41.24% 17.08%
S&P 500(DCA) n/a n/a n/a n/a 18.81% 8.19%
NASDAQ .13% 2.30% 1.95% 27.68% 78.37% 30.24%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/9721.0839INTC42.592$76.1978.88%
11/14/9710.215JNJ78.341$94.1920.23%
11/5/9825.5267MEL34.137$34.250.33%
4/13/988.174CPB54.586$39.06-28.44%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/9721.0839INTC$898.01$1,606.33$708.32
11/14/9710.215JNJ$800.25$962.13$161.87
11/5/9825.5267MEL$871.40$874.29$2.89
4/13/988.174CPB$446.18$319.30($126.89)
  Cash: $24.37  
  Total: $3,786.41  


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

Note
Drip Port launched with $500 on July 28, 1997, adds $100 to invest every month, and the goal is to own $150,000 in stock by August of the year 2017. Due to the slow nature of dollar-cost-averaging and our relatively significant starting costs, we do not expect to seriously challenge the S&P 500 for the first three to five years as we build an investment base. The long-term advantages of dollar-cost-averaging still overcome the short-term disadvantages, however. Final note: our investment in Campbell Soup is frozen due to fees instituted in its investment plan. Click here for a history of all Drip Port transactions.