Fool.com: Finding Your First Companies for Investment [Drip] February 23, 2000

DRIP PORTFOLIO
Finding Your First Companies for Investment

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By Paul Litvak
February 23, 2000

[Note: It's Foolish of us to announce that today's column is written by a Fool Drip community member, Paul Litvak.]

Beginners often wonder which companies they should consider as possible investments. It's not very hard. The toughest part is whittling down the number of potential companies to a manageable number in order to build a diversified but controllable portfolio.

Potentially great investments are everywhere! Investing legend Mr. Peter Lynch said that people should invest in what they know. Simple. Obviously, you either own a computer or have access to one in order to reach The Motley Fool website. Take a look at Compaq (NYSE: CPQ), Hewlett-Packard (NYSE: HWP), Gateway (NYSE: GTW), IBM (NYSE: IBM), or Dell (NYSE: DELL). Use a printer? Check out HP and Lexmark (NYSE: LXK). Have Windows on your computer? Microsoft (Nasdaq: MSFT) will not only open but close them for you, and now you can buy the company through pseudo-Drip plans.

Do you own an automobile? Review General Motors (NYSE: GM), Ford (NYSE: F), Daimler Chrysler (NYSE: DCX), and Honda (NYSE: HMC). Need gasoline? You can fill your tank with Sunoco (NYSE: SUN), Texaco (NYSE: TX), and Chevron (NYSE: CHV).

Do you and your children eat cereal for breakfast? General Mills (NYSE: GIS) and Kellogg's (NYSE: K) will satisfy that growling stomach. What else? Ask children where they like to go to eat for lunch or dinner! The answer will probably be McDonald's (NYSE: MCD). You have your meal and they play with their toy from the Happy Meal, or if the weather permits they may play outside. What do you drink with your burger? Probably Coca-Cola (NYSE: KO). Have ketchup on your food? Probably Heinz (NYSE: HNZ). Do you or your children like pizza (Pizza Hut), chicken (KFC), or tacos (Taco Bell)? They are all part of Tricon Global Restaurants (NYSE: YUM).

Like soda and snacks? How about Pepsico (NYSE: PEP)? Besides soda the company owns Frito-Lay and makes snacks such as Ruffles, Lay's, Fritos, Doritos and Rold Gold Pretzels. Need a prescription filled? Then possibly Merck (NYSE: MRK) or Pfizer (PFE) will make you feel better quickly.

Does your humble abode need energy for heating, cooling, water, telephone service? Some examples are, of course, your local utility companies along with cellular phone makers such as Nokia (NYSE: NOK) and Motorola (NYSE: MOT). Be careful with deregulation and the resultant competition for your dollars.

Use Ivory soap, Cascade and Dawn for your dishes, Crest toothpaste, Pampers and Luvs for your little ones? Take a look at Procter and Gamble (NYSE: PG). Purchase insurance? American International Group (NYSE: AIG), Harleysville (Nasdaq: HGIC), and Allstate (NYSE: ALL) will cover you.

Go shopping? Then Kohl's (NYSE: KSS), Costco (Nasdaq: COST), Kmart (NYSE: KM), Best Buy (NYSE: BBY), and Circuit City (NYSE: CC) will fill your cart.

Certainly by now you have the idea. Just look around to get started! Get information and perform your due diligence by completely reviewing your possible investment(s). Good Luck!

P.S. If you're wondering how to consider all the possibilities and still buy only a handful of stocks and be diversified, see my recent column on diversification.

Note: Of the stocks mentioned in this article, the author owns MCD and PG.

Drip Portfolio

2/23/00 Closing Numbers
Ticker Company Dly Pr Chg Price
CPBCAMPBELL SOUP-11/16$28.88
INTCINTEL CORP5/16$109.06
JNJJOHNSON & JOHNSON-2 1/2$76.13
MELMELLON FINANCIAL CORPUnch.$29.94

  Day Week Month Year
To Date
Since
7/28/97
Annualized
Drip .39% 1.63% -.88% 4.63% 35.94% 12.66%
S&P 500 .63% 1.08% -2.42% -7.39% 44.94% 15.50%
S&P 500(DA) .63% 1.08% -2.42% -7.39% 47.56% 16.30%
S&P 500(DCA) n/a n/a n/a n/a 20.56% 7.53%
NASDAQ 3.84% 3.14% 15.48% 11.82% 189.91% 51.16%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/9722.9799INTC45.635$109.06138.99%
11/14/9711.811JNJ80.721$76.13-5.69%
11/5/9831.3788MEL34.307$29.94-12.74%
4/13/988.269CPB54.401$28.88-46.92%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/9722.9799INTC$1,048.68$2,506.25$1,457.56
11/14/9711.811JNJ$953.39$899.11($54.28)
11/5/9831.3788MEL$1,076.51$939.40($137.11)
4/13/988.269CPB$449.84$238.77($211.07)
  Cash: $24.41  
  Total: $4,607.94  


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.