Fool.com: USA, the Computer Nation [Drip] March 8, 2000

DRIP PORTFOLIO
USA, the Computer Nation
Plus, J&J: Cheaper and stronger?

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By Jeff Fischer (TMF Jeff)
March 8, 2000

The Drip Port has invested about 15% of the total funds that it plans to invest over two decades, leaving 85% still to be invested. Thus, although it isn't amusing to watch our current positions dwindle in size, this decline should actually prove beneficial to us in the long run. If we have found great companies at good prices, buying them at lower prices should only result in better long-term returns.

Johnson & Johnson (NYSE: JNJ) is trading close to where it was two years ago when we first started to buy the stock. We first purchased good old J&J at $62, $64, and $69. The price never looked back from there, until now. Thankfully, valuation does matter (of course, the price that you pay will determine the return you generate), and J&J is still higher from our initial purchase prices while many of its peers are down since early 1998, some as much as 50%.

The opportunity to buy J&J in the $60s again is good for a long-term direct portfolio like ours, especially given that the business is as strong as it was when the stock was in the $100s. We sent this month's $100 investment to the company last week, and therefore we bought more shares yesterday -- we also received a dividend reinvestment -- at a price in the high $60s.

I'm a Fool and I don't make market predictions, but if I did, I'd bet that drug stocks will generally continue to bounce around (it's an election year!) until a new Commander in Chief is elected and the government's stance on healthcare is fairly clear. Right now, pharmaceutical investors don't like the uncertainty of not knowing what new governmental policies could impact the industry.

Generally, these fears prove to be overstated. The government is not trying ruin big business; nor should the government wish to weaken the high profits in the drug industry, because those profits fund the research and development of new drugs.

Mellon Financial (NYSE: MEL) continues to teeter lower along with other financial and bank stocks. At a P/E of 14.8 and with a 2.8% dividend yield, the stock is beginning to look a little juicy. However, Mellon could go lower and that's exactly what Brian Graney and I are hoping for this early in the game. We would love to see Mellon down to 10, 9, or 8 times earnings (which happens to bank stocks now and again, sometimes for long periods) and yielding well over 4%.

We'll keep socking money into this long-term, probable winner either way. What we've always hoped for are good prices on our investments in the early going, and we think we're seeing that.

USA, the Computer Nation

The world changes in small ways every day, until those changes become a new way of life. Radio, the telephone, and television were all accepted slowly at first, especially compared to the Internet's rate of acceptance. Although computers will probably never be as "important" as our advances in health science the past 100 years, computers are quickly changing our lives profoundly. And America is leading the way by leaps and bounds.

In fact, other countries fear that American businesses are positioning themselves to lead for the next 100 years or longer. Sporting "first mover" advantage, an advantage that utilizes all of the latest technologies and capitalizes most on the Internet, how can foreign companies compete with America's leaders? How can a company with any less Internet-savvy compete with the likes of a Cisco Systems (Nasdaq: CSCO), or a Dell Computer (Nasdaq: DELL), both of which use the Internet to enormous advantage in running operations. (And both of which are covered extremely well by Fool Research -- the reports are out soon.)

Even new companies such as Amazon (Nasdaq: AMZN) and eBay (Nasdaq: EBAY) are leading in key overseas markets -- thereby draining money from foreign competition and putting it in U.S. accounts. It's true that foreign businesses have plenty to worry about. North American business is in the lead and is positioning itself to continue to lead for a loooooooong time. Can there be just one "Super Power" in the world for many centuries? Of course. Odds actually favor such an occurrence.

Yesterday, Intel (Nasdaq: INTC) shared that it would give a high-speed Pentium III computer and Internet access to each of its 70,000 full and part-time employees -- not for work use, but for personal use at home. Intel will also support upgrades every three years. This news boggled my mind. For example, who knows how many new companies will be formed by Intel employees as a result of this -- people will get ideas and put them into play online at home. But overall, this nation's cyberspace economy becomes stronger with every new person added online. How can other countries, already behind, hope to catch up when this country is becoming rich enough to provide people with free computers? (Intel is not the first company to offer this to its employees. Ford Motor, American Airlines and Delta Airlines have all started such programs!)

Meanwhile, even Johnson & Johnson is far ahead in the practice of using the Internet for business. The healthcare company runs over 150 websites. Spriteman, a Fool, recently posted his thoughts on why J&J continues to be one of his favorite investments.

"Amazing Times"

I'm convinced that every decade in history has been "an amazing time to be alive." That is how life works. We are always on the edge of new discovery. However, oftentimes "amazing" means frightening, disruptive, or even horrible (WWI, WWII, the Great Depression), but in our case, "amazing" means prosperous, inventive, progressive. We are lucky.

To discuss direct investing and Foolishness in general, please visit the Drip message boards linked below. We have a great community there, willing to talk about most anything Foolish. Fool on!

Drip Portfolio

3/8/00 Closing Numbers
Ticker Company Dly Pr Chg Price
CPBCAMPBELL SOUP3/4$30.31
INTCINTEL CORP-13/16$114.94
JNJJOHNSON & JOHNSON1/2$71.00
MELMELLON FINANCIAL CORP-11/16$27.50

  Day Week Month Year
To Date
Since
7/28/97
Annualized
Drip .26% -3.73% -.74% 4.98% 36.39% 12.60%
S&P 500 .82% -3.01% .02% -6.98% 45.58% 15.45%
S&P 500(DA) .82% -3.01% .02% -6.98% 48.21% 16.24%
S&P 500(DCA) n/a n/a n/a n/a 21.05% 7.58%
NASDAQ 1.02% -.36% 4.27% 20.35% 212.01% 54.53%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/9722.9799INTC45.635$114.94151.86%
11/14/9711.811JNJ80.721$71.00-12.04%
11/5/9831.5773MEL34.290$27.50-19.80%
4/13/988.269CPB54.401$30.31-44.28%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/9722.9799INTC$1,048.68$2,641.25$1,592.57
11/14/9711.811JNJ$953.39$838.58($114.81)
4/13/988.269CPB$449.84$250.65($199.19)
11/5/9831.5773MEL$1,082.79$868.38($214.42)
  Cash: $24.41  
  Total: $4,623.27  


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.