Fool.com: Monster Companies! [Drip] March 10, 2000

DRIP PORTFOLIO
Monster Companies!
Plus, Touchstone Friday

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By Jeff Fischer (TMF Jeff)
March 10, 2000

It is easy to forget that the Nasdaq rose 85% last year.

85%!!

Over the last five years, in fact, the Nasdaq Composite has trounced the results that any rational investor had hoped to see. The Nasdaq has risen to new record after record, hitting another record today, to end a record week (did we say "record" enough?).

The Nasdaq continues to rise on the heels of high-growth at leading technology companies across several sectors. Dozens of tech- and computer-centric industries, including networking, telecom, software, wireless and e-commerce, are growing at least double-digits annually as nearly the entire world (literally) prepares itself for Internet-based business.

Take a look at Nasdaq's annual gains:

1999    85.59% 
1998    39.63% 
1997    21.64%
1996    22.71%
1995    39.92%

And it is up 24% more so far this year! When will this torture end?

Torture? Well, not exactly, but in some senses this is a kind of torture. This is the torture of "too much." Sometimes "too much" can skew what you hope for in the future. Spoil you. Make you jaded. Too much of anything makes it less than good. And what we've experienced the past five years is akin to enjoying 20 year's worth of joy in just one-fourth the time. Eventually, you're going to need to experience years that are not so joyful. Eventually, you'll experience years that have very little joy as far as stocks are concerned.

As Cisco Systems (NYSE: CSCO) says, "Are you ready?"

Speaking of Cisco Systems, the company nearly became the most valuable one in the world last week, surpassing Microsoft (Nasdaq: MSFT). It couldn't quite leapfrog the giant, though.

Now, is that a bad thing? Or a good thing? Sure, size begets more size. With $500 billion in equity a company can buy almost any other business that it wishes. In fact, a company that size can do almost anything that it wants to in the business world. But as an investor, do you want to keep piling your dinero into a $500 billion monster company? I mean, come on, what's the upside? Can a company become worth a trillion dollars? And even if it does, that's only double your money. Blah!

Partial kidding aside, at one point in history not a single $10 billion company existed. Nor did any $100 billion companies exist at one point, let alone $500 billion companies. The point is: as long as the business world isn't about to throw itself into reverse as it did in 1929, good businesses are always on the cusp of becoming better. Stocks are less steady than a business and sometimes they get far ahead of themselves. But give them enough time, and as long as a business continues to grow to support its stock price, a stock itself can always be on the cusp of higher long-term values, too. $10 billion. $100 billion. $500 billion. $1 trillion. $10 trillion -- if the world market exists to support such a valuation.

I am talking about "lifetime scenarios," however. If you want to accumulate great wealth by putting $5,000 into something like Cisco, Microsoft or Intel (Nasdaq: INTC), then you better be thinking that this wealth will benefit your children or grandchildren much more than it will you, because it is difficult to imagine us seeing Microsoft rise ten times in value again during our lifetimes. The company would need to be worth over $5 trillion, up from $525 billion today.

Of course, Microsoft could break itself into many pieces and eventually create more value more easily for shareholders that way, but still....

Here are some top Monster Companies and their recent approximate market valuations before any share dilution, which is surely waiting in the wings from stock options.

Company       Approx. Market Value
Microsoft         $525 billion          
Cisco             $466 billion
GE                $432 billion
Intel             $401 billion
AOL               $134 billion
Coca-Cola         $110 billion

Look at that! America Online is worth more than a century-old America icon, Coca-Cola (NYSE: KO). And Intel has cracked $400 billion in value. When we started buying ol' Chippy (that is, ol' Intel), it was worth about one-third as much. It is too bad, in a way, that Intel has gone so much higher before we had the chance to put more money in it than we did. Perhaps a chance will come again.

These Monster Companies are all great businesses, and they will likely give you a much better return than buying a Monster truck (25% of a truck's value is erased the minute you drive it off the dealer's lot), but still, keep in perspective, boys and girls, that these are some giant valuations and we could easily find ourselves five years down the road staring at these same valuations, or much lower valuations -- in fact, that has already happened to Coca-Cola the past four years.

So, keep your perspective about you! It has been an extraordinary stock market and $100 billion companies have become $400 or $500 billion companies quickly. This elevator will slow down eventually, though. What can we do, as Drip investors? Keep Dripping into what you believe in most, and you will be buying during the "bad" years, too -- and that practice could eventually turn into good results for you.

Touchstone Friday and Cisco
The columns from the past week are linked below. On Monday, George Runkle talked with Williams Communications. On Tuesday, George Smyth talked about a great "tiebreaker" criteria you can use when deciding where to invest between a few companies. On Wednesday, we touched on Johnson & Johnson (NYSE: JNJ), Mellon Financial (NYSE: MEL), and our computer nation, USA. We also know that we bought $100 worth of J&J on Tuesday. Finally, on Thursday, Vince Hanks provided an excellent column to help all of us pay our taxes this year. Bookmark that puppy!

Finally, I'll close today with a rarity in the Drip Port: a plug. Phil Weiss of the Rule Maker and of Fool Research wrote the best research report on Cisco Systems that I have ever read. Over 15 pages long, the report is available for sale at Fool Research. (While there, check out Phil's Q&A on Cisco, which is free content.) This report actually demonstrates how Cisco's business could indeed become ten times larger than its current size, whatever the stock price does from here.

Visit us on the Drip message boards linked below, and Fool on!

--Jeff Fischer, TMF Jeff on the boards.

Drip Portfolio

3/10/00 Closing Numbers
Ticker Company Dly Pr Chg Price
CPBCAMPBELL SOUP-1 1/4$28.94
INTCINTEL CORP13/16$120.19
JNJJOHNSON & JOHNSON-1 13/16$70.88
MELMELLON FINANCIAL CORPUnch.$27.56

  Day Week Month Year
To Date
Since
7/28/97
Annualized
Drip .21% -1.44% 1.62% 7.47% 39.63% 13.59%
S&P 500 -.47% -1.00% 2.10% -5.05% 48.60% 16.32%
S&P 500(DA) -.47% -1.00% 2.10% -5.05% 51.23% 17.10%
S&P 500(DCA) n/a n/a n/a n/a 23.56% 8.41%
NASDAQ .03% 2.72% 7.49% 24.07% 221.65% 56.19%

Trade Date # Shares Ticker Cost/Share Price LT % Val Chg
9/8/9722.9799INTC45.635$120.19163.37%
11/14/9711.811JNJ80.721$70.88-12.20%
11/5/9831.5773MEL34.290$27.56-19.62%
4/13/988.269CPB54.401$28.94-46.81%

Trade Date # Shares Ticker Cost Value LT $ Val Ch
9/8/9722.9799INTC$1,048.68$2,761.90$1,713.21
11/14/9711.811JNJ$953.39$837.10($116.29)
4/13/988.269CPB$449.84$239.28($210.56)
11/5/9831.5773MEL$1,082.79$870.35($212.44)
  Cash: $24.41  
  Total: $4,733.04  


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.