DRIP PORTFOLIO
Enron, Nortel, and Scientific-Atlanta

George Runkle continues discussing his new Pathfinder Portfolio, offering how he'll track his portfolio and why he chose Enron, Scientific-Atlanta, and Nortel. All three stocks are also on the list of the Drip Port's new high-growth study, so Drip Port followers may want to take notes!

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By George Runkle (TMF Runkle)
September 19, 2000

Today we continue the discussion of my Pathfinder Portfolio, a portfolio I'm launching for myself and sharing publicly. It holds three companies -- all three of which made the list of the Drip Port's new high-growth study, too.

First off, I need to correct how I'll be buying stock in Enron (NYSE: ENE). The monthly enrollment is a $250 minimum, which is waived if you agree to invest $50 a month for five months. I could send in $250, and then go with $25 a month, but thinking about it, I decided to go with $50 a month. This lowers my commissions, percentage-wise.

I talked to Jeff Fischer about the mechanics of how we can track my Pathfinder Port publicly and against the S&P 500. To do so, I'm going to try to get one set up on the Fool site that you all can access to see how I'm doing. Jeff and I discussed at length how to track the portfolio against the S&P 500, and we came up with an idea. Every time I make a purchase, I will make a "dummy purchase" for the same amount in S&P Depositary Receipts (AMEX: SPY), or "Spyders" as many people call them, which mirror the S&P 500 index.

For each investment I make in the Pathfinder Portfolio, we'll assume I could have put that same amount in Spyders with no commission. That's not exactly true, as there is no direct purchase plan for Spyders, and if you purchased them through BuyandHold or Sharebuilder, you would pay a transaction fee. However, it will give us a reasonable benchmark that's easy for everyone to track.

So, I will again share the companies that I'm buying, and reiterate briefly the reason why I chose each one.

Scientific-Atlanta (NYSE: SFA) is a pure play in cable television equipment. There is some risk, in that the company is not a diversified investment. This was mentioned on the Drip Companies board, and is something to consider. However, cable is projected to see phenomenal growth, with the possibilities of telephone, high-speed Internet access, and digital TV. According to the Cable Television Industry Association, digital cable is projected to grow from 10.6 million households to 42.1 million in 2006. This will expand demand for head-end equipment, network equipment, and set-top boxes. Since Motorola (NYSE: MOT) acquired General Instruments, this represents the only pure play in cable.

Enron (NYSE: ENE) trades bandwidth. As the demand for this commodity grows, there is a need to provide it with greater efficiency. This allows greater utilization of existing fiber, and users and suppliers cut their risk and make better use of their capital. Enron is involved in other areas such as energy and commodities, where they help customers in other industries balance risk. It is the largest wholesale natural gas and power supplier in North America, and has pipelines and fiber networks. So, while Scientific-Atlanta is a pure play, this company is more diversified.

Nortel Networks (NYSE: NT) is my third purchase. The technology this company sells is pretty difficult to understand, and there is a lot of competition in its different markets, so I have studied it extensively. It is the leader in the global optical transmission market, with a 43% market share. According to Dell 'Oro Group, it has nearly three times the market share of its competitors. Nortel is also a leader in wireless, and has introduced the Open IP Environment, which is router software that can be placed on any electronic appliance.

Of the three companies, I believe that Nortel is in the market that represents the most risk. One way of determining risk is to look at the stock's beta. This is a measurement of the movement of the stock against the overall market. The higher the beta, the more the stock moves. While it may mean the stock will have sharp gains, there can also be big losses.

If a stock has a beta of 1.0, it generally moves up and down with the market. A higher beta means it moves up and down greater than the market, a lower beta means it moves less than the market. Nortel has a beta of 1.47, Enron's is 0.46, and Scientific-Atlanta's is 1.08. This confirms that Nortel does present more risk -- at least when judging from past market behavior and equating share price volatility with risk, or market uncertainty.

These are very quick descriptions of the three companies. Please do not take my choices as investment recommendations. In fact, you can usually see some disagreements with me on the Drip Companies board, which of course is entirely Foolish. We want you to make your own decisions here in Fooldom.

That said, I have enrolled in Netstock Direct for Enron and I should see that stock purchase soon. I'll be sending a check to Temper Enrollment Service to get my first shares of Nortel and Scientific-Atlanta. As this all occurs, I'll let you all know how much I end up paying for the shares and, over time, we'll see how I do -- and how the companies do. To discuss them now, please join us on the Drip Companies discussion board.

Drip Portfolio


9/19/00 as of ~5:30:00 PM EDT

Ticker Company Price
Change
Daily Price
% Change
Price
CPBCAMPBELL SOUP(0.31)(1.25%)24.69
INTCINTEL CORP4.568.17%60.38
JNJJOHNSON & JOHNSON(0.31)(0.34%)91.81
MELMELLON FINANCIAL CORP1.192.75%44.31
PEPPEPSICO INC(0.13)(0.28%)43.88

  Day Week Month Year
To Date
Since
7/28/1997
Annualized
Drip4.09%1.00%(10.13%)26.29%64.08%17.03%
S&P 5001.07%(0.40%)(3.81%)(0.64%)55.51%15.05%
S&P 500 (DA)1.05%(0.40%)(3.75%)(0.63%)58.13%15.67%
NASDAQ3.73%0.79%(8.10%)(5.01%)146.29%33.15%

Trade Date # Shares Ticker Cost/Share Price Long-Term
% Gain
9/8/9745.9818INTC22.8460.38164.39%
11/5/9835.1201MEL34.1044.3129.97%
11/14/9715.019JNJ78.9691.8116.28%
7/28/005PEP48.0043.88(8.59%)
4/13/988.403CPB53.9824.69(54.26%)

Trade Date # Shares Ticker Total Cost Current Value Long-Term
$ Gain
9/8/9745.9818INTC1,050.022,776.151,726.13
11/5/9835.1201MEL1,197.431,556.26358.82
11/14/9715.019JNJ1,185.841,378.93193.09
7/28/005PEP240.00219.38(20.63)
4/13/988.403CPB453.57207.45(246.12)
 
Cash: 
Total: 
60.08
6,198.24
 


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.