Drip Port shares the latest company list for its high-growth study, reinstating four companies and adding three new ones. Drip Port's next cuts from the list will be based on something controversial -- they will be subjective cuts. However, remember that investing is a subjective process.
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There is a catch, however. Given that community Fools argued for the return of these companies and since we already have so many companies to analyze, we're going to request that Fools on the discussion board analyze these four companies as part of our study. If they don't, we won't. If they do, we will, too -- using much of their work as a guide. This will be collective learning.
The next cuts on the way
We made our first cuts based on expected earnings per share growth rates and market capitalization. Companies with five-year growth rate estimates below 25% or with market valuations above $50 billion were cut -- like bread at a bakery.
Soon we'll look at sales growth. We want to see at least 20% annual revenue growth. Then we'll go into other numbers to make more cuts -- like gross margin, debt, cash flow, and working capital. But, before all of that happens, we're going to make cuts that will be controversial. The next cuts will be subjective.
Our list below is far too long for us in Drip Port to analyze and come to know each company well. Instead, we must work from some existing knowledge base. This means that we're going to look at each line of business and cut the companies with businesses we don't understand at all today, and that we believe we would have a hard time understanding even given much work -- not to mention the trouble we would have projecting the future of certain businesses.
This is clearly a subjective process. However, that's what investing is! A business that we understand you may not understand at all, nor want to, and vice versa. Each of us, hopefully, invests in the businesses that we understand best and think are most attractive. Everyone has different favorites.
So, before our subjective cuts over the next week get you ruffled, remember that Drip Port is just one example of how a few Fools invest their money. We demonstrate the process in public so that others may learn from what we do, both good and bad, and apply any lessons to their own decision making. We are not "the model" to follow. There isn't any such model that works for everyone. We do hope that we are a good model to learn by, however.
Below is the list as it stands today, with three brand-new additions from the community and four other companies reinstated. Over the next week, we'll look at each company's business here at Fool HQ and then we'll come back to you with our first cuts, explaining why we're cutting swaths of businesses from our list, if we do. We've provided the full list of companies today and in the past so that you may pursue any you wish, regardless of what we cut for personal, subjective reasons.
Company (Ticker) Market Cap 5-Yr. EPS (Listed by Popularity) ($ Billions) Growth Est.* Paychex (Nasdaq: PAYX) $16 28.3% Network Appliance (Nasdaq: NTAP) $35 56% Ariba (Nasdaq: ARBA) $38 61% SanDisk (Nasdaq: SNDK) $5 34.2% Millennium Pharm. (Nasdaq: MLNM) $12 27% Human Genome Sciences (Nasdaq: HGSI) $9 N/A (Listed by Estimated Growth Rate) Phone.com (Nasdaq: PHCM) $7 100% USinternetworking (Nasdaq: USIX) $0.87 72.5% NEXTLINK Commun. (Nasdaq: NXLK) $8 70% InfoSpace (Nasdaq: INSP) $9 68% Commerce One (Nasdaq: CMRC) $12 67.5% eBay (Nasdaq: EBAY) $17 66.7% Priceline.com (Nasdaq: PCLN) $1.8 64.3% Rambus (Nasdaq: RMBS) $7.9 62.5% NEW Marimba (Nasdaq: MRBA) $0.3 58.3% Amazon.com (Nasdaq: AMZN) $15 57.7% Redback Networks (Nasdaq: RBAK) $19 52.8% BroadVision (Nasdaq: BVSN) $7.3 51.6% NEW Newport (Nasdaq: NEWP) $5 50% Red Hat (Nasdaq: RHAT) $3.6 50% Cree (Nasdaq: CREE) $4.4 47.5% Three-Five Systems (NYSE: TFS) $0.6 45% NEW RF Micro Devices (Nasdaq: RFMD) $6.4 44% Applied Micro Circuits (Nasdaq: AMCC) $24 42.7% Qiagen (Nasdaq: QGENF) $6 42.5% MedImmune (Nasdaq: MEDI) $15 41.8% Vitesse Semiconductor (Nasdaq: VTSS) $15 41% Check Point Software (Nasdaq: CHKP) $23 40.7% PMC-Sierra (Nasdaq: PMCS) $34 40% Mercury Interactive (Nasdaq: MERQ) $12 39.1% Siebel Systems (Nasdaq: SEBL) $45 38.8% Palm Inc (Nasdaq: PALM) $25 37.5% Wind River Systems (Nasdaq: WIND) $3.3 37% Qualcomm (Nasdaq: QCOM) $47 36.8% Ciena (Nasdaq: CIEN) $29 36.3% Trex Company (NYSE: TWP) $0.55 35% Identix (AMEX: IDX) $0.50 35% Concord EFS (Nasdaq: CEFT) $7 34.5% Gemstar-TV Guide Intl (Nasdaq: GMST) $16 33% Jabil Circuit (NYSE: JBL) $13 31.5% Flextronics (Nasdaq: FLEX) $17 31.1% Solectron (NYSE: SLR) $29 29.6% ADC Telelcomunn. (Nasdaq: ADCT) $26 28.8% Panera Bread Co (Nasdaq: PNRA) $0.196 28.3% Knight Trading Group (Nasdaq: NITE) $4 27.5% Genentech (NYSE: DNA) $44 26.1% Starbucks (Nasdaq: SBUX) $6.8 26% Fastenal (Nasdaq: FAST) $2.3 25.6% Adobe Systems (Nasdaq: ADBE) $18 25.2% Krispy Kreme Doughnuts(Nasdaq: KREM) $1.1 25% IXYS Corp. (Nasdaq: SYXI) $0.913 N/A Nasdaq 100 (AMEX: QQQ) N/A ?? Added Back for Analysis by Community Fools Corning (NYSE: GLW) $93 28% Enron (NYSE: ENE) $64 16.7% Broadcom (Nasdaq: BRCM) $56 48% Medtronic (NYSE: MDT) $58 18.3%*The five-year earnings per share estimate is the average estimate of all analysts covering a company, as compiled by I/B/E/S.
Revisiting this study's purpose
Again, why are we doing this study?
To learn and to hopefully find a new investment that could be a higher grower than normal for us. We believe that over our 20-year investment life, our search for value should already be found by buying stable, steady growers that present lower risk than normal and pay a growing dividend. By dollar cost averaging into growing giants, such as Johnson & Johnson (NYSE: JNJ), we should be able to create significant value over time. So, if we remain healthy and free, we should have nothing at all to complain about after buying "just" these safer investments for a few decades.
However, we believe that we would be stagnant in thought if we didn't push ourselves some and accept the challenge that comes from trying to spot an excellent company before it is worth $100 billion. So, we're looking at younger, much smaller companies to learn, to hopefully profit, and to complement our existing stable of steady, dividend-paying growers. If we find a high-growth company that we like enough to buy, it'll be like adding chocolate syrup to our already tasty sundae, a sundae made up of flavors like J&J, PepsiCo (NYSE: PEP), Intel (Nasdaq: INTC), and Mellon Financial Corp. (NYSE: MEL). Mix it all together, and we'll have a well-diversified Drip Port with various degrees of potential even when holding only about six stocks. Or, we may not find a new company to buy. That'd be fine, too.
Until next time, Fool on!
P.S. To add a new company to the list or to argue for other companies to be reinstated on the list, just share your thoughts on the Drip Companies board.
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