DRIP PORTFOLIO
J&J for What Ails Ya

Johnson & Johnson reported third-quarter earnings growth of 14.1% and topped expectations as it continues to innovate in healthcare. Mellon Financial grew earnings per share 11% to match expectations. Intel reported earnings of $0.41 per share, above the new estimate of $0.38 per share.

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By Jeff Fischer (TMF Jeff)
October 17, 2000

Welcome to Hat Trick Tuesday! Three of our companies announce results today: Johnson & Johnson (NYSE: JNJ), Mellon Financial (NYSE: MEL), and Intel (Nasdaq: INTC). Intel announces after the market closes, so after we hear the conference call tonight, we'll discuss the news in Drip Port tomorrow.

Today we look at the jolly J&J giant and Mellon Financial. Both companies continue to be as consistent as wind in a hurricane.

Johnson & Johnson reported diluted earnings per share (EPS) of $0.89, a penny above expectations and up 14.1% from the third quarter of 1999. Sales rose 4.6% to $7.2 billion. That sales growth rate would be discouraging, but the domestic sales growth rate was actually 7.5%, and the international sales growth rate was 9.3% before a currency impact of negative 8.4%. So J&J grew sales at a fairly healthy clip when considering these factors.

Leading the charge was pharmaceutical sales, up 12.9% domestically and 7.3% overall to $2.9 billion. Keeping the fires burning, J&J's existing Levaquin drug received FDA approval for a new treatment, and its Reminyl drug (for Alzheimer's) received an approvable letter from the FDA. Also, yesterday J&J and Merck (NYSE: MRK) received FDA approval for their new Pepcid Complete heartburn medicine.

As we wrote last week, J&J has new drug candidates in the works for 26 different indications, and as many as 15 of these could be approved before 2003.

J&J's professional products division grew sales a modest but healthy 4.2% to $2.5 billion. The Cordis division is achieving strong sales of its coronary and endovascular stents as J&J continues its recovery in this market. In this division, J&J received FDA approval for its Trapease Permanent Vena Cava Filter. J&J said, "Vena cava filters are used to help prevent pulmonary embolism that occurs when a blood clot breaks free from the peripheral circulation and travels to the lung, blocking the flow of blood."

J&J also received FDA approval for its new TRUFILL n-BCA Liquid Embolic System "for presurgical... tangle[s] of abnormally connecting arteries and veins. The TRUFILL n-BCA Liquid Embolic System acts as a 'surgical glue' to reduce bleeding by blocking the vessels before surgery."

Medical advances like these fascinate me. We always look at J&J's recent FDA approvals because new products sustain the company's growth, and also because... well, they fascinate me. In fact, I'm waiting for FDA approval on my own new "Sleep No More Eye-Keeper-Openers." Like toothpicks, but different, they keep your eyes open when inserted properly.

Joking aside, watching J&J continuously innovate is encouraging for the sake of everyone's health. The company's credo is a must-read.

Finally, J&J's consumer products division grew sales 1.1% to $1.7 billion. Neutrogena, Tylenol, and Motrin continue to sell well.

This month, the consumer products division announced a nationwide launch of Splenda, a "non-caloric sweetener made from sugar, in tabletop packages (granular and packet forms). Sucralose, the sweetening ingredient in Splenda, has FDA approval for use as a general purpose sweetener in any food or beverage."

Operating results at J&J look sweet as ever, with gross, operating, and net margins ringing in at approximately 70%, 24%, and 17%, respectively -- holding even after last year's advances. Today J&J said that 2000 earnings per share would be toward the top of the $3.35 to $3.40 range expected. Next year, $3.82 is expected, putting the $97 stock at 25 times 2001 estimates.

Mellon
Mellon Financial reported earnings per share growth of 10.86%, or $0.51 per share, matching estimates, while its key core business contribution to the results grew 22%. Mellon has been another case of good ol' consistency, and for our long-term Drip Port, that's what we want. We can almost set our watches by the fact that both Mellon and J&J will continue to increase dividends every year. (To learn how to analyze Mellon and its results, see our "related links" box above.)

Intel
Intel reported earnings of $0.41 per share, above the new estimate of $0.38 per share. The conference call replay will be available at www.intc.com. We'll discuss 'em tomorrow -- hit the Intel board linked above to discuss 'em today -- and we'll decide where to send our next investment tomorrow. Fool on!

Drip Portfolio


10/17/00 as of ~8:30:00 PM EDT

Ticker Company Price
Change
Daily Price
% Change
Price
CPBCAMPBELL SOUP(0.69)(2.52%)26.63
INTCINTEL CORP0.501.40%36.19
JNJJOHNSON & JOHNSON0.130.13%97.06
MELMELLON FINANCIAL CORP(1.25)(3.00%)40.44
PEPPEPSICO INC0.501.07%47.13

  Day Week Month Year
To Date
Since
7/28/1997
Annualized
Drip(0.45%)(4.01%)(5.54%)5.06%36.49%10.13%
S&P 500(1.79%)(1.76%)(6.02%)(8.12%)43.80%11.92%
S&P 500 (DA)(1.76%)(1.73%)(5.92%)(7.98%)46.42%12.55%
NASDAQ(2.32%)(3.10%)(12.49%)(21.02%)104.77%24.89%

Trade Date # Shares Ticker Cost/Share Price Total % Gain
9/8/9748.4286INTC23.7636.1952.65%
11/14/9715.694JNJ79.6997.0623.08%
10/7/9837.3159MEL34.7740.4417.77%
7/28/005PEP48.0047.13(1.82%)
4/13/988.403CPB53.9826.63(49.12%)

Trade Date # Shares Ticker Total Cost Current Value Total $ Gain
9/8/9748.4286INTC1,150.431,752.51605.68
11/14/9715.694JNJ1,250.711,523.30288.65
10/7/9837.3159MEL1,297.431,508.96230.61
7/28/005PEP240.00235.63(4.38)
4/13/988.403CPB453.61223.73(222.81)
 
Cash: 
Total: 
Unchg.
5,244.13
 


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.