DRIP PORTFOLIO
Zeroing In on High Growth

Drip Port continues to cut companies from its high-growth investment study based on industry position and potential, business predictability, and other factors. Today, priceline.com, Marimba, USinternetworking, Commerce One, and Rambus are cut. Phone.com and eBay advance to the next round. Amazon.com is up for discussion. Drip Port also reiterates its purpose.

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By Jeff Fischer (TMF Jeff)
November 16, 2000

Continuing our high-growth investment study, we're ready to cut more companies from our list of contenders. The companies that successfully passed the last cut were Paychex (Nasdaq: PAYX), Ariba (Nasdaq: ARBA), and Millennium Pharmaceuticals (Nasdaq: MLNM). Now we continue cutting (or not cutting) from our original high-growth company list.

For the purposes of this cut, we're considering each company's industry, its competitive position, its long-term ability to expand in related markets, its predictability, and finally its understandability (i.e., do we really have a chance at understanding the business?). These are all wide, sweeping, and subjective criteria for the early cut.

First up, Phone.com (Nasdaq: PHCM). This $7.5 billion lollipop markets software and applications to enable the convergence of Internet with wireless. So far, wireless is not meeting expectations. People are not surfing the Web effectively on their cell phones (thank goodness; drivers have enough car accidents just talking on their phones). The potential here is interesting, however, and Phone.com is an easy leader if wireless over phones takes off. The Rule Breaker looked closely at Phone.com. Although it'd be a long shot that we'd ever buy so risky a stock in Drip Port, we'll keep Phone.com on the list because it's a standout leader in an important niche with long-term promise.

USinternetworking (Nasdaq: USIX) is next, and it's been cut. The stock has fallen below the minimum share price at which we'd consider it, which is $7. USIX trades below $5 per share. This company is involved in software for online business commerce. In relation to this industry, we already have Ariba, the leader, on our list anyway.

The next company that I'm ready to conclude on is Commerce One (Nasdaq: CMRC). We can cut it because, again, we have Ariba on the list, and that's a more dominant company in online business commerce.

We'll also cut priceline.com (Nasdaq: PCLN) now, mainly because its price has fallen to below $3 per share. (It was $28 per share when the list was made!) There's no need to even think about it.

eBay (Nasdaq: EBAY) easily clears this round of cuts. eBay profitably dominates online consumer trade, it possesses a nicely predictable business (one not so threatened by technology the way so many high-growth companies are), and it has large sustainable advantages -- namely, its community. I also find it quite easy to understand eBay's motives and its business, and I've covered eBay for the Rule Breaker since 1998 and in Motley Fool Research since February. eBay anticipates 50% annual sales growth each of the next five years, which is well above our goal -- but we're getting ahead of ourselves!

Rambus (Nasdaq: RMBS) needs to be cut from Drip Port's study (sorry, Rambus fans) because, in effect, it competes with our holding Intel (Nasdaq: INTC). Plus, as I wrote earlier, since we already own Intel, it would be unlikely we'll buy any other company in the computer chip-related business. It just isn't advisable for a 17-year holding period. Intel is enough risk for us in this less-than-certain, long-term industry. I also don't favor Rambus due to its relatively small customer base, which was explained recently in the Rule Breaker. (By the way, the Fool has a new Dueling Fools on Intel -- bull or bear? You decide!)

Next on the list is software provider Marimba (Nasdaq: MRBA). I thought this little puppy could be interesting if it could steadily grow its business in a sustainable fashion. Marimba sells software that helps manage company networks, including the ability to update all of the software on a network as easy as 1-2-3. The $300 million company (as of one month ago) was also profitable -- well, for one quarter.

Profits vanished last month due to weak sales that the company blamed on its failure to close one large contract by the end of the quarter. However, management said that it remains cautious in the near term, just the same. Now Marimba is a $5 stock (down from $15 per share a month ago), and it is below our share-price and market-cap requirement, which is $300 million. Marimba is worth just $121 million, so we need to cut it now.

Amazon.com (Nasdaq: AMZN) does meet our criteria during this round of cuts: It is understandable (in theory at least), it leads its market, and it could expand to many related markets (many electronic-based and inventory-free). So, I'm inclined to keep Amazon on the list. What do you think? We'll discuss this on the Drip Companies discussion board and draw a conclusion there, to later post here.

So -- congratulations to eBay and Phone.com, who today advance to our next round, joining Ariba, Millennium Pharmaceuticals, and Paychex. Amazon is in the balance, depending on our board discussion, and the rest are removed. When we finally hunker down to study each finalist company deeply, deeply, deeply, we're going to want a list of only about 10 companies. So, more cuts (based on more-involved criteria) are due after we get through our initial list of companies for the first time. (That original list of companies is linked in the box above.)

Drip Port's Purpose
Some Fools are prudently asking, "Why is the Drip Port looking at these smaller companies, most of which don't have dividend reinvestment plans? I thought this thing was about Drips!" Well, we are about Drips, and we've built a portfolio based on Drip plans, dollar cost averaging, and reinvesting dividends.

We're entertaining this new study, though, for several reasons. First, 17 years is a long time. If we can find a smaller company with greater potential for reward, it will help us to create additional value that we probably would not get from an older, Drip-offering stalwart. With the recent advent of new pseudo-Drips, such as BUYandHOLD and ShareBuilder, we're able to consider dollar cost averaging into young companies for minimal fees. But, because of those fees, we'll only go through with this if the opportunity looks superior enough to compensate -- and then some -- for the additional fees.

Finally, we're doing this for educational purposes. Now that pseudo-Drips exist, many Fools are of a mind to give 'em a try. I'm guessing that, as investors feel ready, using pseudo-Drips sparingly to complement their free Drips will prove a good strategy. However, until we study this idea top-down, we won't have a solid conclusion. So, we're studying it via a high-growth study. At the end of this study we might decide not to buy anything outside of a Drip. Or, if we run the numbers and indeed believe that we'll do better with a certain pseudo-Drip, then we'll buy that high-growth leader. This is a learning process, though, and we'll have plenty of issues to address along the way.

Meanwhile, Drip Port's foundation and purpose always remain: Invest steadily in leading companies at very low cost (zero when possible!), reinvest all dividends, and understand what we own and why.

Fool on!

Drip Portfolio


11/16/00 as of ~8:30:00 PM EST

Ticker Company Price
Change
Daily Price
% Change
Price
CPBCAMPBELL SOUP1.314.27%32.06
INTCINTEL CORP(1.50)(3.61%)40.00
JNJJOHNSON & JOHNSON(0.81)(0.86%)94.19
MELMELLON FINANCIAL CORP0.250.55%45.69
PEPPEPSICO INC(2.25)(4.83%)44.31

  Day Week Month Year
To Date
Since
7/28/1997
Annualized
Drip(1.35%)0.87%(5.12%)8.34%29.68%8.18%
Comparable S&P 500n/an/an/an/a18.69%5.32%
S&P 500(1.27%)0.46%(3.99%)(6.60%)46.18%12.16%
S&P 500 (DA)(1.25%)0.46%(3.93%)(6.49%)48.80%12.77%
NASDAQ(4.22%)0.10%(10.02%)(25.49%)93.17%22.03%

Trade Date # Shares Ticker Cost/Share Price Total % Ret
9/8/9749.5166INTC24.2440.0065.30%
10/7/9837.3159MEL34.7745.6932.87%
11/14/9716.236JNJ80.1194.1918.81%
7/28/005PEP48.0044.31(7.68%)
4/13/988.403CPB53.9832.06(39.05%)

Trade Date # Shares Ticker Total Cost Current Value Total Gain
9/8/9749.5166INTC1,200.411,980.66783.85
10/7/9837.3159MEL1,297.431,704.87426.52
11/14/9716.236JNJ1,300.691,529.23244.60
7/28/005PEP240.00221.56(18.44)
4/13/988.403CPB453.61269.42(177.12)
 
Cash: 
Total: 
0.04
5,705.79
 


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.