Workshop Portfolio

<FOOLISH WORKSHOP>

Plowback Screen Plowing Along      

By Jim Stevens (Jim Stevens)

BURLINGTON, VT (August 5, 1999) -- Today we check in on another market-beating Workshop screen, the Plowback model. Our interest in this screen began last year in the 05/19/98 report. Since then, a lot of us have gotten interested in this simple ratio, a favorite of Warren Buffett for choosing winning companies. A few months back TMF Elan added some legitimacy to the model when he ran and posted a backtest of the Plowback screen. Elan's test shows that a 5-stock version of the screen would have had a compound annual growth rate of 30.41% from 1986 through 1998.

So what is this Plowback Ratio? Value Line actually calls it Percent Retained to Common Equity and defines it as "Net profit less all common and preferred dividends divided by common equity including intangible assets, expressed as a percentage." Put more simply, it looks at ratio between profits retained by the business (i.e. not paid out in dividends) and the company's net worth or "common equity," which is the company's assets minus its liabilities.

The theory behind this screen is that companies that continually "plow back" profits into their businesses believe in themselves. The current profits are used to drive future growth.

Here's a quick primer on how to run the Plowback screen: Starting with all 1700 stocks in the ValueLine Investment Survey, select the 20 stocks with the largest market capitalization that also have a plowback ratio of 25% or greater. Very simple, really, but you do need the electronic edition of ValueLine to run the numbers. For the final selection, choose the top 5 or 10 stocks with the highest 26-week Total Return.

At the beginning of 1999, I began tracking a Plowback Ratio portfolio in my Three Experimental Screens report. Up through last Friday, here's the performance the top 20 Plowback stocks for 1999, selected based on the December 31, 1998 ValueLine:

Sun Microsystems (Nasdaq: SUNW)    56.93%
Oracle Corp. (Nasdaq: ORCL)        26.09%
Int'l Business Mach. (NYSE: IBM)   34.37%
Intel Corp. (Nasdaq: INTC)          7.75%
Dell Computer (Nasdaq: DELL)        8.28%
Amgen (Nasdaq: AMGN)               38.08%
Cisco Systems (Nasdaq: CSCO)       31.72%
Safeway Inc. (NYSE: SWY)          -16.72%
Guidant Corp. (NYSE: GDT)           7.05%
Gap (The)  Inc. (NYSE: GPS)        25.61%
Lucent Technologies (NYSE: LU)     24.16%
Microsoft Corp. (Nasdaq: MSFT)     31.32%
Schering-Plough (NYSE: SGP)        -7.47%
Abbott Labs. (NYSE: ABT)          -12.12%
Campbell Soup (NYSE: CPB)         -19.89%
Sara Lee Corp. (NYSE: SLE)        -20.62%
Bestfoods (NYSE: BFO)              31.52%
Caterpillar Inc. (NYSE: CAT)       39.95%
Coca-Cola (NYSE: KO)               -5.78%
Computer Associates (NYSE: CA)     15.10%

                         Top 5     26.69%
                         Top 10    21.92%
                         Top 15    15.68%
                      All Twenty   12.22%
1999 is shaping up to be another good year for the model, with the relative strength (26-week Total Return) once again proving to be an effective final ranking tool.

Here are the top ten Plowback stocks as of last week's ValueLine:
Tellabs Inc. (Nasdaq: TLAB)
Sun Microsystems (Nasdaq: SUNW)
Int'l Business Mach. (NYSE: IBM)
Amgen (Nasdaq: AMGN)
Colgate Palmolive (NYSE: CL)
Nokia Corp (NYSE: NOK)
Gap (The) Inc. (NYSE: GPS)
Lucent Technologies (NYSE: LU)
Cisco Systems (Nasdaq: CSCO) 
Microsoft Corp. (Nasdaq: MSFT)
Stay Foolish!


New Rankings | Workshop Returns


Workshop Portfolio


9/28/01 as of ~5:30:00 PM EDT

Ticker Company Price
Change
Daily Price
% Change
Price
AETAETNA INC NEW0.943.36%28.94
BABOEING CO(1.04)(3.02%)33.36
CATCATERPILLAR INC1.112.53%44.91
COGCABOT OIL & GAS 'A'0.693.59%19.90
DDDU PONT (EI) DE NEMOURS0.992.74%37.14
DGXQUEST DIAGNOSTICS(0.45)(0.73%)61.42
EKEASTMAN KODAK0.421.31%32.49
GMGENERAL MOTORS1.393.38%42.55
LHLABORATORY CORP AMER HLDG(NEW)1.141.42%81.21
MOPHILIP MORRIS COS(0.76)(1.55%)48.24
NEWPNEWPORT CORP0.261.90%13.97
NVRNVR INC(0.54)(0.38%)140.41
PKXPOHANG IRON & STEEL ADS1.097.51%15.61
PVNPROVIDIAN FINANCIAL1.075.64%20.04
QCOMQUALCOMM INC(0.40)(0.84%)47.16
RJRRJ REYNOLDS TOBACCO HLDGS(0.69)(1.19%)57.31
SLESARA LEE CORPUnchg.Unchg.21.09
UNFIUNITED NATURAL FOODS0.563.18%18.15
WMIWASTE MANAGEMENT(0.01)(0.04%)26.74

Overall Return -- total % Gained (Lost)
  Day Week Month Year
To Date
Since
Inception
(12/24/1998)
Workshop1.30%7.32%(12.02%)(20.66%)(18.91%)
Comparable S&P 500n/an/an/an/a(19.07%)
S&P 500 (DA)1.95%7.48%(8.33%)(21.22%)(14.88%)
NASDAQ2.02%4.71%(17.46%)(39.68%)(31.41%)
DJIA (DA)1.68%7.07%(11.07%)(17.86%)(2.22%)

Internal Rate of Return -- Annualized Rate of % Gained (Lost)
  Since Inception (12/24/1998)
Workshop(17.62%)
vs. S&P 500(17.63%)

Trade Date # Shares Ticker Cost/Share Price Total % Ret
1/8/0126MO40.9448.2417.82%
1/8/0122RJR50.1057.3114.39%
1/8/0167UNFI16.4518.1510.34%
12/24/9824CAT43.0844.914.24%
1/8/018NVR136.63140.412.77%
1/8/0140WMI27.4426.74(2.54%)
1/8/0150SLE22.5421.09(6.42%)
1/8/0161PKX17.8315.61(12.46%)
1/8/0115DD48.8337.14(23.95%)
1/8/0129AET38.1728.94(24.19%)
1/8/0139COG28.7519.90(30.79%)
1/8/0114QCOM75.5447.16(37.57%)
1/8/018LH134.6981.21(39.70%)
12/27/9918GM73.2642.55(41.92%)
1/8/0118BA59.5333.36(43.96%)
1/8/019DGX114.4961.42(46.35%)
12/27/9920EK65.0932.49(50.08%)
1/8/0120PVN55.5020.04(63.89%)
1/8/0115NEWP74.9613.97(81.36%)

Trade Date # Shares Ticker Total Cost Current Value Total Gain
1/8/0126MO$1,064.50$1,254.24$189.74
1/8/0122RJR$1,102.25$1,260.82$158.57
1/8/0167UNFI$1,102.12$1,216.05$113.93
12/24/9824CAT$1,034.00$1,077.84$43.84
1/8/018NVR$1,093.00$1,123.28$30.28
1/8/0140WMI$1,097.50$1,069.60($27.90)
1/8/0150SLE$1,126.88$1,054.50($72.38)
1/8/0161PKX$1,087.75$952.21($135.54)
1/8/0115DD$732.50$557.10($175.40)
1/8/0129AET$1,107.00$839.26($267.74)
1/8/0139COG$1,121.37$776.10($345.28)
1/8/0114QCOM$1,057.62$660.24($397.39)
1/8/018LH$1,077.50$649.68($427.82)
1/8/0118BA$1,071.50$600.48($471.02)
1/8/019DGX$1,030.44$552.78($477.66)
12/27/9918GM$1,318.62$765.90($552.73)
12/27/9920EK$1,301.75$649.80($651.95)
1/8/0120PVN$1,110.00$400.80($709.20)
1/8/0115NEWP$1,124.37$209.55($914.83)
 
Cash: 
Total: 
$10.80
$15,681.03
 

Key
• S&P 500 (DA) = dividend adjusted. Dividends have been added to the total return of the index.
• DJIA (DA) = dividend adjusted. Dividends have been added to the total return of the DJIA.

Note
Note: The Workshop Portfolio was launched on December 24, 1998, with $4,000 which was invested in the Foolish Four strategy. Approximately $15,000 was added on January 8, 2001, to support five additional mechanical strategies. At that time approximately $1000 was transfered out of the Foolish Four strategy to bring the Foolish Four into balance with the other strategies. (That's why the Foolish Four's overall return is not consistent with stock values.) Such rebalancing will take place each year among the strategies so that each will start out with approximately the same value at the begining of the year. No more cash additions are planned. The first four tables above show the overall performance of the portfolio. Below that we also track the performance of each component strategy. All transactions are announced publicly before being made, and returns are compared daily to the S&P 500 and the Dow. (Dividends are included in the yearly, historic and annualized returns.) Stocks are chosen using strategies developed by the Workshop community.