Drip
Portfolio Report
Thursday, January 29, 1998
by Jeff Fischer
([email protected])
ALEXANDRIA, VA (Jan. 29, 1998) -- Our message boards have been especially interesting. On AOL, drip investors are favoring Philip Morris (NYSE: MO) and then voting Campbell Soup (NYSE: CPB) as second. On the Web, the clear winner is Campbell Soup and second is Philip Morris -- the reverse.
Third in both places, collectively, is PepsiCo (NYSE: PEP). What is best to see, though, are the posts that state, "Whatever the Fool decides to buy, I've been reading the columns and I've done my homework and I'm going to buy Quaker." Or Campbell. Or Philip Morris.
What sets this portfolio apart from the other great portfolios on the Motley Fool is the research and decision process. Both are done completely within this column. We began looking at food companies three months ago without having any idea which one we would finally purchase. As you're painfully aware, we have done nothing for three months but go through the entire research process right here. And now we finally face a decision.
Which company are we buying for at least the next two decades?
After crunching through over 20 companies, we wrapped things up with this table below (which isn't meant to be used as the deciding factor, for the love of man, as we could have spit out a table approximate to this three months ago; it's just an easy way to summarize our long look at the final four companies):
Valuation Quality Campbell Soup Moderate to High High PepsiCo Moderate to High Moderate to High Philip Morris Low High Quaker Oats Moderate ModerateSo, which one?
Like the division on the message boards, Randy and I have different first choices. Randy's first choice is Philip Morris. The valuation is the most attractive and the business quality is high. His close second choice is Campbell Soup. The business quality is also high, but the valuation is moderate to high.
My first choice is Campbell Soup. The business quality is high and in my opinion the valuation is much closer to moderate than it is to high. On the most simple of valuation measures, the company has grown earnings per share 23% annualized over the past five years and the stock trades at 28 times earnings. The possibility for continued strength in earnings per share growth is increased through the coming spin-off, the improving margins, and the consistent share buyback program.
But I also admit that the low valuation of Philip Morris is almost beyond question. (Looking under the hood. Nodding.) Yes, it certainly appears low. For simple comparison, this company has grown earnings per share 19% annualized for the past five years and the stock trades at 15 times earnings and yields 3.70% -- the highest yielding stock on the Dow. And Philip Morris is expected to grow earnings more quickly than Campbell for the next five years (17% vs. 12% annually), though those estimates (on both sides) arguably sport a great deal of guesswork (and extra risk on Philip Morris's side).
We'll announce our buy tomorrow as (even after all of this work) the reasoning behind the buy needs to be presented very clearly, in detail. Which company are you buying for your portfolio and why? Share your thoughts on the Drip Portfolio's Drip Companies message board. See you there and see you tomorrow.
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