ALEXANDRIA, VA (Dec. 3, 1997) -- To wrap up my fourteenth Drip column in a row, I've called in some support. It's very appropriate to call on George Runkle (TMF Runkle), who just returned from four months of military duty in the United Arab Emirates, where the night-time temperature was often over 120 degrees Fahrenheit. George recently wrote a Fribble about the adventure, and some of you may be familiar with George for the several Fribbles that he's written about DRP investing, being a long time Drip-head himself. (I mean that in a good way, George.)
From his camp of tents in the desert of the United Arab Emirates, George tried to keep up with the Drip Portfolio and with the Fool message boards, but eventually the slow connection kept him away. (As did his constant concern for his life, which belittled any thoughts that he might have had about his stocks back home.) Upon landing back in the United States, George wrote us a column that I'm going to share right now. In the future, we will likely ask George to write general columns for us every once in a while. His many years of dividend reinvestment investing and his sense of humor are both very Foolish.
Beginning tomorrow, Randy is going to return and continue our look at food stocks. We've got a very small and manageable list of contestants so far, and he's going to keep looking for more. I'm hitting the road until next Wednesday, the 10th, so if you send me any email, please know that it will take time before I can respond. I'm still answering some recent email now, too. I'll be in Lake Tahoe, so if anyone has any good suggestions about the area before Thursday, please send them my way.
Lake Tahoe, George assures me, is much, much nicer than the United Arab Emirates at this time of year. Or any time of year. Now here is George with his column on his investing dilemma. Fool on!
Which Would You Choose?
By George Runkle (TMF Runkle)
For a while, my personal DRIP portfolio was on autopilot. Money was deducted from my checking account automatically every month, and I bought shares of Intel (Nasdaq: INTC), Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ), Texaco (NYSE: TX), and Procter and Gamble (NYSE: PG). Then, the Foolmobile (225,000 miles) had to go to the automobile rest home, the refrigerator kicked the bucket, and this happened right after we had the rugs replaced in the basement. I suppose that we didn't need to replace the rugs, that deep shag did have a nice 70s retro look about it, but let me continue. In order to get back on track somewhat with the finances, we stopped buying the DRIPs.
Now, my wife and I want to start investing in one of the accounts again. My first choice without thinking is Intel. Too bad that they not only stopped the withdrawals, but they also closed out my account and sold the stock. We can open one again, but for the meantime we now we are left with Texaco, Coca-Cola, Johnson & Johnson, and Procter and Gamble. If you were to start regular monthly investments, which would you choose?
I'm going to eliminate Texaco right off. Not that it's a bad investment, but the earnings growth rate is only projected to be 7% annually over the next five years. My own personal criterion is that the earnings have to grow greater than 12% annually. With only so much money to invest, that eliminates this company.
Now our field is narrowed down a little. We have Coke, J&J, and P&G. Which would you choose?
Let's look at the numbers:
Coca-Cola P&G J&J 5 yr. EPS Est. Growth 17% 13% 14% FY 97-98 EPS Growth 4% 13% 13% Profit Margin (past yr.) 18.8% 9.3% 13.4% Price/Sales Ratio 7.5 2.5 3.4 Price/Earnings 37.9 30.2 26 Revenue Growth (past yr.) 2.9% 1.4% 14.7%
Coca-Cola manufactures the most perfect thing in the universe. It has a franchise business, and ironically, the competition between it and Pepsi (NYSE: PEP) only adds to both companies' markets. It has the highest profit margin of the three companies, and expected earnings per share (EPS) growth for the next five years (though that will be a challenge to meet). The expected increase in EPS from 97 to 98 is dismal. The revenue increase for the past year was poor also. The earnings increased nicely, but I am still not happy. Throw in the very high price/sales ratio and price earnings ratio, and I'm going to sit this one out. I'll keep my holdings in Coke, but I'm not adding any more money right now.
So, we have Procter and Gamble and Johnson & Johnson in Ultimate Fighting. HEY! No kicking guys! Ok, let's get a little serious. Johnson and Johnson starts out with a minor left jab in the 5-yr. EPS growth. They're butting heads over that 13% EPS growth from 97-98. Uh-oh, JNJ hits PG right in the jaw with a right hook when we get to profit margin. It can't push PG into the ropes with that price sales ratio, but oh God! It gets poor P&G in a hammerlock over that price/earnings ratio. Finally I can't watch! I'll finally open my eyes the fight should be over. Yes, Procter and Gamble is lying flat on the mat, with Johnson and Johnson the undisputed champion. The announcer says it was that roundhouse right from the revenue growth that did it. What a fight!
I guess I'd better send that money to JNJ if I know what's good for me. Maybe in the future we can do a tag team match with Intel in the ring. To think people consider DRIP investing boring.
Correction: Regarding the Roman calendar, we're talking about 46 B.C., so it isn't surprising that there are some different stories. (Imagine the returns on a successful long-term investment dating back to 46 B.C.) A reader, Brian, sent a link to interesting facts about the calendar history and Julius Caesar. Fool on.
Day Month Year History Drip 0.25% 0.70% (10.01%) (10.01%) S&P 500 0.52% 2.24% 31.86% 2.67% Nasdaq 0.55% 0.91% 25.10% 1.34% Last Rec'd Total # Security In At Current 11/03/97 4.835 INTC $81.623 $78.500 11/14/97 1.000 JNJ $62.125 $64.500 Last Rec'd Total# Security In At Value Change 11/03/97 4.835 INTC $394.69 $379.59 ($15.10) 11/14/97 1.000 JNJ $62.13 $64.50 $2.38 Base: $900.00 Cash: $389.75** Total: $833.84 GOAL: The portfolio began with $500 on July 28, 1997, adds $100 on the 15th of every month, and the goal is to grow the port to $150,000 by August of the year 2017. **Transactions in progress: 11/24/97: $100 sent to purchase more Intel. The Drip Portfolio has been divided into