Drip Portfolio Report
Wednesday, March 11, 1998
by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (Mar. 11, 1998) -- All of our stocks have made significant moves in the past weeks, so let's Foolishly review the numbers before we delve into our next industry. We'll do this in relation to our coming Campbell Soup buy (more on that later) and our monthly $100 investments.

First on the cutting block is Intel (Nasdaq: INTC), a company that has seen its value chopped over the past week. The stock is right back where it was about three months ago. After Intel announced that the first quarter will be below expectations, the thirty analysts following the company lowered earnings estimates for at least this year. The new estimates are considerably more conservative. The old mean estimate was $3.94 per share and the new estimate is $3.27 per share. For 1999, the estimate (a fairly large guess, of course) is $4.01 per share.

At nearly $76, Intel trades at 23 times the 1998 estimate and 18.7 times the 1999 estimate. In a phone conversation with Randy Befumo the other day, we agreed that investors now, more than ever, are investing for the story that should take place in 1999, 2000 and beyond. Of course we've always been doing that, but following a flat 1997 for Intel's stock don't be surprised if 1998 is more of the same. The company (and industry) is in a transition. The stock trades at a reasonable multiple to earnings that we might expect in two years time, meaning that this wounded stock might present an ideal situation for monthly DRP investors now, if Intel can execute. Looking three or four years out, the story should only continue to improve for steady investors. Let's hope, anyway.

At this price Intel has a market cap of $124 billion, making it one of the largest companies on the market. (Intel represents about 1.3% of the total value of the S&P 500.) The stock trades at 4.9 times trailing sales of $25 billion. The Enterprise Value-to-sales is 4.6 after we include Intel's $8.7 billion in cash in the numbers.

Next on our list is Johnson & Johnson (NYSE: JNJ), a stock that has quietly, it seems, only risen since we began to buy it two months ago. At its new high today of $76, the healthcare giant trades at 27.8 times 1998 earnings estimates of $2.73 per share and 24.5 times 1999 estimates of $3.10 per share. Pharmaceutical and healthcare companies continue to be in favor because of the industry's consistent earnings growth and "defensive" nature. The average healthcare and pharmaceutical company trades at 31 times earnings, as Johnson & Johnson does now.

Just recently Johnson & Johnson, a century-old company, earned a $100 billion market cap. Compare that to Intel for thought-provoking reflection. The company is now valued at $102 billion and trades at 4.5 times trailing sales of $22.6 billion. Taking into account the company's $3.1 billion in cash and $1.2 billion of long-term debt, J&J is valued at $100.1 billion and trades at 4.4 sales. This is about in-line with the industry, though on the low side when compared to companies that have more aggressive drug pipelines.

Next up is the company that we're about to buy, Campbell Soup (NYSE: CPB). Campbell's stock has gained nearly 10% since we decided to buy it early this year. At $58 1/2 the stock trades at 27.7 times 1998 earnings estimates of $2.11 per share and 24.4 times 1999 estimates of $2.39 per share. (Campbell's fiscal year ends in July.)

Though the Vlasic spin-off will change the following numbers, Campbell currently has a market cap of $26.7 billion and trades at 3.3 times trailing sales of $8.0 billion. Taking into account the company's $1.1 billion in long-term debt and only $56 million in cash, the company is valued at $27.8 billion, or 3.47 times sales. The cash and debt balances should also change with the spin-off and coming sales of other European divisions (and some canning operations in the U.S., too.)

In a world that is less predictable than a car with no brakes on a San Francisco street, all of our stocks appear reasonably priced on known information. None are screaming, "I'm cheap! I'm cheap!," but these are great companies, so of course the stocks aren't allowed to be "cheap" -- at least not lately.

The Campbell Purchase. We'll send money to buy our first share of Campbell this month. Moneypaper will buy the share for us in early April, as is their policy. We'll be sending about $59 for the stock, plus $15 for the purchase fee, plus a refundable 10% cushion, so about $80 all together. I'll provide details when the money is sent to Moneypaper. I'll be doing this on Saturday, though, so details will be Friday or Monday.

Our Monthly Investments. We spoke last week about sending our entire monthly $100 in savings to J&J for a few months so that we could even out that position with Intel. Rather than doing exactly that, I've found a compromise that I'm happy with for the Drip Port. I do want to even out the two positions as Foolishly as possible, but I also don't want to completely miss out of dollar-cost averaging into Intel at these lower prices, even with all of the uncertainties involved with the investment right now. (The uncertainties have caused a lower stock price, and DRP Fools are in the best position to take advantage of that over the long term.)

What I'm going to do this month for the Drip Port is send $70 to Johnson & Johnson and only $30 to Intel. That way we're still buying some Intel at lower prices, but we're also moving to build our position in J&J so that we don't rely on Intel as much in the near term. Over the years these small details really won't matter, but for now it's something that I want to get done: leveling out the portfolio as much as possible.

Intel's Voting Rights and Annual Report. The Harris Trust website is now working if you wish to register for electronic voting and accept an electronic only Annual Report with Intel. The process takes twenty seconds (you need your DRP account number) and the page is at https://www.harrisbank.com/shareholders/proxy/proxyhome.html. The page still doesn't seem completely reliable, though.

Please visit the message boards if you have questions or comments.

By the way, David Gardner should have a pretty humorous Fool Port column tonight. See you tomorrow. Fool on!

--Jeff Fischer

FoolWatch -- It's what's going on at the Fool today.


Stock Close Change INTC 75 7/8 + 3/8 JNJ 75 15/16 +15/16
Day Month Year History Drip 0.40% (8.18%) 6.89% (8.97%) S&P 500 0.40% 1.82% 10.10% 12.31% Nasdaq 0.48% (0.77%) 11.88% 10.23% Last Rec'd Total # Security In At Current 02/02/98 8.066 INTC $79.929 $75.875 02/09/98 2.498 JNJ $64.902 $75.813 Last Rec'd Total# Security In At Value Change 02/02/98 8.066 INTC $644.72 $612.02 ($32.70) 02/09/98 2.498 JNJ $162.13 $189.38 $27.25 Base: $1300.00 Cash: $439.75** Total: $1241.15

The Drip Portfolio has been divided into 54.538 shares with an average purchase price of $23.837 per share.

The portfolio began with $500 on July 28, 1997, adds $100 on the 1st of every month, and the goal is to have $150,000 in stock by August of the year 2017.

**Transactions in progress:

2/21/98: Sending $50 to buy INTC.

2/21/98: Sending $50 to buy JNJ.