Drip Portfolio Report
Tuesday, April 14, 1998
by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (April 14, 1998) -- Dale is taking the day off so that we can summarize the earnings reports from our two holdings, Johnson & Johnson (NYSE: JNJ) and Intel (Nasdaq: INTC). Being the two holdings in the Drip Port, the companies decided to make it easy for us and announced results on the same day. Excellent!

Unfortunately, time prevents me from providing much other than summaries, as I just sped through writing the Fool Port column and now the deadline for this column looms and I have two very long press releases from each company in front of my face. Enough whining, though, yes? Yes. I just want to warn you and let you know that, as we always try to do, we'll provide much better coverage of our companies' progress every quarter in the portfolio's future.

Johnson & Johnson (NYSE: JNJ) reported an 11% increase in net earnings despite currency difficulties and stiff competition -- the same old saw. Sales rose 1.2% to $5.8 billion, while the pharmaceutical business showed the strongest results.

Pharmaceutical sales grew nearly 8% for the quarter, topping $2.1 billion. The increase would have been 12% if not for currency differences. Several newer drugs are adding to growing sales, and domestic pharmaceutical sales actually rose a big 22%.

Professional product sales declined 1.7%, though they would have increased 1.9% if not for currencies. Competition in these products is intense, but margins are still better than in consumer products. In the consumer division sales declined 2.7%. They would have increased 2.4% if not for a slew of wild monkeys attacking a J&J plant in Malaysia. Or, actually, if not for currencies -- yup, you got it.

J&J's net margins were 17.5%, with operating margins of 25% -- holding strong. The earnings per share of $0.73 met the mean estimate. All told, our giant company is far from the speeding racecar that Pfizer is, but it is still going down an attractive, long and reassuring road. The $72 stock trades at 23.5 times estimates for this year.

By the way, regarding Pfizer (NYSE: PFE), the stock that we promised to revisit: I enrolled in Pfizer's plan at the same time that we enrolled in the J&J plan last fall, and yet I've only been able to buy the initial first share, so far. The company has been changing its plan to a new administrator. So, the stock has soared since then, but... alas. Anyway, the Cash-King Portfolio has done some fine writing on Pfizer over the past weeks.

Intel (Nasdaq: INTC) reported earnings of $0.72 per share on $6 billion in sales. Earnings were $0.81 per share excluding a charge, topping the $0.72 estimate. The stock is reportedly trading higher in "aftermarket" hours, but -- man, to even mention afterhours trading in the Drip Portfolio! -- we surely don't care about this.

Interestingly, over 50% of Intel's revenue came from its latest P6 chip technology, led by the Pentium II. Earnings were down over 30% from the year before, and sales were down as well (though only 7%, showing the impact of lower prices on earnings). Meantime, Intel claims that the PC industry is ahead of itself. Most of the company's slowdown was in the OEM market (PC manufacturers).

Intel expects the second quarter to be flat to down from this quarter, but expects business to improve in the second half of the year, as analysts anticipated. (This is why the stock might rise.) Gross margins were 54%, down a few points, and they should continue to drop. The company is aiming for about 50% in the long run. If it can maintain that, we should all be very happy.

Intel dubbed the quarter as "disappointing," and it's plain that the company has some kinks to work out. The industry has taken Intel for a few sharp turns. Where in the past Intel set the pace, lately the company has been reacting to changes, rather than making them happen. We don't love to see this. If our company is a few steps ahead, that gives it all kinds of advantages -- and that's certainly much better than playing "catch-up" with new trends and in new markets. Still, all companies experience difficult times. If earning $1.2 billion in a quarter is as bad as it gets for Intel, again, we should all be very happy.

We have plenty of time to see this play out, either way. Intel trades at 23.6 times the 1998 earnings estimate of $3.21 per share. By the way, we bought more Intel on April 1, at $76.98 per share -- $30 worth. We'll update all of the numbers for everyone on Friday, too. This month I plan to send $30 to Intel and $70 to Johnson & Johnson again.

Fool on!


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Stock Close Change INTC 76 - 1/4 JNJ 72 9/16 -1 3/16
Day Month Year History Drip (0.45%) (1.59%) 5.59% (10.08%) S&P 500 0.55% 1.27% 14.97% 17.28% Nasdaq 0.99% 0.40% 17.36% 15.64% Last Rec'd Total# Security In At Current 04/01/98 9.015 INTC $80.417 $76.000 03/10/98 3.170 JNJ $67.087 $72.563 Last Rec'd Total# Security In At Value Change 04/01/98 9.015 INTC $724.94 $685.12 ($39.82) 03/10/98 3.170 JNJ $212.67 $230.02 $17.36 Base: $1400.00 Cash: $409.76** Total: $1324.90

The Drip Portfolio has been divided into 58.937 shares with an average purchase price of $23.754 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:

03/17/98: Sent $81 to buy/enroll in CPB.
03/17/98: Sent $70 to buy more JNJ.