Drip Portfolio Report
Friday, April 24, 1998
by Jeff Fischer (JeffF@fool.com)

ALEXANDRIA, VA (April 24, 1998) -- Over the past four days, Dale laid out more of the groundwork that a Fool needs in order to successfully find a great financial stock and then understand the investment over the years. On Monday, Dale continued to provide glossary terms for the income statement, with clarifications on non-interest income and gain on sale accounting.

On Tuesday, Dale shared thoughts on the meaning of financial statements, namely the income statement and the balance sheet. Why do we want to understand them? What do they mean? Next, on Wednesday Dale asked if you were weary following the past month of solely background information. You responded that the information was needed, but there is a great interest in getting to the actual companies, too, so Dale is going to mix the theoretical and the practical (looking at companies) beginning next week.

Finally, on Thursday Dale explained return on equity (ROE) and return on assets (ROA), with examples given. Again, it was another week that moved faster than a college course. Take a deep breath and absorb...

Our Portfolio. Meanwhile, there is plenty of "housekeeping" to do with the Drip Port as well as news on our current holdings. First, the housekeeping.

I sent $70 to Johnson & Johnson and $30 to Intel this week for the Drip Port's May investments. The port also accounted for the April purchase of J&J at $75.31 per share. And finally, yesterday I received the Drip account statement for Campbell Soup. I'm surprised at how quickly that seemed to happen! We now have a third company to work into the mix, and with the highest yield and lowest earnings multiple, I'm excited to send money to Campbell, but how the Drip Port divides its future monthly funds is something that I'm still considering. I eventually want the money invested in each position to be fairly equal, but at the current rate that will take longer than a year to accomplish. It's not a large issue, but one to consider.

On that note -- judging from the email that I've received -- too many Fools are relying too much on what the Drip Port does in deciding how they invest as well. Of course, you're free to mirror the Drip Port if you wish, but you should instead invest in whatever way is best for you. If that means sending all of your money to Johnson & Johnson for a few months, or all of it to Intel -- do whatever you wish. I might decide to send all $100 to Campbell Soup for a few months. Either way, mirroring the Drip Port shouldn't be your objective. We have no better insight on where prices will go in the near term than does anyone else. Nor do we really care.

And think of it this way: If you wish to "mirror" the Drip Port or the spirit of the Drip Port, perhaps you should consider Drip investing into Coca-Cola (NYSE: KO) and Pfizer (NYSE: PFE) as well. I personally own both and I'm sending them money regularly. The point is this: the Drip Port is striving to reach a goal and is doing what it can to reach it, but it is by no means the "standard" port on which you should base all of your decisions. The Drip Port shouldn't limit you. As a body, the Drip Port has a goal to reach. But as a person, you should have your own interests as well, and invest accordingly.

Okay... enough about that. I love the Drip Port and I'm flattered that people are mirroring it, but I don't want it to limit anyone.

Our Stocks. This week, Johnson & Johnson (NYSE: JNJ) increased its dividend for the 36th consecutive year. The company is now paying $1.00 per share in dividends annually, or about 1.60%. (The next quarterly dividend payment is on June 9.) At its annual meeting, J&J outlined its plans for future growth (the condensed version is available through that Web link). The company will spend up to $2.4 billion on research and development this year, a company record.

People often forget that Johnson & Johnson's broad and diverse pharmaceutical portfolio, with sales of over $8 billion, is one of the most heavily supported by R&D in the industry. J&J sells over 90 drugs, 26 of which earn over $50 million annually, and 19 of which earned over $100 million each last year. Meanwhile, over the next twenty years you've got to believe that J&J will come up with some giant blockbusters like Pfizer's new Viagra drug.

At $70, J&J trades at 26 times 1998 earnings estimates and 23 times 1999 estimates. Following the latest quarter, the estimates were lowered by about seven cents per share for each year, for whatever reason. The company is still expected to grow earnings 12% and 14% these two years. We're not sweating it.

On Tuesday, Intel Corp. (Nasdaq: INTC) held its annual analysts meeting and shared its plan for future growth. In the two days following the meeting the stock gained $7. The company stated that the slow start to this year is a temporary inventory problem that should begin to improve in the current quarter. The company also outlined several new products for the near future, including a breakthrough (for Intel) 500 MHz microprocessor, dubbed Katmai, that will be introduced in the first half of 1999. The company will also begin to integrate graphics and logic functions onto one piece of silicon.

The company also shared that its Celeron chip for low-end computers has gained support from dozens of computer makers, including the leaders. The company supposedly made a decent case for fundamental growth going forward, causing the stock to rise. (In the future, I'm going to see what it takes to listen to or attend this annual meeting.) Next, on Thursday Intel was granted conditional rights to buy and produce Digital Equipment's (NYSE: DEC) Alpha technology, which is thought to support the fastest chip in the world. At $82 per share, Intel trades at 26 times 1998 earnings estimates and 21.4 times 1999 estimates.

By the way, this week Rob Landley wrote three columns on Intel in the Cash-King Portfolio, explaining how the company makes chips and how it makes money. It's excellent learning material from a Fool in the know!

Finally, on Thursday Campbell Soup (NYSE: CPB) announced plans to sell its Australian fresh mushroom operations to Chiquita Brands. This is the fifth sale announced by Campbell since the decision to divest itself of $500 million in underperforming businesses.

You've got to love the company's vibrant focus on its top-performing, high-margin products. With a smaller base to grow from, Campbell is in many ways reinventing itself while already having the advantage and leverage that comes from dominating the U.S. soup industry.

Have a great weekend, and Fool on!

--Jeff Fischer

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


Stock Close Change INTC $82 1/16 -1 3/16 JNJ $70 5/8 - 1/4
Day Month Year History Drip (0.90%) 1.69% 9.11% (7.08%) S&P 500 (1.04%) 0.56% 14.17% 16.46% Nasdaq (0.66%) 1.81% 19.02% 17.26% Last Rec'd Total # Security In At Current 04/01/98 9.015 INTC $80.417 $82.063 04/07/98 4.099 JNJ $68.952 $70.625 Last Rec'd Total# Security In At Value Change 04/01/98 9.015 INTC $724.94 $739.77 $14.83 04/07/98 4.099 JNJ $282.64 $289.49 $6.86 Base: $1400.00 Cash: $339.79** Total: $1369.05

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.
04/22/98: Sent $30 to buy more INTC.
04/22/98: Sent $70 to buy more JNJ.