Touchstone Friday
Plus, close to a banking purchase...
by Jeff Fischer ([email protected])
Alexandria, VA (July 31, 1998) --July was gooooood to the Drip Port. The value of our humble new guy rose nearly 10% on strength in Intel and Johnson & Johnson (as of Thursday). We also have other cause for small but Foolish celebration: the portfolio reached its first birthday on July 28, 1998. Although we didn't invest money until September of last year (and we didn't really begin to invest until November!), the Drip Port launched into its daily banter on July 28.
Over the past nine months of actually investing, the port has risen nearly 5% including all fees (that's not bad considering how the money is so slowly invested at market prices every month), and over 8% when fees are subtracted. For the current year, the port is up about 15%. Our annual goal is a return of 15.5%, on average, if we're to meet our 20-year goal. To build an investment base now, though, we'd almost rather have flat stocks for a few years and then see returns, over time, that are slightly above our annual goal. The lower our cost basis as we start, the more likely this can happen.
For the week, Intel (Nasdaq: INTC) rose as more analysts piled on with positive comments and stock ratings. Industry watchers feel that Intel has positioned itself for a much more positive 1999, and some believe there might be upside potential to the '99 current earnings estimates. For now, all we see are computer prices consistently falling. Some predict that Moore's Law and technology limitations will eventually put an end to declining PC prices in the coming decade, but by then new technologies might exist. Intel is "compensating" for lower consumer PC prices by offering more high-end processors for businesses, such as its Xeon chip and the coming Merced chip.
At this price, Intel trades at 22.8 times 1999 earnings estimates, so I don't consider it incredibly cheap even though it is at a significant discount to the S&P 500. We again didn't send money to Intel this month because we want to even-up our positions first.
Johnson & Johnson (NYSE: JNJ) has made new highs following its July 14 earnings announcement. Of our three stocks, I feel that I know the least about this company's current business as a whole. We've covered the conference calls and done a great deal of more recent research on Intel and Campbell Soup, but not J&J. If you work in the industry -- for J&J or another healthcare leader -- or as a medical professional, or if you simply know something about the company that we haven't addressed, please post your general knowledge on our J&J message board. Which drugs are the new best sellers or might be? What's in the pipeline? What does the $3.5 billion acquisition of DePuy mean for shareholders?
I plan to research and share more information on J&J soon as well. In fact, Dale is nearing his financial stock purchase decision, and following that we'll review our current holdings. As for banking stocks, only two companies remain to consider. Dale first looked at about 20 companies, then narrowed the list to 11, and then was going to run through all 11 again up-close, but time instead merited looking at a few and then choosing his favorite two from the original list of 20. Dale knew which companies he liked best from his first run-through. Though studying the list of 11 finalists again would have provided more information, it would have taken a great deal more time than seemed reasonable. So, from the first study and further thought shared this week, Dale favors Norwest (NYSE: NOB) and Mellon (NYSE: MEL).
This past Monday, Dale considered American Express's (NYSE: AXP) earnings report. It's good reading for anyone interested, including Cash-King investors. On Tuesday, Dale looked at the popular Fannie Mae (NSYE: FNM). Again, this is a good overview for any Drip investor considering the home mortgage leader. Beware that Fannie Mae has a $5 fee for optional cash investments.
On Wednesday Dale presented the final two contenders, Norwest and Mellon, taking an in-depth look at Mellon. I must say -- I like Mellon. I've actually been a customer for a number of years. I doubt that the company will remain "non-acquired" or "non-merged" for too long, though I don't know management's wishes on the matter.
On Thursday, Norwest was reviewed. Norwest is another great financial company -- one, as Dale shares, with a consumer focus. Unfortunately for us, the company's DRP currently has substantial fees. It costs $3 plus 3 cents per share to buy stock, and dividend reinvestments cost 4% up to $4 plus 3 cents per share on top of that. Not exactly cheap.
Dale mentioned that we can amortize the expenses, of course, but even so... that and the tax hassle (figuring the actual cost basis per share each month) is almost more trouble than it's worth. Not to mention the resulting lower investment performance. Norwest is merging with Wells Fargo (NYSE: WFC), though, and that company's current DRP currently has no fees. Zippo. So, we need to learn what the new Norwest/Wells Fargo dividend reinvestment plan will entail before potentially moving away from the company due to high fees.
Speaking of fees, Campbell Soup (NYSE: CPB) is reportedly launching a new plan with some fees. As we receive that information we'll decide what to do. Rolling the money into another company with no fees is definitely a consideration that will be made if the fees merit it and if we find a business with as much to offer.
Next week on Monday we'll add the monthly $100 to the portfolio. We should have bought $60 worth of Campbell on the last day of July (today, Friday), and we will be buying $40 worth of J&J around August 7. Also next week we should reach a buy decision on a banking stock. There might be a surprise or two to come... we'll see.
Have a Foolish weekend!
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