Intel, Mellon, 5th/3rd
...ramping up to Fifth/Third's history
by Jeff Fischer (JeffF@fool.com)


ALEXANDRIA, VA (August 17, 1998) --Shares of Intel (Nasdaq: INTC) jumped over $3 today on positive comments by industry analysts and on reverberations from the recently announced shortage of some microprocessors. Today analysts hypothesized that Intel could be slightly ahead of third quarter expectations due to increased demand and chip prices that have stabilized in a range set at the end of the first quarter.

In a nutshell, this is the shared opinion that is driving Intel higher, aided by the recently foreseen potential for upside surprises in 1999, as we covered last Thursday in the Drip column titled "Intel Is It?"

We have progress to make outside of the news, though...

This week we'll focus on Dale's list of five finalist banking stocks, which is available in the August 7 Drip Port column. As you might recall, the list began with Mellon Bank (NYSE: MEL), which we reviewed (following Dale's in-depth study) nearly two weeks ago. Having been interrupted by the Campbell Soup conundrum, we'll now continue down the list. First, a note: we're saving Norwest (NYSE: NOB) for last. Dale recently looked at Norwest in-depth, and we're also waiting and hoping for the details about its new DRP after its potential merger with Wells Fargo. Norwest's plan has fees, Wells Fargo's doesn't. So, which will it be, guys? (Please choose the latter.) We may be optimistic in waiting, but it's worth saving Norwest's study for last.

So, we'll attack our list beginning today with Fifth/Third Bancorp (Nasdaq: FITB), and we'll continue this week with First Tennessee (Nasdaq: FTEN) and US Bancorp (NYSE: USB). We'll end with Norwest. And, as long as we're outlining the near future, after a financial company is decided upon (hopefully in the next two weeks), we'll next find a food and beverage investment to replace Campbell Soup.

Moving on...

Fifth/Third Bancorp is one of Dale's top three favorites along with Mellon and Norwest. In Dale's study and our review of Mellon, we saw why that company is such a strong contender for the Drip Port's investment dollar. Mellon's earnings per share have grown well above the industry average (21% annually vs. 8% for the industry over the past three years), its return on equity is nearly 20% against 15% for the industry (Dale's ROE2 for the company is actually 22%), and it has a well-diversified portfolio ranging from regular customer banking accounts (savings and checking), to mutual funds and discount brokerage services (Dreyfus), to auto financing, to commercial mortgages.

The company also represents value -- at least in the eyes of some in the industry. With a market capitalization of nearly $17 billion, Mellon was offered a take-over bid of $24 billion this year. Tha'ts a 40% premium that Mellon refused. Added to all this, the stock currently pays a dividend yield of 2.30%, which is nearly 1% higher than any stock in the Drip Port. It's no Philip Morris, but it's a decent yield, and dividend yields -- as we'll discuss later this week with more detail -- are very important to an investors' total return, especially a DRP investor.

That was a quick review of good old Mellon. It was necessary to ripen our knowledge on Mellon following our weeklong break from banks. Now we can move to its competition for our investment dollars.

Bring it on!

Fifth/Third Bancorp's first biz is banking and financial services for individual clients. The company has more than 480 branches providing checking, savings, and bill payments, with locations in Arizona, Florida, Indiana, Kentucky, and Ohio. Like Mellon, it is also involved in the money management (mutual fund) business. It also offers transaction and credit card processing services to other banks, a nifty little business that Dale covered. So, Fifth/Third's four main businesses (hey, fifth, third, four -- what's the deal with all these numbers?) consists of consumer and business banking, investment management, and data processing. The company is based in Cincinnati.

This bank's history is just as interesting as Mellon's. (We'll learn why it's called Fifth/Third tomorrow.) The bank began in 1863, making it six years older than Mellon. You know, I bet that you can't guess where (in what kind of building) the bank opened for business in 1863 (the country was in the middle of the Civil War, of course). We'll cover Fifth/Third's history and some numbers tomorrow. Until then, post any thoughts on the Drip Companies message board.

For more reading, tonight David Gardner is tackling Wall Street's tactics in the Fool Port report.

Fool on!

--Jeff Fischer

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


8/17 Close

Stock Close Change CPB $52 +1 15/16 INTC $89 9/16 +3 3/8 JNJ $76 7/16 +1 7/16
Day Month Year History Drip 2.59% 2.12% 14.74% (2.29%) S&P 500 1.97% (3.30%) 11.67% 13.91% Nasdaq 1.56% (2.90%) 15.77% 14.07% Last Rec'd Total # Security In At Current 06/30/98 3.017 CPB $54.259 $52.000 07/01/98 9.724 INTC $80.239 $89.563 07/07/98 6.010 JNJ $69.708 $76.438 Last Rec'd Total # Security In At Value Change 06/30/98 3.017 CPB $163.70 $156.88 ($6.82) 07/01/98 9.724 INTC $780.21 $870.86 $90.65 07/07/98 6.010 JNJ $418.95 $459.39 $40.44 Base: $1800.00 Cash: $386.05** Total: $1873.19

The Drip Portfolio has been divided into 76.682 shares with an average purchase price of $23.474 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:
7/22/98: Sent $60 to buy more CPB, and $40 to buy more JNJ.