Oils Well...
...that begins well. Plus, Intel.

by Jeff Fischer (TMFJeff@aol.com)

ALEXANDRIA, VA (Nov. 11, 1998) -- Up 43% during a "disappointing" year of flat earnings growth, Intel (Nasdaq: INTC) is a testament to being patient when investing. Even leading companies have slow periods of growth and Intel, this year, did. It wasn't a great surprise. Knowing that Intel faced a slow year, many investors sold the stock long ago and planned to buy it back when earnings growth revived. The price of not being patient has been demonstrated:

--commissions and taxes were paid to sell the stock --the stock is up 43% since January 1st --Tylenol for your headache costs money --buying back (at higher cost?) will cause more commissions

Intel soared to a new all-time high today, bursting through the $102 record that it hit on August 6, 1997.

As Brian reported in today's Breakfast With the Fool (which is the Fool's morning market news posted each day by 9:00 a.m. ET), Intel stated that fourth quarter revenue will be 8% to 10% higher than the $6.7 billion reported in the third quarter. Enjoying increased volume, gross margin will also improve more than originally forecast -- it should gain a few points from last quarter's 53%.

Brian wrote of Intel, "In a statement, the company attributed the revised guidance to better-than-expected overall demand for PC products, independent of all market segments and geographies. Consistent with the larger-than-expected revenue gains, Intel said its marketing, general, administrative, and research expenses will also rise...

"According to reports, analysts are chalking up the rosier expectations to the success Intel is seeing from its Celeron chips for lower-priced PCs and its new high-powered Xeon chip. The First Call mean estimate had called for Q4 earnings of $0.95 per share, down from the $0.98 per share earned last year. But with the stronger revenue figures, those estimates will likely be moving up today."

Analysts expect Intel to earn $3.88 per share next year, but that number will likely be increased as well. The stock trades at 26 times that estimate. Just as quickly as the industry changed this year, however, it could change again in 1999.

But this much we might know:

PC prices will almost certainly continue to deflate, at least modestly. Given this, perhaps any decline in the demand for new PCs from some segments of the market will be compensated for by entirely new demand for other segments of the market -- new segments that are finally attracted to PCs because prices have dropped. Also, the more the non-online population hears about the benefits of being online from radio, television, and magazine ads, the more the masses will buy PCs to get online.

It takes about the same amount of time for 10% of the population to adopt a new technology as it does, afterwards, for 80% of the population to follow. If it took 5 years for 20% of the country to get online, in the next 5 years, a whole 80% might be online. Technology acceptance curves have been very similar in this way over the century, from radio to television to VCRs.

Get Cookin' Already!

On the eleventh day of the eleventh month, we present our final list of oil and gas conglomerates to study. (Actually, some of them, like Baker Hughes, are oil services companies, which are a different breed.) We'll learn all about the various aspects of this sprawling industry beginning now, first by defining the many terms that we'll use over the coming months.

To set the stage, let's define the most important terms first. Throughout this study, Vince is on the message boards working from his home, and Brian and I are working here at Fool HQ, and all of us will be donning a certain attire. So if you visit Alexandria, VA, stop and see us. Swing by Fool HQ, take the elevator to the fourth floor, and -- even though there are some 70 people here -- you'll spot Brian and me immediately.

How?

To get into the spirit each day, Brian and I are each wearing a full white robe that is common in the world's richest oil regions (just as jeans are common in the US). Our white garment is called a thobe (correctly spelled "thob"). We're also each wearing a gutra, which is a red and white headdress. And, finally, each of us is wearing an agal. An agal is the black ring on our headdress. You can't miss us.

What this attire does is actually remind us to write this column each day, and it hints to us what our topic is. So remember these terms, because we'll hear them almost every day: thobe, gutra, and agal.

(Thank you to TMF Selena for defining what we're supposedly wearing. It's only with respect that we mention these terms, and I hope that nobody takes this lighthearted column the wrong way.)

Below is THE ROYAL SCROLL -- every single company is one that you suggested. The three with the highest yields are in bold, and the next four highest yields are in red, for reference. We have seventeen companies to consider, but as we did during the financial services study, we might add or subtract one or two in the future.

  
 no fee DRPs                      yield 
 Apache Corp. (APA)                1.0% 
 Ashland Inc. (ASH)                2.1 
 Baker Hughes (BHI)                2.0 
 British Petroleum (BP)            2.6 
 Enron (ENE)                       1.7 
 Exxon (XON)                       2.2 
 Kerr-McGee (KMG)                  4.1 
 Mobil (MOB)                       3.0 
 Pennzoil (PZL)                    2.6     
 Phillips (P)                      3.0 
 Occidental Petroleum (OXY)        4.8 
 Sonat Inc. (SNT)                  3.6 
 Texaco (TX)                       3.1 
 Tidewater Inc. (TDW)              2.0 
 Transocean Offshore (RIG)         0.3 
 USX/Marathon (MRO)                2.5 
 Ultramar Diamond (UDS)            3.9

suggested but have fees
Atlantic Richfield (ARC) -- 5% fee to $3 OCP
Amerada Hess (AHC) -- $1.50 fee on transactions
Chevron (CHV) -- 5% to $2.50 on div, $3+ on OCP
Coastal Corp. (CGP) -- 5 cent fee/share
Royal Dutch (RD) -- 5% to $2.50 on div, $5+ on OCP
Southwestern Energy (SWN) -- 5% to $3 div, $3 on OCP
Unocal (UCL) -- 5% fee to $3 on OCP

suggestions without DRPs
Global Marine
Halliburton
Nabors Industries
Noble Drilling
Pennaco
Schlumberger
Swift Energy
Teekay Shipping

All's well that begins well, and we're beginning well. We're only Fools, but we're beating the market this year and we're killing the pros (this in a DRP portfolio! -- what does that tell you?). Now we're beginning our newest study in hopes to find another market beater. Tomorrow, the beginning history of the industry and more oil-related terms. Seriously.

Until then, see you on the Drip message boards. If you want to flame me, please do it there in public.

Fool on!

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


11/11/98 Close

Stock Close Change CPB 55 1/16 -3/4 INTC 103 11/16 +6 1/8 JNJ 83 3/16 -1/8 MEL 60 5/16 +1/16
Day Month Year History Drip 2.24% 8.20% 26.13% 7.41% S&P 500 (0.64%) 2.03% 15.51% 17.83% Nasdaq (0.19%) 5.12% 18.58% 16.84% Last Rec'd Total # Security In At Current 09/02/98 8.027 CPB $52.867 $55.063 09/01/98 9.727 INTC $80.238 $103.688 10/07/98 7.850 JNJ $71.405 $83.188 10/07/98 1.000 MEL $48.560 $60.313 Last Rec'd Total # Security In At Value Change 09/02/98 8.027 CPB $424.36 $441.99 $17.63 09/01/98 9.727 INTC $780.50 $1008.60 $228.10 10/07/98 7.850 JNJ $560.53 $653.02 $92.50 10/07/98 1.000 MEL $48.56 $60.31 $11.75 Base: $2100.00 Cash: $237.52** Total: $2401.44

The Drip Portfolio has been divided into 89.430 shares with an average purchase price of $23.482 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:
10/24/98: Sent $40 to buy more INTC.
10/26/98: Sending $60 to buy more JNJ.