<THE DRIP PORTFOLIO>
Plus, our stocks' forward P/Es
by Jeff Fischer (TMFJeff)
ALEXANDRIA, VA (March 19, 1999) -- A new month approaches for direct investors. Pens are poised over checks; stamps are ready to be stuck; envelopes are about to be licked and dropped into the trusty postal system to serve their one purpose (and then be recycled). Along with other direct investors, we'll soon send our money -- $100 -- to invest at no cost.
The past week was light on news in Drip Port. How light? The largest bit involved word that Mellon Bank (NYSE: MEL) is in talks with French bank Credit Lyonnais about a potential alliance in asset-management services. "We have been talking with Mellon Bank, for whom we have a lot of respect, but we don't know if these talks will lead anywhere,'' said Credit Lyonnais Chairman Jean Peyrelevade.
An agreement in France would be another feather in Mellon's ever-expanding cap of international asset management alliances. Our company has started alliances with banks in Brazil, Chile, Hong Kong, Japan and Singapore in the past year. At $71 per share, Mellon Bank trades at 19.6 times 1999 EPS estimates, and 17.5 times year 2000 estimates. It yields 2%.
From banking let's move to health. (Achoo!)
Johnson & Johnson (NYSE: JNJ) advanced to a new all-time high this week. Nothing new accounted for the rise; instead, more significantly, enduring qualities were responsible. Pharmaceutical leaders continue to demonstrate strong earnings growth and every new drug released is a whole new product -- something the Coca-Cola's of the world can't frequently do. In addition, the process of bringing drugs to the market has been streamlined, the world is aging, and more and more drugs are being discovered due to improved science. Most leading stocks in this field are reaching new highs. Long-term investors, including the Drip Port, might consider overweighting in pharmaceutical stocks. (Disclaimer: yours truly has investments in Johnson & Johnson, Merck, and Pfizer.)
At $91, trusty old J&J trades at 30.5 times 1999 EPS estimates and 27 times year 2000 estimates. It yields 1.10%. Most likely, the company will increase its dividend payment soon for the 36th consecutive year. Johnson & Johnson has paid a dividend every year for 55, and has grown sales every year for 66. J&J's website was recently redesigned. Foolish investors, check out www.jnj.com. (Note: it can be slow through AOL's browser.)
It was a rare week of quiet for Intel (Nasdaq: INTC), with nothing to account for the stock's rise this week from $117. Compared to the average S&P 500 company, Intel is trading On Reasonable Ground (if it were a film, it would star Steven Segal). At $122 per share, the company is priced at 26 times 1999 EPS estimates and 22 times year 2000 estimates.
Finally there's Campbell Soup (NYSE: CPB), the one drag on the port. The Soup Guy had a slow winter compared to years past (it wasn't very cold, was it?). At $43 per share, the stock yields 2.10% and trades at 22.7 times this year's EPS estimate (the fiscal year ends this summer) and 20 times year 2000 estimates.
Add these four holdings together and what do we have? On an absolute basis, this portfolio has gained about 20%.
On our message board somebody asked why we're underperforming the S&P 500. Fool "WindyCityBearcat" and I explained that the portfolio has been investing for only 1 1/2 years (we bought our first share of Intel in the fall of 1997), and the process of dollar-cost averaging is slow. Much of our money has been invested for fewer than 12 months, let alone 18. Also, the fees when we launched were substantial. They took over 10% of our $500 starting amount, and they'll never give us a return. So, yup, we look like we're dragging (and we are dragging partly due to Campbell) but much of our performance is due to fees and a slow-to-start investment process. As the portfolio grows, the fees of the past will become much less meaningful.
Touchstone Friday. Somehow we slid through the week without firing up our oil study. (We will next week!) On Monday, George talked about investing directly through the Web, focusing on www.stockpower.com and www.netstockdirect.com. Investing through the Internet is certainly where things are headed as more and more banking comes online and, eventually, most money moves online over databases.
On Tuesday, Brian wrote a letter to me about the age-old topic of stock price versus value. On Wednesday I responded. On Thursday, we announced our three oil finalists and described what we're doing here in the future. First, we'll finish the oil study and then... well, see Thursday's column!
We'll send this month's $100 to Mellon Bank again, on Monday, both to continue to balance the portfolio and, in part, because of its 2% yield (that we want working for us as soon as possible). Visit the message boards in the top right of this page if you'd like to talk or have questions. Have a great weekend, and Fool on!
Fool on! [To discuss these columns, please visit the Drip Companies message board on the Web.]
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