<THE DRIP PORTFOLIO>
Foolish consistency and investing criteria
by George Runkle (TMFRunkle)
Okinawa, Japan (May 17, 1999) -- I'm on my second week in Japan, but this report was written a week ago Friday. This is a follow-up on my investment through NetstockDirect (www.netstock.com). Netstock allows you to invest directly through its site in 300 different companies, with no brokers, often no commissions, and no share certificates to lose.
I signed up for Wal-Mart (NYSE:WMT) at $25 a month (last of the big investors that I am) and waited for the first investment to go through. It did on the 3rd of May. I was getting worried about when it would start, and I wrote Netstock to see if anything was wrong. They wrote me back promptly, and First Chicago Trust Company (the transfer agent for Wal-Mart) called me, too. Seems everything was fine, it just takes a little time. So now I am a happy investor in Wal-Mart.
I chose Wal-Mart before I read The Motley Fool's Rule Breakers, Rule Makers book, so I didn't do a test on Wal-Mart to see if it is a Rule Maker or not. Let's do that here and now. I hope it is (remember that last week I wrote about consistency). Here we go:
1. Mass Market, Repeat Purchase: Hah! Wal-Mart, you bet. Give 'em a 2 (max score).
2. Gross Margins: 21%, uh-oh, 0 points.
3. Net margins: 2%, not bad for a retailer, but 0 points again.
4. Sales Growth: 16.6%, they get a 2 pointer for this.
5. Cash to Debt Ratio: Well, they have less cash than long-term debt, so 0 points for this.
6. Foolish Flow Ratio: I come up with 1.14, they get 1 point.
7. Your Familiarity and Interest: Easy, they get a 2.
Let's total these up. They get an "8." So much for consistency, maybe I should do some "Sector Rotation" while I'm at it.
Ok, I have a cheap cop-out, but I'll take it. My earlier way of choosing companies for Drips was the following:
1. Analysts estimates of over 12% earnings growth for the next five years.
2. Increasing earnings over last five years.
3. Increasing dividends over last five years.
4. I personally know the company and its products.
Fortunately, Wal-Mart meets that simple screen, so I have an excuse for buying (whew!). However, in the future, I'll want to use the more rigorous Rule Maker method. When I get home next week, we'll see if any Japanese stocks that offer Drips here pass the Rule Maker test. For more on Wal-Mart, the Rule Maker Portfolio itself considered it last week: click here.
P.S. Mellon splits 2 for 1 after the market close today.
Change the World... work for the Fool.