<THE DRIP PORTFOLIO>
NTT a Necessity?
And a snapshot of Canon
by George Runkle (TMFRunkle)
ATLANTA, GA (June 2, 1999) -- While I was in Japan a couple of weeks ago, it occurred to me that it may be worthwhile to look at Drips in Japanese ADR's. Last week, I explained what ADR's (American Depository Receipts) are, and looked at Sony Corp. (NYSE: SNE) to see if it would meet the Rule-Maker criteria. Sadly, Sony didn't make the cut.
This week, I'm going to look at Nippon Telephone and Telegraph (NYSE: NTT), or NTT for short. NTT was originally a Japanese government-owned company. It was privatized in 1985, and since then it has diversified into communications related businesses around the world. Its operating revenues are $71.6 billion dollars, and it operates in Europe, the Americas, Asia, and Australia. Its Drip plan has a direct purchase option with a $250 minimum initial investment, and $50 a month optional cash purchases are available. Let's see if it makes the Rule-Maker criteria.
In the interest of brevity, I'm not going to go through all the criteria here. For more information on it, check out the Rule Breakers, Rule Makers book by David and Tom Gardner, or check out the Rule Maker Portfolio.
NTT scores really well in a number of areas. It provides a "mass market, repeat purchase product" (what else can phone service be?). It has very low debt and a very low Foolish Flow ratio. However, its margins cause it to score quite low. According to my calculations, it has a gross margin of 9% and a net margin of 2%. This causes the company to score "0" in both of these areas. The end score is an 8. We are looking for 12.
Now, NTT may be an excellent investment, but I'm looking for companies that meet the very stringent Rule-Maker criteria. Let's not stop there, let's think of another Japanese company. The final question of the Rule-Maker screen in the Rule Breakers, Rule Makers book is whether you have personal interest in the company and its products. Hmmm... what do I have that's Japanese? I have a Seiko watch, a Canon FTb camera, a Canon AE-1 camera (okay, it's 25-years-old, but it still works), a Canon autofocus camera, a Canon copier, and a Canon color printer... Let's stop right here and look at Canon (Nasdaq: CANNY). Does Canon have a Drip? Checking out Netstock (www.netstock.com), we see that it does. For a $250 initial investment you can be invested directly, and you can make optional cash purchases for as little as $50 a month.
Going through the criteria, Canon looked like it might make it. However, it hasn't had good sales growth over the past year. This caused it to score a zero. Also, even though it has a mass market, the repeat purchase part trips it up. The FTb camera is a good example. I bought it when I turned 18, and I've just about beaten it to death through my travels. Now my son has it, and he's busy abusing the poor thing. It still works. Good for quality, but not a repeat purchase item, is it? The next problem has been the growth in sales. Canon did not do well in the years 1997 and 1998 for sales growth, which seems to be common with a lot of the Japanese companies. Times have been tough in the Pacific Rim. So, until the sales growth picks up, which ought to help with some of the other criteria, Canon fails, too, if we go by the Rule-Maker criteria.
I'm going to continue looking at Japanese companies, but I'm not going to mention them here until I find one that meets the Rule-Maker screen and has a Drip. It may take me a while, but I'm confident I'll find one. Why should we care about investing in a foreign stock? That brings up some interesting items for discussion, such as diversification and risk. I'll give my opinion on those matters in next week's column. I will be back to the Monday slot (and hopefully over this jet lag from the Japan trip) by then.
To discuss this column and Drip companies, plus visit the Drip Companies message board.
The Fool is hiring. Answer the call.