Today we name our complete list of high-growth finalists!
Gemstar-TV Guide Int'l (Nasdaq: GMST) is the last company for us to consider before we decide on the finalist contenders. Gemstar is a media and consumer entertainment company involved in several businesses, from publishing TV Guide to licensing proprietary technology related to TV entertainment.
You need to read the full company description just to start getting your mind around everything the company does, and even that description only provides a general idea. Gemstar is involved in everything from TV cable and satellite to eBooks, but most of its business is centered around television entertainment services.
Being the Drip Portfolio manager, my only problem with Gemstar's focus is that I don't care for television much. Therefore, I'm not interested in television services as an investment.
Even if I were interested, the company's financials would keep the business from making our finalist list anyway. Large losses are expected for at least the next two years. Losses alone don't disqualify a company, but Gemstar has more than $580 million in long-term debt as of December 31, 2000, and $488 million in cash and equivalents, which it is spending.
That isn't too weak a ratio of debt-to-cash, but we ideally want to invest in a high-growth company that does not have any debt alongside a very large cash balance. Having a strong cash-to-debt balance helps a company fund its growth and lowers the risk of compromised growth or outright failure.
Gemstar-TV Guide has a business relevant to many, and it may show substantial promise, but we'll leave it to succeed without us. It simply isn't for me, and it isn't for us, because it doesn't meet our criteria.
Our high-growth finalists
So raise the trumpets! We have considered more than 50 companies since last autumn (whew), and the following 10 are the finalists in our high-growth study:
Ariba (Nasdaq: ARBA)
Concord EFS (Nasdaq: CEFT)
eBay (Nasdaq: EBAY)
Genentech (NYSE: DNA)
Mercury Interactive (Nasdaq: MERQ)
Millennium Pharmaceuticals (Nasdaq: MLNM)
Openwave Systems (Nasdaq: OPWV)
Paychex (Nasdaq: PAYX)
Redback Networks (Nasdaq: RBAK)
Trex Company (NYSE: TWP)
One of these companies may be our next long-term investment, or we may decide not to buy any of them. Consider that unless we buy Paychex, we will need to use a low-cost pseudo-Drip, such as BuyandHold, because these companies don't offer Drips. We may or may not decide to do that. The company will need to merit the extra cost. Either way, we'll cross that bridge if we need to.
Notice that Trex Company made the list. This decking materials firm merits further study. Cree (Nasdaq: CREE), however, didn't clear the list despite its compelling potential. Cree's business is simply too difficult to predict with any confidence. Also not on the list are fiber optics companies or the data storage giants, despite the excellent study of these companies provided by Vince (and now in the archives). Those businesses are also too unpredictable.
New column schedule
Now, you might have seen that The Motley Fool announced a new schedule for its portfolio strategy columns starting next week. The Drip Port's official column frequency is being reduced to once per week, running every Thursday. You may wonder how we'll make real progress in our investment studies while running just one column a week.
Well, I've thought about that, too, so we're going to publish the equivalent of columns on the Drip Companies discussion board when possible, and then the weekly Thursday column, aside from being a column unto itself, will also point to the recent thoughts we've posted on the board. So the weekly Thursday column will often be more than just one column (but not more than you can reasonably enjoy in one sitting). That way, we can progress in our investment studies at a reasonable pace, and ideally have a more interactive dialogue on the board as we do so.
If you have thoughts or questions about the schedule change, click on the "new schedule" link above, and then please post.
Next week, some of our companies will announce first-quarter results, including Intel (Nasdaq: INTC) and Johnson & Johnson (NYSE: JNJ). We'll see how they performed and we'll also start the in-depth study of our new 10 finalists!
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