The Drip Port column is now being e-mailed to tens of thousands of Rule Breaker and Rule Maker daily e-mail subscribers. (You can subscribe here -- for free!) This being the premier column, we want to say, "Greetings, new readers. Welcome to Drip Port."
This portfolio launched in the summer of 1997 with $500. It is now worth more than $5,000. We didn't grow our money 10-fold, however. We've been adding $100 monthly and investing it. We own five stocks, only four of which we're actively buying. We will own six to eight at most.
We invest in companies that have, on average, grown earnings per share at double-digit rates annually for many years, and will likely do so for many more years. We care about valuation, and always have. Our performance thus far pleases us, especially since investing monthly means a slower start. We're beating the S&P 500 on a comparable basis. Investing new money every month in a sharply rising stock market for three years could have hurt us badly if we hadn't been mindful of the prices we were paying.
We invest in our companies using their free dividend reinvestment plans, or Drips (others call them DRPs). We cotton to plans that are entirely free (some have fees). For more information on these great plans, and on our portfolio, see the Drip Port information pages.
Intel, J&J, Mellon report earnings
Now let's take a cool look at this week's news. Our three largest holdings -- Intel (Nasdaq: INTC), Johnson & Johnson (NYSE: JNJ), and Mellon Financial (NYSE: MEL) -- reported first-quarter results. For those new the to Drip Port, we look at our companies' results quarterly, and sometimes for weeks following results. We want to build incremental knowledge each quarter. Today's look will only be a perfunctory glance, given our space-eating introduction (we have a word limit even in cyberspace), but it'll be a start.
First, all three companies performed. BOO-YAH!
OK, Intel topped sharply lower estimates and earned much less than a year ago, but it still cleared net income of $1.1 billion on a normalized basis, far from suffering. Fool News covered Intel's numbers. The important takeaway from the news: Intel saw demand for microprocessors accelerate at the end of March, and it is now projecting a year that follows seasonal patterns, meaning that sales should rise into the second half of 2001. Clearly it is too early to bank on this projection (it could fail), but it bodes well for Intel.
Microprocessors account for 80% of Intel's sales. Networking products account for much of the rest. The networking business is still "soft," Intel said, and the company is being criticized for entering the networking business at all. We'll wait to see if it doesn't pay off over five years or more.
Our most consistent company so far, Johnson & Johnson reported a 14% rise in first-quarter earnings, to $1.06 per share, or $1.5 billion, on a 6.5% gain in sales, to $7.5 billion. Mike Trigg in Fool News covered more numbers and the company's long-term consistency. The most important takeaway from this week's news: Management increased its earnings per share guidance for 2001 in light of its pending Alza (NYSE: AZA) purchase. Earnings could now reach as high as $3.90 per share this year, rather than the $3.84 previously expected. The stock trades at $93 per share, 24 times the new estimate.
Mellon Financial reported a 4% rise in first-quarter earnings per share. This is favorable given a difficult investing environment, but well below the minimum of 10% that we want. Revenue rose 5% to $1.18 billion. Most important, metrics improved once again, including return on assets and operating expenses. One downside: Non-performing assets rose. The important takeaway: Mellon is not a bank; it is a financial services company, and it is consistently growing value (it also raised its dividend by 9%). But more on all that later. At $42 per share, Mellon trades at 18 times this year's earnings estimate of $2.25 per share.
Our 2001 theme music
Before we close Day One with new readers, we have a musical suggestion to readers new and old! Movies have soundtracks. Motley Fool portfolio strategies should, too. (Rule Breaker's might be the James Bond theme?) This year, Drip Port's soundtrack heralds from Africa, although the music sounds Cuban. The spry but rich, and festive yet calm, sound of this album mirrors Drip Port's mood toward investing -- namely, don't sweat it; enjoy it; roll with it.
Suspense is building, yes? All right. This year's Drip Port "music to invest by (tm)" is... (ready?)... Cheikh Lo's album, "Ne La Thiass."
Say what? Well, Cheikh Lo is from Senegal, and his album was widely regarded as the World Music album of the year in 1996. He doesn't speak your language unless you speak Wolof, but you can understand the spirit nonetheless. You can listen to album samples and read reviews through the link above. You don't have to, of course. But it is (now) one part of the Drip Port's essence.
A final note to this motley but integral diversion: The name of the album translated is "gone in a flash" -- much like money invested in bad companies. Fool on!
Jeff Fischer owns all the stocks in the Drip Port, and he likes to criticize them. For instance, Mellon should have been more forthcoming in its quarterly earnings release. Usually, the company states earnings and sales growth up-front. This time, Mellon didn't, perhaps because earnings and sales growth were lower than usual. The Motley Fool has a full disclosure policy.