Post of the Day
May 6, 1998
DRiP Investing Board
Subject: And The Winners Are....
Our own TMF 2Aruba recently held a mini-contest on the DRiP board, to help him decide which companies to add to his portfolio. Here are the results, and the winning posts! Take the microphone, Tony...
First of all, I'd like to again thank all of the Fools who participated in my contest. Reading through all the wonderful entries was very interesting and fun for me, but selecting the winners was another story. That was tough!
There were suggestions for Kodak, AFLAC, Diebold, Harley Davidson, Fannie Mae, Family Golf, Carnival, Exxon, Enron, Avery, Home Depot, and a host of other terrific companies.
You can imagine how difficult it was for me to choose the best posts!
So, just to be clear, I wanted you to know that I narrowed down all of the entries to those that were convincing with not only good reasoning, but good Foolish research and facts.
So, with that, ....drumroll please....
The winners of the A DRiP For Aruba Contest are....
George (GLSmyth) [who, incidentally submitted a 2 parter]
Subject: Re: A DRiP For Aruba
From the looks of things, it's clear that an energy stock is missing from your DRiP portfolio. Obviously, this sector will be an important one for the forseeable future.
Of course, one could take the easy way out and just choose the biggest oil company around. Hey, that might even be the right thing to do. I, however, feel that it would be a better idea to select an energy company that has demonstrated leadership in its field, innovativeness in its approach, strength in its leadership, and the ability to advance the company through the next twenty years.
Ever hear of Enron?
Enron is North America's number one buyer and seller of natural gas. They also build and manage natural gas transportation, power generation, and liquids throughout the world.
There is a good reason that Fortune Magazine ranked Enron as the most innovative company. Kenneth Lay, Enron's CEO, realized that through deregulation he would be able to buy gas where it was cheap and ship it to where it was needed. This seems like an obvious course now, but at the time his collegues were resisting deregulation.
What's next? With the lessened cost of free-market gas he is moving along with deregulation and using this gas to fuel electric generation plants. There is currently a plant in Texas competing economically with older coal-fired plants -- and with considerably less pollution.
This innovativeness, and the company's aggressive push of developing power plants, pipelines and natural gas into the world's largest economy, China, shows that there is considerable room for growth.
This will be a company to be reconed with over the next twenty years.
In my first message concerning Enron, I explained why Fortune Magazine selected them as THE most innovative company. Of course, that should not be the sole reason for selecting a company, so I am following it up with additional information concerning the first two questions that come to mind - is this a one-trick pony and does anyone care about the product?
The photographer Weegee, when asked how he was able to get the shots so many other photographers missed, simply stated, "F8 and be there." Translated, this means that one needs to have everything ready to go and be in the right place. Enron has been making a habit of this.
Innovation in the transportation of natural gas has had numerous carryovers for Enron. There are several examples of Enron's ability to expand their customer base.
When Enron merged with Portland General Electric in 1997, they entered the regulaterd electricity business. By the end of the year they had filed a proposal with the Oregon Public Utilities Commission that will allow them to become the nation's first regulated electricity transmission and distribution company focused on delivering, not selling power.
Their recent agreement with Pacific Telesis will allow them to provide energy services for their 8,000 facilities in California. A long-term contract with the University of California and California State University will allow them to provide energy services to the 31 campuses of these colleges, the largest customer to switch providers in the deregulated marketplace.
Enron's advanced metering program allows companies to outsource their meter services. Investments are allowing them to take an early lead in this huge new market (contracts have associated future revenues of $1 billion).
Does anyone care about clean energy?
As population density increases, there is additional concern for cleaner energy sources than the traditional coal and oil products. Natural gas is one of the cleanest fossil fuels available. In the past ten years, demand has increased about from 66 to 82 trillion cubic feet, and this demand is expected to similarly continue over the next ten years. Enron is the largest wholesaler of natural gas in North America. They are one of the three largest marketers in the United Kingdom, and have aggressively moved into Puerto Rico, Jamaica (sorry, not Aruba), and South America.
Of course, there are other clean energy sources available, and Enron is rapidly moving into these areas. They have installed 3,200 wind turbines and operate 2,700 of them, creating 424 megawatts of power. Through a partnership, they are the second-largest solar manufacturer.
So, establishing a growing customer base through innovative cost-cutting techniques, being "Johnny-On-The-Spot" when deregulation gives them the opportunity to expand into new areas, and finding ways to establish alternative clean energy at cost-savings clearly gives Enron an advantage into the next century.
My final message, shortly, will look at the numbers and explain why this company is not showing up on the radar screens (and why it is an excellent candidate, especially for a DRiP).
Subject: Re: A DRiP For Aruba
Two words: Avery Dennison. Where's my hat?
OK, I guess you need more convincing. If you make labels on your laser or inkjet printer, chances are, you use AVY labels. If you use another product, chances are that it is states that it is comparable to an Avery Dennison standard. But, wait...there's more!
Those peel-and-stick stamps that are so popular now? Avery Dennison. The battery-tester strips on Duracell packages? Avery Dennison. The labels many consumer products afix to their containers? Avery Dennison. The company is now working on software templates with Mattel and Hasbro to capture the kiddie market for computer labels. But it also makes binders, dividers, folders, tapes, and other office products.
Oh, and the financials...Earnings per share increased from $1.63 in 1996 to $1.93 last year, and projections call for $2.25 this year and $2.50 in 1999. The company raised its dividnd for the 22nd consecutive year, and has a 2.5 million share repurchase program (vs. 102.4 million outstanding shares). Earnings were flat in 1991 after Avery bought Dennison, but have climbed ever since. If you had invested $100 in AVY at the start of 1994, you'd now have stock worth $403, compared to a similar investment in KO, which would have grown to "just" $369 or JNJ, which would have grown to $354.
More than the numbers, though, I keep going back to the ubiquitous nature of its products. They're everywhere. In fact...the label on a bottle of Coke is a sample of Avery's "ClearAdvantage" thermal-transfer labeling process. The film labels on products like Palmolive or even Johnson & Johnson shampoo are likely to be Avery "Fasson" Primax film. The company even has developed an alternative to spray paint finishing on automobile plastic components like the tail-light housing and Ford, GM, and Honda use them as an environmentally-friendly alternative to spray painting. And, of course, there's Bugs Bunny on a 32 cent stamp...:)
So, Avery Dennison would make a good choice. Or...you can let me have that much more of the profits...:)