Drip
Portfolio Report
Monday, December 1, 1997
by Jeff Fischer
([email protected])
ALEXANDRIA, VA (Dec. 1, 1997) -- The month of December is here.
"Dec" -- from the greek "deka," or "dek" -- stands for ten. The month was named by the Romans as the tenth month when they made the calendar. Even though that has changed and December is now the twelfth month, the month is still named as if it was the tenth. Somewhat along those lines, we think that even if Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> changed its name to "Dumtel," the company would still keep most of its market share, if only due to logistics or force of habit. We're not naive, but no other company has the ability to produce CPUs in the quantity that Intel does right now, and in the quanitity that the world demands.
With much thanks to Intel, the Drip Port had a strong day and rose 2.47%, beating the S&P 500, which gained just over 2%. Intel added $3 7/8 to $81 1/2. Through the beauty of dollar cost averaging we're only down sixty cents on our Intel position, despite buying the first share at $94.69. We have dollar cost averaged into the stock only one time since the initial purchase, buying $300 worth of shares at about $78 per share. Our average cost per share is currently $81.62. If our money reached Harris Trust in time, we bought an additional $100 worth of Intel today.
Our second investment (which is still in embryo stage) gained $1 3/4 today to $64 11/16. The status of Johnson & Johnson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> is this: Our first share of stock (and that of anyone using The Moneypaper at the same approximate time that we did) was bought on November 14 for $62.12. The certificates are still being delivered to the transfer agent, so we're patiently awaiting their momentous arrival. If we're enrolled soon enough this month, we'll decide whether to send December's $100 to Johnson & Johnson or again to Intel before the third week of the month. We're happy to send more money to Intel if need be.
At $81 Intel trades at 19 times fiscal '98 earnings estimates of $4.19 per share. Estimates have consistently been in flux over the past quarters as Intel continues to slash prices on its latest technology and as actual computer sales prove to differ from projections. While price cutting lowers margins, Intel has profitability to spare, and keeping its dominant 90% market share (or close to that) is much more important over the long run than making as much money as possible right now.
Largely due to a lack of economies of scale, Advanced Micro Devices <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AMD)") else Response.Write("(NYSE: AMD)") end if %> isn't able to turn a profit on its new technology, and Intel lowering prices on its chips certainly doesn't help. Without making substantial money, it's difficult to ramp up to the next generation of chip. It's difficult to imagine a world where Intel has an even more dominant stranglehold over the CPU industry, but if Intel continues to cut prices -- effectively putting a suffocating gag in the mouth of the competition -- will consumers (and can the government) complain, even if the competition falls into early graves?
Meanwhile, Johnson & Johnson trades at 23 times '98 earnings estimates of $2.79 per share. For a company that is growing earnings per share over 14% annually with a leading consumer brand name and pharmaceutical and medical businesses, the stock isn't unfairly priced. It's trading at the high end of its historical price-to-earnings range, certainly, but not by any extreme measure.
We're going to continue our food and beverage shopping by next taking a look at Nestle SA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NSRGY)") else Response.Write("(NYSE: NSRGY)") end if %>, the Swiss company that is the largest food seller in the world (depending on what you call a food company, I suppose). Of $45 billion in 1996 sales, $43 billion came from food and beverages. The other $2 billion came from -- surprise -- pharmaceuticals.
I'm still looking at the business so tomorrow I'll provide the overview and thoughts. In the meantime, Fool on! And keep dripping.
--Jeff
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TODAY'S NUMBERS
Day Month Year History Drip 2.47% 2.47% (8.42%) (8.42%) S&P 500 2.03% 2.03% 31.59% 2.46% Nasdaq 1.88% 1.88% 26.31% 2.32% Last Rec'd Total # Security In At Current 11/03/97 4.835 INTC $81.623 $81.500 11/14/97 1.000 JNJ $62.125 $64.688 Last Rec'd Total# Security In At Value Change 11/03/97 4.835 INTC $394.69 $394.09 ($0.60) 11/14/97 1.000 JNJ $62.13 $64.69 $2.56 Base: $900.00 Cash: $389.75** Total: $848.53 GOAL: The portfolio began with $500 on July 28, 1997, adds $100 on the 15th of every month, and the goal is to grow the port to $150,000 by August of the year 2017. **Transactions in progress: 11/24/97: $100 sent to purchase more Intel. The Drip Portfolio has been divided into |