The Motley Fool: The Foolish Four, Tuesday, January 27, 1998

<THE FOOLISH FOUR>

Foolish Four Report
by Robert Sheard

LEXINGTON, KY. (Jan. 27, 1998) -- Earnings season continues to bring in good performances by the Dow Jones Industrials. Late yesterday and today, twenty percent of the stocks in the index reported fourth-quarter earnings, and Wall Street appears to like what it's been seeing from these behemoths. Let's run through the six latest reports.

Let's get the weak performances out of the way first, and then enjoy the solid performances of the others. Minnesota Mining and Manufacturing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MMM)") else Response.Write("(NYSE: MMM)") end if %> was the only stock of the six that lost ground after posting its earnings today. 3M lost ground chiefly because of foreign currency translations resulting from a very strong dollar, posting earnings of 90 cents per share. 3M earned the same amount this time last year, but analysts were expecting a penny more per share, a minor disappointment. Given that currency translations cost the company roughly eleven cents a share for the quarter, the results were pretty good.

Boeing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %>, which has been one of the weakest Dow stocks over the past twelve months, enjoyed a little pop today. Boeing recorded a loss of nearly $500 million, the result of the take-over of McDonnell Douglas and production troubles in the company's jetliner assembly plants. The loss of $0.51 a share compares with a $0.46 per share loss in the fourth quarter of 1996. Boeing's fourth-quarter sales, however, were up 17.5% year over year. The company believes the production problems will continue into the first quarter of 1998 and it is working to modify the 737-700s to fix the problem. Revenue forecasts for 1998 are encouraging. The company expects total revenues of roughly $55 billion, more than $9 billion higher than in 1997.

American Express <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AXP)") else Response.Write("(NYSE: AXP)") end if %> rode its travel and financial services to record gains for the fourth quarter. Earnings of $1.04 per share beat the consensus estimate by a penny a share and out-performed last year's final quarter by 15 cents per share. With wider margins in its travel and charge card business and growing assets under management for the money-management business, each of the divisions for American Express grew at double-digit rates from last year's comparisons. It looks like more and more, people aren't leaving home without it.

Merck <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MRK)") else Response.Write("(NYSE: MRK)") end if %> continued the enormous strength exhibited by the big drug companies in 1997. Profits rose in the fourth quarter by 19% at Merck, with earnings coming in at $1.01 per share (fully diluted). Analysts are especially pleased to see that Merck's cholesterol-lowering drug is fending off new competing products from Warner-Lambert <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WLA)") else Response.Write("(NYSE: WLA)") end if %> well. Also adding to Merck's strength were the acid reducer Pepcid, the HIV drug Crixivan, and Fosamax, a post-menopausal osteoporosis medication.

Home products giant Procter & Gamble <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PG)") else Response.Write("(NYSE: PG)") end if %> joined the strong earnings parade as overseas sales helped boost profits by 11%. Procter & Gamble earned 71 cents per share, compared with 63 cents a share last year. While Asian sales slipped approximately 5%, sales in North America, Europe, Africa and the Middle East increased in the fourth quarter. Procter & Gamble now sells more than 300 products around the world. Now if we can just get them to can those irritating Pringles commercials.

The big winner today, answering that wish made upon a star, was Disney <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DIS)") else Response.Write("(NYSE: DIS)") end if %>. High attendance at its theme parks and increased advertising revenues on its cable television channels sent Disney's earnings to record levels, surpassing Wall Street's expectations. The stock reflected the results today, soaring to record high levels itself.

Net income for Disney jumped 18%, to $1.10 per share. Last year Disney earned $0.93 a share and the consensus estimate was for $1.06. Between record attendance at Walt Disney World, the impending launch of Disney's new Animal Kingdom, the tremendous popularity of ESPN, the Disney Channel, and the flagship ABC network, Mickey Mouse is all smiles for a pretty good reason.

Of course, for every bit of good news (like today's better-than-expected earnings reports), there's going to be at least one vocal grump out there who's standing up and shouting, "Yeah? Wait'll next quarter. The [insert your favorite potential calamity here] will knock the market down 40%. Just you wait and see." And maybe he'll be right. One time out of twenty might be about the appropriate percentage for such predictions.

Rankings Note: Philip Morris <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MO)") else Response.Write("(NYSE: MO)") end if %> is currently the lowest-priced of the High Yield 10 and the highest yielder. As such, the Foolish Four skips it and would select the next four stocks on the list. Fool on!

[Still confused about the changes to the Foolish Four? Visit our special collection which explains why the Fools have modified our beloved Dow Approach.]

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TODAY'S NUMBERS

Stock Change Last -------------------- UK + 3/4 42.00 IP + 1/16 45.69 MO + 1/8 42.25 EK +1 9/16 63.94

Day Month Year FOOL-4 +1.19% 0.67% 0.67% DJIA +1.32% -1.18% -1.18% S&P 500 +1.26% -0.15% -0.15% NASDAQ +1.12% 0.54% 0.54% Rec'd # Security In At Now Change 12/31/97 289 Int'l Pape 43.13 45.69 5.94% 12/31/97 206 Eastman Ko 60.56 63.94 5.57% 12/31/97 291 Union Carb 42.94 42.00 -2.18% 12/31/97 276 Philip Mor 45.25 42.25 -6.63% Rec'd # Security In At Value Change 12/31/97 289 Int'l Pape 12463.13 13203.69 $740.56 12/31/97 206 Eastman Ko 12475.88 13171.13 $695.25 12/31/97 291 Union Carb 12494.81 12222.00 -$272.81 12/31/97 276 Philip Mor 12489.00 11661.00 -$828.00 CASH $77.19 TOTAL $50335.00