<FOOLISH FOUR PORTFOLIO>
A Half-Empty Glass?
A semiannual BSP performance review
by Ethan Haskel ([email protected])
Baltimore, MD (July 7, 1999) -- The dog days of summer have hit with a vengeance along the eastern seaboard this week. These 115-degree heat index readings just make you want to dive into the world's largest Slurpee and suck your brains out.
This searing heat reminds me that July has arrived, bringing to a close the first half of the calendar year. It seems as good a time as ever to review the performance of the stocks in our Official 1999 Beating the S&P (BSP) Portfolio. Recall that this portfolio includes those five BSP stocks that were the current selections as of the beginning of the year -- In January, when we were freezing our buns off!
As of the close of trading Tuesday, the BSP Portfolio has gained 9.0% this year. Overall, that averages out to about a 19% annual gain. We've had a good year thus far.
Or have we? Many mutual fund managers, given similar results, would be painting a rosy picture. Maybe they'd crow about how the returns have almost doubled the average return of stocks over the past 50 years. To these managers, the performance glass seems always to be half full.
Fools tend to take a more critical view of our investments, comparing results with meaningful benchmarks. Our chosen benchmark has always been the Standard & Poor's (S&P) 500 Stock Index. The S&P 500 returned 13.5% this year, 4.5 percent ahead of the BSP Portfolio. The BSP performance glass is looking kind of half empty to me.
Let's briefly review the individual stocks in our 1999 BSP Portfolio. One warning here. If you're seeking penetrating analyses of these companies, look elsewhere. One of the true pleasures of a mechanical screening system like BSP is that you can invest, then head for the beach. It really doesn't matter to us if a company like Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> is in the energy business or is the latest competitor to McDonald's <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MCD)") else Response.Write("(NYSE: MCD)") end if %>.
Let's review the BSP companies in increasing stock price order as of the beginning of the year, from least expensive to most:
Schlumberger +33.7%. This company (pronounced shlum-ber-zhay, sort of rhyming with Faberge) is the largest American supplier of oilfield services. Much less well known is that it makes equipment used for testing semiconductors and even makes high-tech gizmos called "smart-cards". In January, Schlumberger was the classic beaten-up dog of a company, whose stock price had been virtually halved.
Yet Schlumberger has been easily our best performer to date. This chart depicting futures prices for crude oil explains just about everything you need to know about the stock's turnaround. The company fell onto our radar screen when all looked desperate, with crude oil going for about 11 dollars a barrel. Now with the same commodity surging to nearly 20 dollars a barrel, the outlook for company profits is considerably brighter.
Kimberly-Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> +4.3%. The leading producer of household paper-product staples like Kleenex, Kotex, and Huggies has underperformed for us this year, as it did last year in our portfolio. In true doggy fashion, Kimberly's stock price had remained essentially flat for two years when we bought it in January. In April the company reported both record earnings per share (up 29%) and record operating margins (about 18%), leaving us hope that the stock will rise from its doldrums.
Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %> -19.5%. Campbell has been our Waterloo this year. Without this stock in our portfolio, we'd be up about 17% overall. On January 11, the stock price dropped 13%; Its continued gradual decline seems like water torture. The culprit has been poor earnings growth -- and the expectation of future slow growth. Perhaps the company can take a leaf out of the book of Anheuser Busch <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BUD)") else Response.Write("(NYSE: BUD)") end if %>, another one of our consumer giants that turned itself around, gaining over 50% this past year. For more "canned" analysis, check out this recent report from the Drip Portfolio, where Campbell is a charter member.
Ford Motor <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> -0.1%. Unlike the other stocks in our BSP Portfolio, Ford was a stellar performer last year, returning about 70% for last year's portfolio. The fact that the second-largest U.S. automaker was included on this year's list at all remains somewhat of an anomaly. Normally such outsized gains would jack up the stock price, eliminating the stock from consideration as a BSP candidate. However, last year Ford spun off Associates First Capital <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AFS)") else Response.Write("(NYSE: AFS)") end if %>, its financial services division. The move resulted in the parent company's price decline, bringing it back into the BSP fold. (Note that the price decline didn't indicate a shareholder loss, since Ford stockholders received additional shares of AFS.)
Ford's stock price, unlike its best-selling sport utility vehicles, has been stuck in a rut this year. The company has been spinning its wheels in the face of interest rate worries and concerns that the company could continue its blistering sales pace while digesting its Volvo acquisition. Despite these concerns, Ford had an outstanding month in June, with the company announcing more blistering sales records. It's just this kind of news, along with the flat stock price, that caused Lehman Brothers to place the company on its recent list of "10 Uncommon Values".
Bank of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> +26.4%. Here's another of our classic dogs whose stock price basically treaded water for 1998, precipitously dropping nearly 30% in September after an announcement of a negative earnings surprise and higher-than-expected expenses related to its NationsBank merger. It looks like the stock was oversold, and the BSP Portfolio has benefited nicely. Did you know that one of every three American households banks with Bank of America?
While we follow the BSP stocks from week to week and month to month, we're always attuned to long-term results. There's still a long way to go in 1999. BSP-like stocks often are beaten down for extended periods before they recover. With some good fortune, just maybe we'll boast of a seventh consecutive year that the Beating the S&P Portfolio has lived up to its name and outpaced the S&P 500.
Now, that's one mighty full glass, no matter how you view it.
******
[Editor's Note: Following are the returns of a "paper" Beating the S&P portfolio that Ethan has been reporting on in the Foolish Workshop for many months. The stocks were selected December 31, 1998 and "purchased" in equal dollar amounts to be "held" for one year. To see a list of stocks for portfolios starting now, see Today's Stock Lists]
Beating the S&P year-to-date returns (as of 07-06-99):
Schlumberger <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLB)") else Response.Write("(NYSE: SLB)") end if %> +33.7%
Kimberly-Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %> +4.3%
Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %> -19.5%
Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> -0.1%
Bank of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> +26.4%
Beating the S&P +9.0%
Standard & Poor's 500 Index +13.5%
Compound Annual Growth Rate from 1-2-87:
Beating the S&P +20.8%
S&P 500 +18.4%
$10,000 invested on 1-2-87 now equals:
Beating the S&P $103,900
S&P 500 $80,800
Today's Stock Lists | 1999 Dow Returns
07/07/99
Close
Stock Change Last -------------------- CAT +2 22/27 62.13 JPM + 15/16 146.00 MMM - 1/8 90.38 IP +1 3/16 51.81 |
Day Month Year History
FOOL-4 +1.93% 3.58% 30.27% 32.21%
DJIA +0.47% 1.97% 22.63% 22.15%
S&P 500 +0.56% 1.68% 14.13% 14.41%
NASDAQ +0.23% 2.14% 25.10% 26.82%
Rec'd # Security In At Now Change
12/24/98 24 Caterpillar 43.08 62.13 44.21%
12/24/98 9 JP Morgan 105.51 146.00 38.38%
12/24/98 14 3M 73.57 90.38 22.84%
12/24/98 22 Int'l Paper 43.55 51.81 18.97%
Rec'd # Security In At Value Change
12/24/98 24 Caterpillar 1034.00 1491.00 $457.00
12/24/98 9 JP Morgan 949.62 1314.00 $364.38
12/24/98 14 3M 1030.00 1265.25 $235.25
12/24/98 22 Int'l Paper 958.12 1139.88 $181.76
Dividends Received $49.99
Cash $28.26
TOTAL $5288.38
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