After languishing in 1999, this year's Beating the S&P portfolio is again ahead of the major market indexes, gaining 9.4% compared to a loss of 0.6% for the S&P 500. Pepsi and Bank One have led the comeback, while Ford is the only losing stock. Despite some reports to the contrary, value-style investing is alive and well.
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Pepsi <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> leads the BSP comeback this year, up over 25%, thanks to optimism about future earnings growth. In July Pepsi reported a 24% increase in earnings, and management reiterated its belief that the company could achieve sustained earnings growth of 12-13%. The stock was recently added to the Drip Portfolio.
Recall that the Beating the S&P strategy was created to mimic the Dow Dividend strategies. Instead of using the Dow stocks, BSP chooses an alternative group of 30 very large companies to build a portfolio. The final selection, like the Foolish Four, is based on high-yield, low-price criteria. Last year, a six-year winning streak over the S&P 500 was broken, but it looks like we're back on track for 2000.
As we head down the stretch for the year, the BSP stocks are handily beating not only the S&P 500, the Dow, and the Nasdaq, but all but one of the portfolios followed regularly in our official investing strategies section. (The Drip Portfolio, 45% invested in Intel <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>, is far ahead of the pack.)
Here are the individual stock returns as of yesterday's market close. The chart shows the year-to-date returns for the BSP stocks (including dividends), along with the returns for 1999 (excluding dividends). Recall that only two of this year's BSP stocks were also official BSP portfolio stocks for 1999 -- Ford <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> and Bank of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %>.
1999 Return 2000 Return
Bank One -37% +15.8%
PepsiCo -14% +25.6%
Ford Motor Co. -9% -9.1%
Bank of America -17% +12.3%
Fannie Mae -16% +2.3%
2000 Year-to-date:
Beating the S&P +9.4%
Foolish Four -0.3%
S&P 500 Index -0.6%
We have an unusual number of financial companies in our portfolio this year: Bank of America, Bank One <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %>, and Fannie Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %>. All three companies, along with most of the banking industry, were hit hard last year in the face of rising interest rates. Bank One's stock price fell hardest because of concerns about corporate earnings and problems in its credit card business.
In retrospect these interest rate-sensitive companies were oversold given their solid earnings history and the likelihood that rates wouldn't keep climbing straight up forever. Bank One has benefited handsomely from new management. Newly appointed CEO James Dimon cut the bank's dividend in half, and announced a restructuring policy. Keeping true to the history of Foolish Four dividend-cutting companies, the stock price has been surging ever since. Even Warren Buffett picked up 1.45 million shares earlier this year.
Despite excellent earnings reports, the stock price of Fannie Mae has been under pressure because of proposed congressional legislation that could put a crimp in future company growth initiatives. Harried moms everywhere will be glad to learn that Fannie Mae, along with Bank of America, placed in the top 10 on the recent list of 100 Best Companies for Working MothersIn fact, four of our five BSP companies this year placed in the top 100, with Pepsi the only exception.
Then there's Ford, our only losing stock this year. We've previously discussed the company's Visteon spin-off and Value Enhancement Plan Unfortunately these efforts have been overshadowed by the Firestone tire debacle. The tire recall, while expected to put a dent in profits for the year, didn't prevent the company from announcing a recent $5 billion stock buyback program.
To paraphrase Mark Twain, the reports of the death of value-style investing have been greatly exaggerated. Whether the BSP stocks will continue to perform as well for the next few years as they have in the past remains to be seen, but at least we seem to be back on track this year.
Looking for the current list of BSP stocks, the ones to buy if you were to invest now? At the moment they are: Gillette <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: G)") else Response.Write("(NYSE: G)") end if %>, BellSouth <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BLS)") else Response.Write("(NYSE: BLS)") end if %>, Verizon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VZ)") else Response.Write("(NYSE: VZ)") end if %>, Wells Fargo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: WFC)") else Response.Write("(NYSE: WFC)") end if %>, and Kimberly-Clark <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KMB)") else Response.Write("(NYSE: KMB)") end if %>. As a group, these stinkers have lost about 15% on average this year. Looks pretty promising, if you ask me. You can find the current BSP stocks at any time by clicking the Today's Stock List link on the right and selecting S&P and High Yield/Low Price from the list boxes.
Beating the S&Pyear-to-date returns
(as of 09-19-00):
Bank One <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ONE)") else Response.Write("(NYSE: ONE)") end if %> +15.8%
PepsiCo <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PEP)") else Response.Write("(NYSE: PEP)") end if %> +25.6%
Ford Motor Co. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: F)") else Response.Write("(NYSE: F)") end if %> -9.1%*
Bank of America <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BAC)") else Response.Write("(NYSE: BAC)") end if %> +12.3%
Fannie Mae <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FNM)") else Response.Write("(NYSE: FNM)") end if %> +2.3%
Beating the S&P +9.4%
Standard & Poor's 500 Index -0.6%
*Includes Visteon <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VC)") else Response.Write("(NYSE: VC)") end if %> spin-off
Compound Annual Growth Rate from 1-2-87:
Beating the S&P +23.7%
S&P 500 +16.9%
$10,000 invested on 1-2-87 now equals:
Beating the S&P $183,600
S&P 500 $85,000