The Motley Fool: The Foolish Workshop, March 1, 1999

<FOOLISH WORKSHOP>

Plowback Ratio Update

Burlington, VT (March 1, 1999) -- Tonight it's the Workshop Plowback Ratio Portfolio update. This is one of the screens not followed in the weekly returns and rankings, but it's a model that Workshop readers have shown a lot of interest in since Robert Sheard first started following it last year.

For those not familiar with the "plowback ratio," let me bring you up to speed. Value Line defines Percent Earnings Retained to Common Equity (Plowback Ratio) as "net profit less dividends divided by common equity including tangible assets, expressed as a percentage." It's a measure of how much cash a company is sinking back into its operation.

For the Plowback Ratio Portfolio, I used the following screen: Starting with all 1700 stocks in the ValueLine Investment Survey, filter out all but the 20 stocks with the largest market capitalization that have a plowback ratio of 25% or greater.

On January 7 I started a 1999 Plowback Portfolio so we could monitor the ups and downs of companies making the screen. Here's an update on how that Portfolio is doing through last Friday, February 26.

Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> 13.65%
Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> 29.57%
Int'l Business Mach. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> -7.93%
Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> 1.16%
Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> 9.48%
Amgen <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMGN)") else Response.Write("(Nasdaq: AMGN)") end if %> 19.43%
Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> 5.39%
Safeway Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWY)") else Response.Write("(NYSE: SWY)") end if %> -5.23%
Guidant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDT)") else Response.Write("(NYSE: GDT)") end if %> 3.18%
Gap (The) Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> 15.26%
Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> -7.62%
Microsoft Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> 8.25%
Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %> 0.79%
Abbott Labs. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABT)") else Response.Write("(NYSE: ABT)") end if %> -5.48%
Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %> -26.93%
Sara Lee Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLE)") else Response.Write("(NYSE: SLE)") end if %> -3.55%
Bestfoods <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BFO)") else Response.Write("(NYSE: BFO)") end if %> -11.85%
Caterpillar Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> -0.95%
Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> -4.66%
Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> -1.47%
Top 5 9.18%
Top 10 8.39%
Top 15 3.53%
All Twenty 1.52%

This performance is still topping the major indexes, but like most of our models it's down quite a bit for the month of February. If you like the type of stocks you see on the list, ones that throw off a lot of cash that they put right back to work making more cash, this screen might make a good place to begin some further research or screening. Remember, it's not backtested. Although I've read that Warren Buffett himself liked using this ratio when selecting companies, there's no way of predicting how the screen will fare over the long term.

Here's the new list of Plowback Ratio stocks from the January 24, 1999 Value Line data. They are listed in descending order of 6-month total return:

Oracle Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %> 133.86%
Sun Microsystems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SUNW)") else Response.Write("(Nasdaq: SUNW)") end if %> 117.05%
Amgen <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMGN)") else Response.Write("(Nasdaq: AMGN)") end if %> 81.43%
Intel Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %> 57.19%
Gap (The) Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GPS)") else Response.Write("(NYSE: GPS)") end if %> 56.24%
Guidant Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GDT)") else Response.Write("(NYSE: GDT)") end if %> 45.16%
Cisco Systems <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %> 44.66%
Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> 39.85%
Tellabs Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: TLAB)") else Response.Write("(Nasdaq: TLAB)") end if %> 39.64%
Microsoft Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %> 33.81%
Int'l Business Mach. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: IBM)") else Response.Write("(NYSE: IBM)") end if %> 33.13%
Safeway Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SWY)") else Response.Write("(NYSE: SWY)") end if %> 30.03%
Dell Computer <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DELL)") else Response.Write("(Nasdaq: DELL)") end if %> 29.45%
Lucent Technologies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LU)") else Response.Write("(NYSE: LU)") end if %> 17.91%
Sara Lee Corp. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SLE)") else Response.Write("(NYSE: SLE)") end if %> 8.98%
Schering-Plough <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SGP)") else Response.Write("(NYSE: SGP)") end if %> 8.79%
Abbott Labs. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABT)") else Response.Write("(NYSE: ABT)") end if %> 4.66%
Caterpillar Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAT)") else Response.Write("(NYSE: CAT)") end if %> 0.05%
Coca-Cola <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KO)") else Response.Write("(NYSE: KO)") end if %> -20.32%
Campbell Soup <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CPB)") else Response.Write("(NYSE: CPB)") end if %> -21.38%

Have a great week!

Check out the latest file updates for the Workshop:
New Rankings | Workshop Returns