That's correct Gearup. They actually build the teardrop for you in the FMC. So, it creates a waypoint at the end of the outbound leg at approximately 9nm. Because you are flying outbound in LNAV, the waypoint is pretty much your reminder to select HDG and turn on to 120 exactly as you said.
Actually, one trap I found was that the 767 HDG button is actually a HDG hold as opposed to the 737 where it is a HDG select. To use heading select you actually have to push the HDG rotator switch.
Hope this helps.
RS