Boring Portfolio

Boring Portfolio Report
Tuesday, December 16, 1997
by Greg Markus (TMFBoring@aol.com)


ANN ARBOR, Mich. (Dec. 16, 1997) -- The Boring Portfolio rebounded 2.04% Tuesday, with gainers outnumbering losers six to one.

Green Tree Financial (NYSE: GNT) grew $1 7/8 in continued heavy trading. An analyst at Minneapolis-based investment firm John G. Kinnard (Nasdaq: KINN) initiated coverage of the Tree with a "buy" today. Details were not currently available.

In view of the less than distinguished "advice" of analysts following some current and former Borefolio holdings (including Green Tree, alas), I mention this "news" not because I believe that any analyst's recommendations should be given any great weight but rather because analysts' reports can sometimes -- sometimes -- raise considerations worth pursuing on your own, should you so desire.

Tidewater (NYSE: TDW) surged $2 5/16 to $56. Oilpatch stocks were generally strong today, and Tidewater was among the leaders. I spoke with Tidewater executive VP and CFO Ken Tamblyn briefly yesterday. Tamblyn said he had no comment on the proposed sale of Tidewater's compression business. He did say, however, that he thought the recent decline in the share prices of offshore drillers and marine service companies may have been due to a misinterpretation of comments made by some major oil companies regarding their 1998 budget plans for exploration and production.

Tamblyn pointed out -- as have a number of industry experts -- that the reason for tight E&P budgets is simply because the major oils are having difficulty finding available drilling rigs. The tight supply continues to keep leasing rates at high levels.

Shares of Cisco Systems (Nasdaq: CSCO) continued Monday's rebound by rising $2 5/16 in heavy trading. The stock sold off late last week after a couple of analysts (quoted breathlessly in some on- and off-line publications) raised concerns about an increase in Cisco's inventory of finished goods in their last quarter. The inventory figures were reported in Cisco's latest 10-Q, which was released last week.

Adding fuel to the fire were reports that three Cisco insiders sold stock last month. And of course there's the ongoing climate of unease about Asian financial turmoil.

A Cisco spokesperson cleared up the inventory non-issue: the buildup was intentional and represents a stocking of lower-end communications items for anticipated sales. Since Cisco doesn't record revenues until products are actually sold, the inventory build-up had no impact on reported revenues for the most recent quarter.

Beyond that, the hyping of "concerns" about inventories appears to me to have been either an intentional misrepresentation of the facts or else some really sloppy analysis.

First of all -- and as pointed out in Cisco's last quarterly conference call -- the value of Cisco's total inventory declined last quarter. Declined. The value of the finished goods component increased somewhat, but the value of components and unfinished products more than offset that increase.

Second, the reports I saw warned that Cisco's finished goods inventory "swelled" sequentially by an apparently substantial percentage. What they neglected to point out was that although the increase was large in percentage terms, it was pretty small potatoes in absolute dollars -- about $48 million, as compared with Cisco's total cost of sales last quarter of $652 million.

What about the insider sales? Well, a glance at the SEC filings certainly gives one pause. The filings note, for example, that CFO Larry Carter sold 150,000 shares in November, reducing his total holdings to a mere 4,681 shares. Somewhat smaller sales by three other insiders also occurred in November.

Pretty big deal, huh?

Perhaps, but perhaps not. First of all, the report of remaining shares held excludes the execs' huge troves of stock options. A Cisco spokesperson told me that even after this sale, Larry Carter has approximately 600,000 shares of Cisco stock and options.

Moreover, a glance at the history of selling by Cisco insiders reveals that it has occurred regularly over the years, at times when the window for such sales opens. A substantial part of executives' compensation at high-tech companies such as Cisco is in stock and options, and such selling often occurs as a matter of asset diversification.

As for the Asian situation, the Cisco spokesperson wrote me in an email that "in regards to Asia, our guidance from our last conference call has not changed at all." Moreover, she wrote, this holds true "for all of our theaters."

Oh, one other thing: Cisco's 3-for-2 stock split takes effect tomorrow. So if you glance at your portfolio and it appears that your Cisco stock dropped by one-third overnight... well, it did. But then you also now have half-again as many shares!

--Greg Markus

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TODAY'S NUMBERS
Stock  Change    Bid
CGO     ---    25.69
BGP   +  11/16 31.00
CSL   +  3/8   44.50
CSCO  +2 9/16  80.06
FCH   -  3/16  37.63
GNT   +1 7/8   22.38
PMSI  +  3/16  13.31
TDW   +2 5/16  56.00

                   Day   Month    Year  History
        BORING   +2.04%  -3.95%   8.46%  24.81%
        S&P:     +0.48%  -0.69%  30.69%  55.73%
        NASDAQ:  +1.07%  -4.77%  20.29%  49.19%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     31.00   175.40%
  8/13/96  200 Carlisle C    26.32     44.50    69.04%
  6/26/96  100 Cisco Syst    53.90     80.06    48.54%
   3/8/96  400 Prime Medi    10.07     13.31    32.22%
 12/23/96  100 Tidewater     46.52     56.00    20.37%
   3/5/97  150 Atlas Air     23.06     25.69    11.40%
  11/6/97  200 FelCor Sui    37.59     37.63     0.09%
   2/2/96  200 Green Tree    30.39     22.38   -26.37%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49  12400.00  $7897.51
  8/13/96  200 Carlisle C  5264.99   8900.00  $3635.01
  6/26/96  100 Cisco Syst  5389.99   8006.25  $2616.26
   3/8/96  400 Prime Medi  4027.49   5325.00  $1297.51
 12/23/96  100 Tidewater   4652.49   5600.00   $947.51
   3/5/97  150 Atlas Air   3458.74   3853.13   $394.39
  11/6/97  200 FelCor Sui  7518.00   7525.00     $7.00
   2/2/96  200 Green Tree  6077.49   4475.00 -$1602.49

                             CASH   $6318.47
                            TOTAL  $62402.85