Boring Portfolio

Boring Portfolio Report
Wednesday, December 17, 1997
by Greg Markus (TMFBoring@aol.com)


ANN ARBOR, Mich. (Dec. 17, 1997) -- The Boring Portfolio bucked the trend Wednesday to gain 0.51%, thanks to strength in shares of network equipment leader Cisco Systems (Nasdaq: CSCO) and a continuation of yesterday's recovery by Green Tree Financial (NYSE: GNT) and Tidewater (NYSE: TDW). The addition to the Borefolio account of $99.41 in accumulated interest and dividends contributed to the cause, as well.

CSCO began trading today at a new price that reflects the stock's 3-for-2 split. With the split, the Borefolio now owns 150 shares. Goldman Sachs celebrated the occasion by moving the stock from its former "market outperform" status and placing it on Goldman's "recommended list." Cisco's stock celebrated by rising fractionally to a bid of $54 1/8.

For those of you who prefer Fahrenheit to Celsius (and what ever happened to "Centigrade"?), that translates into $81 3/16 in "old" CSCO pricing.

While CSCO, the stock, enjoyed enhanced ratings from brokerages, Cisco, the company, went about its business of enhancing its product offerings. Today, the folks on Tasman Drive announced availability of four new interfaces for Cisco's high-end 7500 and 7200 series routers.

The new interfaces enable Internet service providers and large corporate customers to scale up to large numbers of high-speed T3 and E3 leased-line connections while at the same time decreasing equipment space requirements. Pricing for the new packet-over-E3/T3 -- or "POET" -- interfaces starts at $9,000 per port.

Exciting, huh? No?

Hey, it ain't called the Boring Portfolio for nothing.

Green Tree Financial has certainly been far from boring lately. The stock got whacked last month after the company announced it would take a charge of $125 million to $150 million in the current quarter to offset losses resulting from faster than anticipated prepayments of certain manufactured housing (MH) loans made in 1994 and 1995. A few weeks later, the company's COO "resigned," and on Monday, Standard & Poor's downgraded its rating on Green Tree to "negative," owing to what it saw as increased competition in the consumer loan market.

Uh, no kidding, S&P.

Yesterday, the Minneapolis-based investment firm of John G. Kinnard initiated coverage of Green Tree with a "buy," arguing that even in light of the continuing controversy about gain-on-sale accounting, the stock was oversold. Today, Morgan Stanley reiterated its "strong buy" on the stock.

The analyst at Morgan Stanley said that fresh data show that prepayment rates have declined in the past month for the 1994 and '95 MH loans. The decline is attributed in part to increasing difficulties among the aggressive competitors who had been pirating customers away from Green Tree. Green Tree has also stepped-up its efforts to retain customers, and that appears to be working.

A few analysts also indicated today that Green Tree's apparent prepayment problems may have been made to appear somewhat worse than they actually were as a result of a book-keeping "glitch" at Green Tree that assigned new account numbers to loans that were in fact refinanced and retained by the company. I have not yet been able to reach Green Tree for clarification of this item, but in the "for what it's worth" department, I thought I'd pass it along.

Tidewater stock rose fractionally as the price of benchmark West Texas crude gained a couple of pennies, to $18.19.

As noted in past Borefolio recaps, stocks of offshore drillers and marine services companies (such as Tidewater) tend to jiggle about from day to day -- and even from hour to hour -- in synch with movements in oil and gas futures prices on the commodity exchanges. Whether that makes any sense is another matter entirely. So long as energy prices remain high enough to support continued exploration, drilling, and production but not so high as to encourage massive construction of new drilling rigs and boats, modest fluctuations in crude and natural gas prices matter little to the businesses of the drillers and related companies.

One last note: amidst the hoopla of the past few days, I failed to mention a bit of good news from Atlas Air (NYSE: CGO). The company announced on Monday that it has reached agreement with Philippine Airlines for the early return of two 747-200 aircraft that PAL leased from Atlas.

The leases, which were originally scheduled to expire in the second half of 1998 for one plane and in the year 2000 for the other, will instead be terminated in January and February of next year. The two aircraft will then undergo conversion from passenger to cargo configuration at Boeing's (NYSE: BA) facility in Wichita, Kansas, and they will then be available for entry into service for Atlas during the second quarter of 1998.

This is good news because it helps Atlas fill any gap in lift capacity that may occur between the time when it returns five problematic aircraft on lease from Federal Express (NYSE: FDX) -- slated to occur in early 1998 -- and the time it begins receiving brand new 747-400s from Boeing later in the year.

--Greg Markus

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TODAY'S NUMBERS
Stock  Change    Bid
CGO   -  3/16  25.50
BGP   -  1/4   30.75
CSL   -  7/8   43.63
CSCO  +  38/51 54.13
FCH     ---    37.63
GNT   +2 1/8   24.50
PMSI  -  3/16  13.13
TDW   +  1/2   56.50

                   Day   Month    Year  History
        BORING   +0.51%  -3.46%   9.01%  25.44%
        S&P:     -0.26%  -0.95%  30.35%  55.33%
        NASDAQ:  -0.36%  -5.11%  19.86%  48.65%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     30.75   173.18%
  8/13/96  200 Carlisle C    26.32     43.63    65.72%
  6/26/96  150 Cisco Syst    35.93     54.13    50.63%
   3/8/96  400 Prime Medi    10.07     13.13    30.35%
 12/23/96  100 Tidewater     46.52     56.50    21.44%
   3/5/97  150 Atlas Air     23.06     25.50    10.59%
  11/6/97  200 FelCor Sui    37.59     37.63     0.09%
   2/2/96  200 Green Tree    30.39     24.50   -19.37%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49  12300.00  $7797.51
  8/13/96  200 Carlisle C  5264.99   8725.00  $3460.01
  6/26/96  150 Cisco Syst  5389.99   8118.75  $2728.76
   3/8/96  400 Prime Medi  4027.49   5250.00  $1222.51
 12/23/96  100 Tidewater   4652.49   5650.00   $997.51
   3/5/97  150 Atlas Air   3458.74   3825.00   $366.26
  11/6/97  200 FelCor Sui  7518.00   7525.00     $7.00
   2/2/96  200 Green Tree  6077.49   4900.00 -$1177.49

                             CASH   $6427.47
                            TOTAL  $62721.22