Boring Portfolio

Boring Portfolio Report
Friday, January 2, 1998
by Greg Markus (TMFBoring@aol.com)


ANN ARBOR, Mich. (Jan. 2, 1998) -- A late round of buying moved the benchmark stock averages higher on this first trading day of 1998. The S&P 500 rose 0.48% and the Nasdaq gained 0.71%.

The Boring Portfolio was essentially unchanged on the session as solid gains by Cisco Systems (Nasdaq: CSCO) and Green Tree Financial (NYSE: GNT) were offset by weakness in Tidewater (NYSE: TDW) and Borders Group (NYSE: BGP).

This week was a good one for the Borefolio. It rose 5.2% -- even better than the fine 4.1% and 4.6% advances posted by the S&P 500 and the Nazz, respectively. Top that off with a win in the Rose Bowl for my homeboys and a warm front that pushed temps into the 40s in TreeTown Friday, and Boring is one happy fella.

My New Years Eve recap took a look back at 1997 and lessons learned in that year -- especially in its closing quarter. Tonight, I'd like to begin our look ahead into 1998 -- specifically by reviewing the current Borefolio holdings and what I'm expecting from them this year.

Before doing that, however, let me offer a few words about our Borefolio '98 game plan.

First, we're not traders in the Borefolio. I say that not because I think there's anything "wrong" with trading (heck, I enjoy trading some stocks myself), but simply because the Borefolio emphasizes investing based on (1) identifying great companies and (2) valuing their stocks so as to purchase them when they're trading at a reasonable price -- or even a bargain price, when possible. To do this well simply takes time; and so it's not practical -- and probably not desirable, either -- to go winging in and out of stocks.

That said, we have no intention of holding a stock simply for the sake of holding it. Should a company's story change for the worse in some fundamental way, its stock is liable to be sold, without regret.

By the same token, when we purchase a stock we generally establish a target price for the coming year or so, based on projected growth in earnings and other relevant factors. Should a stock zoom to the target price (or beyond) ahead of schedule and without any corresponding change in the fundamentals that would cause us to revise our initial target, this stock, too, is a candidate for sale. Heck, it's not our fault if a stock appreciates far faster than we had anticipated and overshoots fair value.

There's much more than can be said on these and other matters -- and we look forward to engaging with you in that conversation over the year ahead. But for now, let's do the two-minute drill with regard to the first three of our eight current holdings, taken in alphabetical order.

Atlas Air (NYSE: CGO) comes first. We bought Atlas last March after the stock had gotten clobbered due to a delay in securing an aircraft in late 1996 and higher than anticipated maintenance costs in early '97. High maintenance costs on five lemons leased from FedEx (NYSE: FDX) plagued the company all year long, but those aircraft are slated to be returned early this year, and a fleet of spanking new 747-400s have been ordered from Boeing (NYSE: BA) to replace them. We'll be looking closely at how well Atlas executes this tricky transition.

Given Atlas's considerable exposure to Asian business, we'll also want to see how the economic turmoil there affects the company. The optimistic theory is that weak Asian currencies could make exports from that region even more attractive, thereby increasing demand for Atlas's cargo capacity. Such theories sometimes have a way of not always working out, however, so we'll keep close tabs on the situation.

It's fair to say that Atlas has pretty well used up its quota of earnings disappointments. Should the company stumble one more time, I lean toward tossing the stock. Should Atlas shoulder its challenges well, however, the stock could take off into the wild blue yonder.

Next up is Borders Group, the bookseller whose stock has nearly tripled in less than two years. What we're looking for from Borders is as easy to spell out as it could be difficult to execute: a successful launch of its Borders.com Website for electronic sales, a careful ramp-up of the company's new international initiatives, and continued solid execution of its domestic superstore expansion plans.

Some might criticize Borders for not getting the Internet sales operation launched ahead of the holiday selling season. The company responds that they wanted to get everything right prior to the launch, even if that took an extra month or so. Unlike its online rivals, Borders intends to move its Website operation into profitability rapidly.

I'll be watching. More than that, if I think I've got ideas about how Borders might improve their performance -- or if you've got some you'd like to pass along -- I'll hop on my bike, pedal over to Borders world headquarters in Ann Arbor, and "share" our thoughts with the folks there.

Third up is Carlisle Companies (NYSE: CSL), the quiet manufacturer of everything from golf cart wheels to plastic dishes to roofing supplies. Carlisle stock has risen 62% since we purchased our investment a bit more than 16 months ago. In so doing, it's outperformed any number of glitzy hi-tech issues.

In 1998, mostly I want to learn more about how this company manages to post quarter after quarter of solid growth in revenue and earnings through a combination of relentless acquisition and internal growth. I understand that it involves sensible cost controls, cross-business synergies, and careful expansion into new product and market niches, but I want to dig deeper. I have a feeling that there's quite a business lesson in Carlisle.

What we expect to see is simply more of the same from Carlisle. That should translate into another year of sales and earnings growth of 15% or so plus a modest dividend, and with relatively little risk on the downside.

On Monday, we'll continue down the list. Next up: Cisco Systems, the 800-pound gorilla of networking.


TODAY'S NUMBERS
Stock  Change    Bid 
 CGO   +  1/4   24.25 
 BGP   -  3/4   30.56 
 CSL   -  1/8   42.63 
 CSCO  +2 3/8   58.13 
 FCH   -  1/4   35.75 
 GNT   +1 3/16  27.38 
 PMSI  -  3/8   13.38 
 TDW   -1 5/8   53.50 
 
                   Day   Month    Year  History 
         BORING   -0.09%  -0.09%  -0.09%  25.72% 
         S&P:     +0.48%   0.48%   0.48%  56.85% 
         NASDAQ:  +0.71%   0.71%   0.71%  51.93% 
  
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     30.56   171.52% 
   8/13/96  200 Carlisle C    26.32     42.63    61.92% 
   6/26/96  150 Cisco Syst    35.93     58.13    61.76% 
    3/8/96  400 Prime Medi    10.07     13.38    32.84% 
  12/23/96  100 Tidewater     46.52     53.50    14.99% 
    3/5/97  150 Atlas Air     23.06     24.25     5.17% 
   11/6/97  200 FelCor Sui    37.59     35.75    -4.89% 
    2/2/96  200 Green Tree    30.39     27.38    -9.91% 
  
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  12225.00  $7722.51 
   6/26/96  150 Cisco Syst  5389.99   8718.75  $3328.76 
   8/13/96  200 Carlisle C  5264.99   8525.00  $3260.01 
    3/8/96  400 Prime Medi  4027.49   5350.00  $1322.51 
  12/23/96  100 Tidewater   4652.49   5350.00   $697.51 
    3/5/97  150 Atlas Air   3458.74   3637.50   $178.76 
   11/6/97  200 FelCor Sui  7518.00   7150.00  -$368.00 
    2/2/96  200 Green Tree  6077.49   5475.00  -$602.49 
  
                              CASH   $6427.47 
                             TOTAL  $62858.72