Boring Portfolio

Boring Portfolio Report
Wednesday, March 6, 1996

by Greg Markus (MF Boring)

Oof! The market hit the Borefolio today with a quick one-two punch: first came a thudding left to the breadbasket (Potash Corp.), followed by a sharp right to the head (our chip-sector holdings, Lam and K&S). Fortunately, some nice gains among our other stocks helped to maintain some equilibrium.

First, the Potash story. Yesterday, POT fell three points on no apparent news. This followed a week of general softness in the share price. The only possible reason for the declines that I'd seen during that time were a few wire stories about recently discovered potash reserves in Thailand. For example, a Reuters item out of Calgary (dated March 1) reported that Asia Pacific Resources, Ltd. had released results from its Thailand operations "showing three new zones of potash with an average thickness of 12 meters and a surface area of 35 to 40 sq. km." An Asia Pacific spokesman said the company was conducting a feasibility study for development of the project, and its goal is to move it to operating-mine status in 1999.

The story went on to say that Asia Pacific is expected to be listed on NASDAQ in the near future. "I think investors in the United States are beginning to look at Asia Pacific Resources as an alternative investment in the potash business versus the established players, being Potash Corp. of Saskatchewan, IMC Global or other producers," said Vahid Fahti of Everen Securities in the article.

I called Potash (PCS) a number of times yesterday, with little to show for it. The person I spoke with in their corporate office had no comment on the Asia Pacific story--or much of anything else, really. Three follow-up calls today produced little more. I'll try again tomorrow. And the day after that, if necessary.

Yesterday evening, I spoke with Mr. Fahti at Everen. He covers PCS and its competitors. Fahti was of the opinion that any recent drop in POT was a normal adjustment following its strong price run-up. Moreover, he believed that the news about Asia Pacific was not materially consequential for PCS: demand for potash in Asia would outstrip supply through the end of the century, even with the new finds in Thailand factored in; and PCS had the lion's share of the capacity that would be required to meet that demand.

Fahti's current forecast is for PCS to make $4.95 per share in 1996 and $6.50 in 1997. The former number is actually toward the low end of a fairly broad span of estimates ranging from $4 to $7 (average = $5.67). His 1997 estimate is basically at the mean of an even broader set of projections: from a low of $4.50 to an optimistic $12. Even with his somewhat conservative 1996 projection, Fahti thought that $100 is a plausible price target for this year.

Today brought a slew of news about Potash Corp. First came a Smith Barney downgrade (to "hold"), based on concerns about possible push-outs of deliveries to China. Analysts at a number of other brokerages disputed this concern, however, and reiterated their "buy" recommendations.

Then in the afternoon came the infamous "chicken story" from Sam Kanes, of the Canadian firm of ScotiaMcLeod. Kanes revised his earnings forecast for PCS to $5 (U.S.) a share in 1996, down from his previous estimate of $5.50. He based the revision on two factors.

The first was the specter of competition from the aforementioned Asia Pacific mines in Thailand, including the possibility that a competitor of Potash might acquire Asia Pacific. His second reason was his prediction that Russia would import less potash this year because the Russian government was blocking additional US exports of chickens into their country, which would thereby reduce pressure on grain production required for chicken feed. Did you follow all that?

To make a very long story only a little bit longer, the price of POT was down as much as 5 1/2 points after the chicken story hit the wire but managed to recover somewhat in the last hour, to close at $70 1/4, off "merely" $3 1/4.

Boring investors never get panicked when the feathers are flying. I'll keep trying to find out what the company thinks of this and then make a decision.

I'll be much briefer in updating the Borefolio "tech" holdings, because there really isn't a lot of fundamentally new news to report. First, a number of items out of Tokyo reported that some Japanese securities firms and DRAM producers are concerned about the continuing decline in DRAM prices and how that might affect profits this year. Then during the day here in the US, Texas Instruments said they were concerned about the same thing.

The impact of all this on our two chip-sector holdings remains in dispute. With regard to Kulicke & Soffa, DRAM producers are a very small share of their total revenue base. K&S's main customers are plants that assemble high pin-count chips, such as microprocessors and other advanced devices. As for Lam Research, they have relatively little exposure to Japan, and their Korean sales appear to be going great guns. Regardless, KLIC was off a half-point today, and LRCX lost a point and a half.

The news on the remaining three Borefolio holdings was brighter. Borders Group tacked on another $3/8, to continue its advance into new high ground. News late yesterday that Green Tree Financial would be joining the S&P 500 pushed that stock to another new high, as well--up $1 3/4 to 36 bucks. And "Rocky" (TXI) added *another* $1 7/8 today, making its move toward the $66 mark. I very much look forward to TXI's earnings report next week.

That's it for tonight. Tomorrow, look for a review of a new stock for the Borefolio!

Today's Moves

BGP + 3/8
GNT +1 3/4
KLIC - 1/2
LRCX -1 1/2
POT -3 1/4
TXI +1 7/8

                   Day   Month    Year  History
        BORING   +0.07%   2.86%   0.81%   0.81%
        S&P 500  -0.58%   1.81%   4.89%   4.89%
        NASDAQ   -0.46%  -0.75%   4.89%   4.89%

    Rec'd  #   Security     In At       Now    Change

  1/29/96 100 Texas Indus    54.52     65.88    20.82%
   2/2/96 200 Green Tree     30.39     36.00    18.47%
  2/28/96 200 Borders Gro    22.51     26.38    17.17%
   2/9/96 100 Potash Corp    76.27     70.25    -7.89%
  1/29/96 200 Kulicke & S    23.89     20.25   -15.23%
  2/23/96 100 Lam Researc    48.02     35.00   -27.11%

    Rec'd  #   Security      Cost     Value    Change

  1/29/96 100 Texas Indus  5449.99   6587.50  $1137.51
   2/2/96 200 Green Tree   6077.49   7200.00  $1122.51
  2/28/96 200 Borders Gro  4502.49   5275.00   $772.51
   2/9/96 100 Potash Corp  7627.49   7025.00  -$602.49
  1/29/96 200 Kulicke & S  4774.99   4050.00  -$724.99
  2/23/96 100 Lam Researc  4802.49   3500.00 -$1302.49

                             CASH  $16765.06
                            TOTAL  $50402.56