The Boring Portfolio

Boring Portfolio Report
Wednesday, May 8, 1996

(FOOL GLOBAL WIRE)
by Greg Markus (MF Boring)

ANN ARBOR, MI, May 8, 1996 -- A glance at today's closing market averages would convey no inkling of the internal zigging and zagging that occurred today. Probably just as well.

For the first time since such collars were put into effect, the NYSE hit both its -50 AND +50 point limits on computerized block trades. As for the NASDAQ, at one point it was off nearly the equivalent of 100 Dow points, yet managed to close with a small gain for the day. As has been true for a number of sessions recently, fluctuations in yields on long-term bonds determined the overall direction of the market.

As for the Borefolio, it lost around one-half a percentage point today, on no real news (for a change). As interest rates retreated below the magical 7% mark, financial stocks recovered some of the ground they had lost recently -- and Green Tree Financial was among them, rebounding $1 1/4 today.

On the minus side, Prime Medical Services could have used a medic itself today, as it slipped $1 1/8. I could locate no news.

For much of Wednesday, LCS Industries continued the sell-off that began yesterday after it reported what were evidently disappointing 2Q earnings. By mid-afternoon, however, investors recognized that the punishment exceeded the crime, and LCSI finished the session up two-bits (bid).

Late yesterday, I spoke with LCSI's VP for Finance, Pat Frustaci to get his assessment of the company's report. He said he thought it was a pretty good quarter -- sales up, earnings up. I asked if he had any idea why the stock was getting hit so hard then? Nope.

When I asked about the declining net margins (from year-ago 8.23% to 7.94% for 2Q '96), he gave the standard answer about earnings depending on the mix of business transactions they experience during any given quarter. I pressed about CRI, the recently-acquired catalog fulfillment division, and he admitted that catalog fulfillment revenues were perhaps a bit lower than the company might have wanted.

Even though net earnings increased 17% as compared with last year's 2Q, fully-diluted per-share earnings rose by only a penny, due to a 14% swelling in the average number of outstanding shares. I asked about any continued increase in shares over the remainder of the year. Frustaci said that this depends in part on the stock price: as the price rises, officers' stock options become exercisable, thereby increasing the share base. Frustaci declined to offer an estimate of what the plausible bounds of any such increase might be.

What about EPS guidance? I noted that the analyst at Select Equities had suggested $1.62 or so, and that BI Research, a stock newsletter, had offered $1.75 as a target. Frustaci said he could not comment at all on that. I asked if he were "comfortable" with $1.62, and he said he could not offer any comment at all on that.

Frustaci continued by saying that investors in LCSI should look to the long term, not quarter to quarter. The company intended to grow the core business "at around 20% per year" and possibly add another acquisition later this year, complementing its core direct marketing business.

Altogether, it was not the most informative conversation I'd ever had with a company officer, but I guess it's something.

In closing, I point to the $14,179.50 sitting in the kitty as a result of yesterday's sale of Zytec (which surfaced at $37, down $ 21/64 after a dive to $31 earlier in the day). As always, I'm looking for good, Boring stocks to buy and hope to put that cash to work soon.

Transmitted: 5/8/96