Boring Portfolio

Boring Portfolio Report
Tuesday, May 21, 1996

by Greg Markus (MF Boring)

ANN ARBOR, MI, May 21, 1996 -- After being up modestly for most of the day, most major stock market indexes declined late Tuesday on the non-news that the Federal Reserve would be leaving interest rates alone for at least a while longer. The S&P 500 index fell negligibly (-0.06%), while the NASDAQ dipped a bit more (-0.29%).

As for the Boring Portfolio, it was the loser of the day, declining $387.50 in net asset value, or -0.70%.

Taking the Borefolio stocks in alphabetical order, Borders Group lost a dollar in trading today -- but not to worry. After the closing bell, Borders released its earnings report for its first fiscal quarter, which ended on April 28. The Company reported a net loss of $3.4 million, or ($0.08) per share as compared to a loss of $5.6 million or ($0.13) per share for Q1 of FY95. Borders has historically posted losses in the post-holiday first quarter.

Analysts were expecting a loss somewhere between 10 and 15 cents, with a mean estimate of -$.12, so tonight's report should bolster BGP shares going forward. In its press release, Borders attributed the improved performance "to a combination of strong sales for both Borders and Waldenbooks, as well as favorable operating margins during the quarter."

Consolidated sales for the quarter were $404.0 million, a 14.3% increase over the year-ago quarter. The results reflect a 49.6% increase in sales for the Borders superstores (to $196.9 million) and a 6.5% decline in Waldenbooks sales (to $200.2 million). The sales increase at Borders reflects comparable store sales of 8.2% and an increase in stores during the preceding 12 months from 81 to 124. The decline at Waldenbooks reflects a comparable store sales decline of 1.5% and a decrease in stores from 1,053 to 976 over the prior 12 months. Consolidated gross margin increased to 23.1%.

In a separate release Borders indicated that it would moving its music and new media distribution operations later this year from Ann Arbor to Columbus, Ohio. Reasons cited for the relocation include "immediate availability of distribution space in Columbus, a larger pool of available labor, and the particularly beneficial geographic location of Columbus to Borders Stores from a service perspective." The new facility will also house Border's catalog and special order fulfillment center.

As a true Blue local, it pains me to see part of Borders operations leaving town. I understand, though, that as Borders has expanded in the past few years, its needs have outstripped its Ann Arbor location. But to move part of the operations to Columbus?? Holy Rose Bowl! It will take some time to get used to the idea that in the future my book orders will be packed by a Buckeye. Happily, Borders management has stated that they anticipate finding alternative employment for the displaced Ann Arbor workers, either at the Columbus facility or elsewhere in the company.

Turning to some other Borefolio issues quickly, Green Tree Financial fell $1 1/4 along with other stocks that are sensitive to interest rate fluctuations, as the 30-year Treasury bond yield inched up one tick to 6.85%. LCS Industries was unchanged, again, today. Prime Medical Services rose $ 1/2 to hit a new high of $17 1/2 (bid). The new First Call ratings show that all three analysts who report to that service list PMSI as a "strong buy." Shaw Group was unchanged, and TXI rose $1 1/2.

That leaves Lam Research. Lam fell $2 1/2 today, on the heels of yesterday evening's report from the World Semiconductor Trade Statistics project. As noted here last night, that group announced they had revised their estimate of global semiconductor sales growth for 1996 to 6.7%, down from their previous estimate of 26%.

In addition, the aforementioned new First Call data show that Lam's consensus EPS estimates for FY96 and FY97 have been trimmed since last week. For the FY ending next month, the consensus projection is now for $4.70 (versus $4.72 a week ago). For FY97, the revision is more noticeable: from $5.33 down to a current $5.18 -- or only a 10% annual gain.

As I've noted here and in the Lam folder in Fooldom many times, Lam Research is an outstanding company in my opinion -- and in the opinions of many others who know the semiconductor equipment business far better than I. But with earnings prospects for the coming year as bleak as the latest evidence indicates, I've decided that it makes sense to move the Borefolio's stake in LRCX elsewhere -- at least for now. Should new information at some later point indicate a somewhat brighter future for the chip industry, we could see this Lam back in the Boring corral again.

I'll be posting my decision to sell the Lam shares as a separate notice later this evening.

Transmitted: 5/21/96

BGP -1 ...GNT -1 1/4 ...LRCX -2 1/2 ...LCSI --- ...PMSI + 1/2
 ...SHAW --- ...TXI +1 1/8 ...

*Scroll down or expand screen for full portfolio accounting

Day Month Year History

BORING -0.70% 3.79% 9.86% 9.86%

S&P 500 -0.06% 2.84% 8.23% 8.23%

NASDAQ -0.29% 4.53% 19.55% 19.55%

Rec'd # Security In At Now Change

3/8/96 400 Prime Medic 10.07 17.50 73.78%

2/28/96 200 Borders Gro 22.51 36.13 60.48%

1/29/96 100 Texas Indus 54.52 65.88 20.82%

4/12/96 300 The Shaw Gr 18.84 19.88 5.49%

2/2/96 200 Green Tree 30.39 31.75 4.49%

2/23/96 100 Lam Researc 48.02 40.25 -16.18%

3/25/96 200 LCS Industr 26.14 18.00 -31.14%

Rec'd # Security Cost Value Change

3/8/96 400 Prime Medic 4027.49 7000.00 $2972.51

2/28/96 200 Borders Gro 4502.49 7225.00 $2722.51

4/12/96 300 The Shaw Gr 5652.49 5962.50 $310.01

2/2/96 200 Green Tree 6077.49 6350.00 $272.51

2/23/96 100 Lam Researc 4802.49 4025.00 -$777.49

3/25/96 200 LCS Industr 5227.49 3600.00 -$1627.49

1/29/96 100 Texas Indus 5449.99 6587.50 $1137.51

CASH $14179.50

TOTAL $54929.50