The Boring Portfolio

ANN ARBOR, MI, June 21, 1996 -- The triple witches finally gave the battered NASDAQ a break on Friday, as the index rose 0.69% after falling for six straight sessions. That gain mitigated some of the damage inflicted recently on many four-letter stocks, but the NASDAQ average still lost 3.12% for the week.

As for the broader market, the S&P 500 recovered enough on Friday to erase its own more modest cumulating loss, and the index actually ended the week slightly to the plus side (+0.15%). The S&P 500 index closed on Friday at a value of 666 -- just one more indication of what a hellish week it was for many investors.

The Boring Portfolio actually had a pretty decent session on Friday, gaining just over a full percentage point in net value. That wasn't nearly enough counter the mid-week pasting, however, and the Borefolio lost 2.5% on the week. Ouch!

A good chunk of that loss was concentrated in LCSI, which lost nearly one-eighth of its already anorexic weight between last Friday and today. I spent a good part of the Wednesday and Thursday Borefolio recaps sketching out the various plusses and minuses on LCSI as best as I can determine them. I won't retrace all that ground except to reiterate that, as one modest shareholder, I see value in the stock but believe the company could do better in nurturing that value.

Perhaps surprisingly, Borders Group suffered the next largest loss on the week, shedding nearly 8%, by my tally. I suppose we could interpret the loss as an indication of shareholders' disapproval with the selection of entertainment for the grand opening of the Palo Alto store this week-end (New Age music). More likely, Borders got caught in a downdraft with other retailers' stocks following some less than impressive aggregate stats on retail sales.

Am I alarmed by this? Hardly. Analysts who get paid to monitor every tremor from Borders pronounce the company (and the stock) stronger than ever. Indeed, the most recent EPS projections (via First Call) show a small increase in consensus EPS forecasts for the current fiscal year: to $1.24, from $1.22.

If Borders achieves that goal, it would represent a 46% gain over last FY. And based on First Call's consensus estimate of calendar 1996 EPS, the PEG (ratio of p/e to projected long-term EPS growth rate) is .80.

So what you've got in BGP is a stock projected to grow 30% or so over the long haul trading at a decent discount. Not only that, you get to be part owner of one of the finest franchises around, in my highly partial opinion. Not that it should matter to you one way or the other, but my response to Friday's drop in the price of BGP was to order a few shares for my personal holdings (i.e., not the Borefolio).

Before Friday's opening bell, Oxford Health Plans looked like it might need to be admitted for observation. But a thorough examination revealed no indication that it has caught the bug that some of its less robust peers had contracted. OXHP advanced $1 1/8 on the day, but was still off more than 5% for the week.

Recall that earlier in the month, Humana called in sick for work, suffering from a pinched margin. Then a couple of days ago, RightCHOICE phoned in from St. Louis to say that it was ailing, too. Please note, however, that even before its sick call, analysts had expected Humana's earnings to be flat or slightly up at best for 1996 as compared with the preceding year. And EPS for RightCHOICE was expected to advance by maybe 8% or so.

As for Oxford, analysts' projections currently call for $1.17 in 1996 -- a whopping 65% gain over the year before. And long-term EPS growth is expected to be around 40% annually. That puts OXHP's current PEG under 0.90, which is to say the stock is a 40% annual grower on sale for 10% off.

The balance of the Borefolio is in equally great shape. Green Tree retraced a bit as investors worried about growing credit default rates. Yet every shred of news that I can locate on the company is favorable. Lehman Brothers analyst Mike Millman, to name just one, argues that the stock, which historically trades at or above the market's overall multiple, is currently at a noticeable discount to the market -- this despite the fact that GNT is "using its demonstrated leadership in credit scoring, securitization and financing to grow its loan portfolio substantially" and thoroughly dominates lending for the strong manufactured housing industry.

As for Shaw Group, it's announcing new contracts left and right. Prime Medical's PEG is an eye-popping 0.61 according to First Call. And, heck, TXI actually gained for the week!

Well, that's about it for tonight, this eminently forgettable week ... and this season! Hey, summer's here! Enjoy!

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Transmitted: 6/21/96