Boring Portfolio

Boring Portfolio Report
Wednesday, April 16, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich. (April 16, 1997) -- The Dow rocked but the Nasdaq rolled for the second straight day. Money moved into blue-chip issues, sending the DJIA higher by 93 points (1.4%). The S&P 500 gained 1.2%. But the Nasdaq Composite Index fell 0.2%.

The Boring Portfolio fell, as well, as losing holdings outnumbered winners five to four.

Networking stocks were particularly weak, including -- natch -- CISCO SYSTEMS (Nasdaq: CSCO), which dropped $2 3/8 on the bid. That move, together with yesterday's $3 loss, sent CSCO into the forties and within hailing distance of its 52-week low.

This followed cautionary comments by two analysts. As noted here yesterday, Salomon Brothers analyst Peter Swartz warned of industry "sluggishness" and trimmed his earnings projections for Cisco. In addition, DLJ analyst Stephen Koffler suggested that the market for Cisco's much-anticipated "Big Fast Router," available later this year, might not be as large as some folks think.

On the other hand, Koffler reportedly had positive things to say about demand by Internet Service Providers for access concentrator devices, including a next-generation product that Cisco has said it will debut in 1997.

Cisco President and CEO John Chambers was interviewed on PBS's "Nightly Business Report" Tuesday. Speaking in his soft, West Virginia accent, Chambers re-re-reiterated that, "according to almost all industry experts," the global networking industry is "going to grow 30 to 50 percent [annually], barring a surprise."

As for Cisco, "We'd like to grow within that range," said Chambers. "If we execute real well, we could grow above it. There's always the chance we could grow worse."

Chambers emphasized that quarter-to-quarter variations in that trend have occurred in the past and will almost certainly occur in the future, but he stuck with that rate of growth for revenues, industry-wide -- and for where he thinks Cisco will be within that range.

He also pointed out that not all companies will succeed equally. Some will prosper, others will be absorbed, and still others will fade away -- much as in the early high-growth years of the automobile industry.

So how is your basic individual investor supposed to make an intelligent decision under those circumstances?

According to Chambers, "it becomes more and more a process of understanding the industry" and being "a much more educated investor...."

Makes good sense to me.

Cisco will report its quarterly results on May 6. According to First Call, the consensus estimate of nearly three-dozen analysts is for quarterly earnings of $0.53 per share. That would constitute a 43% gain over the year-ago quarter. Interestingly, despite all the gloominess hanging over the stocks of the network plumbing companies, that consensus forecast has dropped only one penny since the days in January when Cisco was setting record highs.

At its current price of $47 3/4, Cisco is trading at 20-times the consensus EPS estimate for calendar year 1997. In other words, shares in the leading company in the fastest-growing industry in the world are trading pretty much on par with the market. Wow.

Speaking of quarterly reports, both GREEN TREE FINANCIAL (NYSE: GNT) and CARLISLE COMPANIES (NYSE: CSL) announce their results Thursday morning (that is, tomorrow). The Motley Fool (that is, your truly) will be covering the follow-up conference calls.

Green Tree slipped a quarter-point today as weakness in the bond market affected stocks in the financial sector. For its part, Carlisle gained $3/8.

As did ATLAS AIR (Nasdaq: ATLS). Atlas airs its quarterly report on April 24, and we'll be covering that one, too.

While we're on the subject, PRIME MEDICAL SERVICES (Nasdaq: PMSI) expects to serve up its report on April 30. The stock slipped $1/8 today and touched its 52-week low during the day.

It may be that investors are seeing analysts' summary projections of only 12% EPS growth in 1997 -- to $0.75 from $0.67 in 1996 -- and are simply assigning the stock a multiple equal to that growth rate. If so, they are overlooking the fact that Prime's tax rate for 1997 will be higher than that for the year before -- a result of tax credits on old net operating losses that the company is using up. So the nominal 12% EPS growth masks stronger growth within the business itself.

Most analysts are projecting that the underlying earnings (pre-tax) will grow in excess of 30% in 1997 and that net EPS will rise to the neighborhood of $0.92 next year, on a fully-taxed basis.

A spokesperson for Prime Medical told me that the company is "comfortable" with analysts' consensus EPS estimate of $0.25 for the March quarter, which would constitute a 25% increase over the $0.12 earned a year ago.

Yup, we'll be covering that conference call, too.

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Stock  Change    Bid
ATLS  +  3/8   25.63
BGP   -  1/4   21.13
CSL   +  3/8   28.38
CSCO  -2 3/8   47.75
GNT   -  1/4   31.88
ORCL  +  1/4   37.50
OXHP  -1 5/8   61.63
PMSI  -  1/8   9.25
TDW   +  1/8   45.63
                   Day   Month    Year  History
        BORING   -0.78%   0.17%  -4.49%   9.91%
        S&P:     +1.17%   0.85%   3.08%  22.83%
        NASDAQ:  -0.21%  -0.94%  -6.25%  16.27%

     Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     21.13    87.67%
  5/24/96  100 Oxford Hea    48.02     61.63    28.32%
   3/5/97  150 Atlas Air     23.06     25.63    11.13%
  8/13/96  200 Carlisle C    26.32     28.38     7.79%
   2/2/96  200 Green Tree    30.39     31.88     4.90%
   3/8/96  400 Prime Medi    10.07      9.25    -8.13%
  6/26/96  100 Cisco Syst    53.90     47.75   -11.41%
 11/21/96  100 Oracle Cor    48.65     37.50   -22.92%
 12/23/96  100 Tidewater     46.52     45.63    -1.93%

     Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   8450.00  $3947.51
  5/24/96  100 Oxford Hea  4802.49   6162.50  $1360.01
  8/13/96  200 Carlisle C  5264.99   5675.00   $410.01
   3/5/97  150 Atlas Air   3458.74   3843.75   $385.01
   2/2/96  200 Green Tree  6077.49   6375.00   $297.51
   3/8/96  400 Prime Medi  4027.49   3700.00  -$327.49
  6/26/96  100 Cisco Syst  5389.99   4775.00  -$614.99
 11/21/96  100 Oracle Cor  4864.99   3750.00 -$1114.99
 12/23/96  100 Tidewater   4652.49   4562.50   -$89.99
CASH $7660.41 TOTAL $54954.16