Boring Portfolio Report
Monday, April 21, 1997
by Greg Markus (TMF
Boring)
ANN ARBOR, Mich. (April 21, 1997) -- Stocks flopped in an ugly start to the week. The Dow fell 43 points (-0.65%) -- most of that in the last hour or so. The S&P slipped somewhat worse than that, losing more than three quarters of a percentage point in value.
The big damage, natch, was reserved for the Nasdaq, which crumpled to the tune of -1.5%. The Boring Portfolio crumpled right along, too. Only a couple of $1/8 gains by OXFORD HEALTH PLANS (Nasdaq: OXHP) and TIDEWATER (NYSE: TDW), together with PRIME MEDICAL SERVICES hanging by its nails at $9, stood between the Borefolio and a total blow-out.
Ick.
News that INTEL (Nasdaq: INTC) is adding two new products to its line of computer network offerings rocked the world of network stocks today, including our horse, CISCO SYSTEMS (Nasdaq: CSCO). CSCO fell $1 1/8 to close at a bid of $47 1/4.
Does this make sense? Yes and no ... mostly no.
First the "yes" part. True enough, one of Intel's new products -- a stackable hub system that reduces the price per port for Fast Ethernet local area networks -- competes more or less directly with some lower-end Cisco products. It thus might (or might not) cut into Cisco's profits in that niche. Even a worst-case scenario probably amounts to no more than a pimple on the bum of the 800-lb. gorilla, however.
As for Intel's other new offering, it's basically an ethernet connection on a chip that can be installed right on the motherboard of desktop PCs. That's just the sort of breakthrough product we've come to expect from Intel, and it sounds terrific. It competes not at all with anything Cisco makes, however.
More than that, just as Intel's recent entry into the network adapter card market did, this new Intel chip will serve to further reduce the price of getting computers internetworked.
"We want to make network connectivity a standard part of every PC shipped," said Intel's Internet and Communications Group vice president Mark Christensen was quoted as saying. Christensen said that the chip will cut in half the cost of building Fast Ethernet networking into PCs.
The way I see it, that is not bad news for Cisco. That is great news for Cisco. Anything that lowers the barriers to internetworking raises the opportunities for Cisco to sell more of its stuff.
Also, as Intel is rolling out new products, the Cisco engineers aren't out riding the roller coaster at Six Flags. A report from Merrill Lynch last week said that they expect Cisco to introduce its much anticipated router/switch (swouter?), the BFR, and a next-generation access server (probably named the AS5300) later this year. An update from Cowen & Co. was more specific, citing June as a likely launch date for the BFR.
That's a few words on Cisco, the company. Now a couple of thoughts on Cisco, the stock.
Cisco newbies may be under the impression that the recent weakness in the stock is unprecedented. Not so. In fact, CSCO has shown a fairly regular tendency to correct by 30, 40, even 50 percent ... and then rally back.
In August of 1993, for example, CSCO was $14 3/4 (adjusted for splits). Barely four weeks later it bottomed at $10 1/16, a 32% drop.
In March of 1994, CSCO hit $20 3/8 but plummeted all the way to $9 3/8 by July -- a 54% slump. I remember that one well ... and have the scars to prove it.
Late 1995 and early 1996 brought another correction to Cisco. The stock hit $44 1/8 in mid-November but fell to under $32 less than two months later, a 28% correction. It then went on to double within 9 months.
Of course, this time it might be different, right?
In that regard, I offer some excerpts from a story -- ominously entitled "How Much Does Cisco Systems Have Left?" -- that appeared on February 21 in Investor's Business Daily:
"Cisco Systems Inc. has evolved from a small company that linked Stanford University's computer stations into the world's largest supplier of computer internetworking systems. But signs are cropping up that raise the question of whether this great stock's greatest days are behind it...."
"The market in which Cisco Systems operates is changing almost as quickly as the company's network routers move data. Its expensive, high-end routers are facing stiff competition. New high- speed technologies such as switches, which are used to solve congestion plaguing the networks, and ATM - asynchronous transfer mode - are also changing the network landscape...."
"In addition, Cisco's high gross margins are vulnerable. Investors worry revenue and earnings could be adversely affected...."
"Earnings and revenue continue to grow at a healthy clip ... but year-over-year comparisons are getting increasingly difficult. As a result, a pattern of deceleration set in. Earnings [and] sales gains have slowed...."
"The stock's technicals reflect some of these worries. The stock has again fallen below its 50-day moving average line. ... the Relative Strength line ... now appears to be making a lower low. The large number of shares outstanding makes the stock harder to move than in the past...."
Wow. Scary stuff. Sounds like curtains for the Kid.
Oh, one other thing: the story is from Feb. 21, all right... Feb. 21, 1995.
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Stock Change Bid ATLS - 5/8 24.75 BGP - 3/4 20.25 CSL - 5/8 27.88 CSCO -1 1/8 47.25 GNT -1 1/2 31.13 ORCL -1 36.13 OXHP + 1/8 60.38 PMSI --- 9.00 TDW + 1/8 45.50
Day Month Year History
BORING -1.84% -1.94% -6.50% 7.60%
S&P: -0.78% 0.43% 2.65% 22.32%
NASDAQ: -1.52% -1.45% -6.75% 15.66%
Rec'd # Security In At Now Change
2/28/96 400 Borders Gr 11.26 20.25 79.90%
5/24/96 100 Oxford Hea 48.02 60.38 25.72%
3/5/97 150 Atlas Air 23.06 24.75 7.34%
8/13/96 200 Carlisle C 26.32 27.88 5.89%
2/2/96 200 Green Tree 30.39 31.13 2.43%
3/8/96 400 Prime Medi 10.07 9.00 -10.61%
6/26/96 100 Cisco Syst 53.90 47.25 -12.34%
11/21/96 100 Oracle Cor 48.65 36.13 -25.74%
12/23/96 100 Tidewater 46.52 45.50 -2.20%
Rec'd # Security In At Value Change
2/28/96 400 Borders Gr 4502.49 8100.00 $3597.51
5/24/96 100 Oxford Hea 4802.49 6037.50 $1235.01
8/13/96 200 Carlisle C 5264.99 5575.00 $310.01
3/5/97 150 Atlas Air 3458.74 3712.50 $253.76
2/2/96 200 Green Tree 6077.49 6225.00 $147.51
3/8/96 400 Prime Medi 4027.49 3600.00 -$427.49
6/26/96 100 Cisco Syst 5389.99 4725.00 -$664.99
11/21/96 100 Oracle Cor 4864.99 3612.50 -$1252.49
12/23/96 100 Tidewater 4652.49 4550.00 -$102.49
CASH $7660.41
TOTAL $53797.91
