Boring Portfolio Report
Wednesday, May 7, 1997
by Greg Markus (TMF
Boring)
ANN ARBOR, Mich. (May 7, 1997) -- A market rally fueled by generally good corporate quarterly earnings reports hit a wall today as some strong labor market data reminded traders that inflation and interest rates matter as well as earnings -- and that it's less than two weeks until the Fed meets again.
Stocks sold off as the yield on the long bond approached the 7% mark once again -- this time from the south. The Dow dropped 140 points, or 1.9%, and the S&P 500 gave up 1.5%. The Nasdaq Composite fared somewhat better, helped in part by leadership from the Boring Portfolio's CISCO SYSTEMS (Nasdaq: CSCO). The Nasdaq fell but 5 points, or 0.4%, as Cisco gained a dollar on the bid side.
At least three firms adjusted their EPS projections following last night's earnings report from the Kid. Goldman Sachs trimmed to $2.05 for FY97 (which ends in July) and $2.65 for FY98. Bear Stearns trimmed three cents off its Q4 that was toward the high end of the range, bringing it to $0.56 -- in line with the consensus; that firm also revised their FY 98 figure to $2.65. And Merrill Lynch did basically the same thing: slicing two pennies off its FY97 estimate to bring it to $2.05 and revising its FY98 projection downward by a nickel, to a range of $2.60 to $2.70.
So with all that slicing and dicing going on, how come CSCO rose a buck?
Well, no one knows for sure, of course. But my guess is that the analyst community is coming 'round to accept what Cisco CEO John Chambers has been telling them all along: that revenues will grow 30% to 50% annually for years yet, and that even as it approaches $7 billion in annual sales, Cisco expects to be able to grow within the range, sometimes a bit better and sometimes a bit worse.
So you're seeing 30% growth being built into the earnings projections (reflecting that EPS could grow less than earnings as profit margins gradually decline a bit -- as Cisco has said all along).
What's more, folks may be gradually coming 'round to the idea that 30% annual growth is really not quite as bad as a poke in the eye with a sharp stick. And with Cisco's EPS estimates for calendar 1997 hovering around $2.30 or so, slapping a 30 multiple onto that suggests $69 as a near-term target price -- $10 north of where we stand today.
GREEN TREE FINANCIAL (NYSE: GNT) had been perking up a bit in the spring sunshine. But today's interest-rate concerns put a stop to that. GNT lost $1 /34 along with a weak financials group.
TIDEWATER (Nasdaq: TDW) was the other big loser for the Borefolio, sliding underwater by $3 3/4. I wish I could tell you why, but I could locate no news at all. I'll keep looking.
(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 - 1/4 29.25 BGP - 1/2 20.25 CSL + 3/8 29.75 CSCO +1 58.75 GNT -1 3/4 28.50 ORCL - 7/8 43.00 OXHP + 3/8 67.13 PMSI - 1/8 10.13 TDW -3 3/4 36.25
Day Month Year History
BORING -1.55% 1.97% -2.04% 12.72%
S&P: -1.47% 1.78% 10.11% 31.21%
NASDAQ: -0.41% 4.93% 2.47% 27.09%
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 67.13 39.77%
3/5/97 150 Atlas Air 23.06 29.25 26.85%
8/13/96 200 Carlisle C 26.32 29.75 13.01%
6/26/96 100 Cisco Syst 53.90 58.75 9.00%
3/8/96 400 Prime Medi 10.07 10.13 0.56%
2/2/96 200 Green Tree 30.39 28.50 -6.21%
11/21/96 100 Oracle Cor 48.65 43.00 -11.61%
100 Tidewater 46.52 36.25 -22.08%
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 6712.50 $1910.01
3/5/97 150 Atlas Air 3458.74 4387.50 $928.76
8/13/96 200 Carlisle C 5264.99 5950.00 $685.01
6/26/96 100 Cisco Syst 5389.99 5875.00 $485.01
3/8/96 400 Prime Medi 4027.49 4050.00 $22.51
2/2/96 200 Green Tree 6077.49 5700.00 -$377.49
11/21/96 100 Oracle Cor 4864.99 4300.00 -$564.99
12/23/96 100 Tidewater 4652.49 3625.00 -$1027.49
CASH $7660.41
TOTAL $56360.41
