Boring Portfolio

Boring Portfolio Report
Wednesday, May 14, 1997
by Greg Markus (TMF Boring)

ANN ARBOR, Mich. (May 14, 1997) -- Stocks opened sharply higher Wednesday following news of an unexpectedly large drop of 0.6% in producer prices for the month of April and an equally surprising 0.1% decline in the "core rate," which excludes food and energy prices. Most of the early gains were given back in the afternoon, however, as traders took profits ahead of tomorrow's news on consumer price changes in April. The S&P 500 ended the session ahead by 0.35%. The Nasdaq was up 0.15%.

The Boring Portfolio grew by $419 -- a 0.7% increase in the total value of the portfolio, and a 0.8% gain on the portion invested in stocks.

BORDERS GROUP (NYSE: BGP) rose $5/8 on heavy volume following the company's announcement this morning of results for its April quarter. Borders surprised everyone by showing a small profit for what is historically a seasonally weak period. A dozen analysts had been expecting a loss of two or three cents per share. Borders lost four cents in the year-ago quarter.

"Unseasonably warm weather" (somewhere other than in Michigan, I guess) and continuing leverage in controlling expenses accounted for the good results, the company said.

The Motley Fool will offer a complete summary of the follow-up conference call. A good portion of that call was devoted to discussion of Borders' plans for expanding its Website ( to offer sales over the Internet. Strong sales in the quarter enabled the company to accelerate its investment in that area, and Borders intends to be selling from its Website by the end of the year.

That's fine, you may be thinking, but what about all the attention that virtual bookstore is getting -- what with its pending IPO and all? Isn't Borders concerned about being late to the party?

Not really. Borders' management definitely sees a place for Internet commerce in its business plan. The Web is particularly handy for customers who don't live or work near a Border superstore, they say. (Are there still such places?) On the other hand, you have to wait to get your book when you order remotely, and the apparent price discount is substantially offset by shipping and handling fees.

Also, as was mentioned in the call, the "shopping experience" at a bricks-and-mortar Borders can be "not unenjoyable." (Indeed it can. Trust me on that.)

In any event, the Borders folks insist that their Website will be second-to-none in terms of providing the selection and service their customers have come to expect.

Yada, yada, yada. Let's get to some numbers.

Management said not to expect any appreciable contribution to revenues from Web sales before 1999. The current business plan calls for the two main business lines -- the superstores and the mall-based Waldenbooks -- to provide continued sales growth to support annual EPS gains of "at least 25%" through 1999.

After that, new business lines -- which would include Internet commerce and, possibly, expansion internationally -- will offset any maturation of the core business lines so as to help Borders Group maintain at least a 25% rate of earnings growth "well into the next decade."

In light of the two-penny upside surprise in Q1, management is comfortable with moving its full-year EPS guidance upward by that amount, which brings it to $0.92. Tacking a multiple of 25 onto that suggests near-term fair value at around $23 -- a region that BGP already visited back in March.

A couple of quick notes on some other Boring holdings:

ORACLE (Nasdaq: ORCL) slipped $1/2 despite an upgrade from SoundView Financial to a short-term "buy." The company is on track to launch Oracle 8 on June 24, according to company president Ray Lane. Oracle also announced that Pacific Telesis, a subsidiary of SBC COMMUNICATIONS (NYSE: SBC), is implementing a cartload of Oracle products, including Oracle's Universal Server, Web Application Server, Oracle Applications, Oracle Designer/2000 and Developer/2000 application development tools, and Oracle InterOffice.

OXFORD HEALTH (Nasdaq: OXHP) lost $1 1/8. HMO stocks were soft pretty much across the board following cautious comments from PACIFICARE HEALTH (Nasdaq: PHSYA) and subsequent analyst downgrades of that California-based firm.

On the upside, GREEN TREE FINANCIAL (NYSE: GNT) continued to blossom, gaining $1 1/4 on volume in excess of two million shares. The recovery continues.

(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   28.13
BGP   +  5/8   21.38
CSL   +  1/2   30.00
CSCO  -  1/2   61.88
GNT   +1 1/4   32.25
ORCL  -  1/2   44.25
OXHP  -1 1/8   63.88
PMSI  ---      10.25
TDW   +  7/8   40.38
                   Day   Month    Year  History
        BORING   +0.73%   4.96%   0.83%  16.03%
        S&P:     +0.35%   4.33%  12.87%  34.49%
        NASDAQ:  +0.15%   5.93%   3.45%  28.30%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     21.38    89.89%
  5/24/96  100 Oxford Hea    48.02     63.88    33.00%
   3/5/97  150 Atlas Air     23.06     28.13    21.97%
  6/26/96  100 Cisco Syst    53.90     61.88    14.80%
  8/13/96  200 Carlisle C    26.32     30.00    13.96%
   2/2/96  200 Green Tree    30.39     32.25     6.13%
   3/8/96  400 Prime Medi    10.07     10.25     1.80%
 11/21/96  100 Oracle Cor    48.65     44.25    -9.04%
 12/23/96  100 Tidewater     46.52     40.38   -13.22%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   8550.00  $4047.51
  5/24/96  100 Oxford Hea  4802.49   6387.50  $1585.01
  6/26/96  100 Cisco Syst  5389.99   6187.50   $797.51
   3/5/97  150 Atlas Air   3458.74   4218.75   $760.01
  8/13/96  200 Carlisle C  5264.99   6000.00   $735.01
   2/2/96  200 Green Tree  6077.49   6450.00   $372.51
   3/8/96  400 Prime Medi  4027.49   4100.00    $72.51
 11/21/96  100 Oracle Cor  4864.99   4425.00  -$439.99
 12/23/96  100 Tidewater   4652.49   4037.50  -$614.99

                             CASH   $7660.41
                            TOTAL  $58016.66