Boring Portfolio

Boring Portfolio Report
Tuesday, July 8, 1997
by Greg Markus (TMF Boring)

ANN ARBOR, Mich. (July 8, 1997) -- Late-session buying propelled the Dow, S&P 500, and Nasdaq to record highs on Tuesday. For those who like round numbers, the Dow is now within 38 points of the 8000 mark, and the Nasdaq is within 15 of hitting 1500. The S&P 500 has already left 900 in the dust.

Alas, the Boring Portfolio's pursuit of the $70,000 milestone was interrupted today by a 0.19% decline -- that despite six of nine holdings moving up and OXFORD HEALTH (Nasdaq: OXHP) soaring $4 1/8 to a new high.

Offsetting Oxford's fine gain (on no news that I could locate) -- and advances by CISCO SYSTEMS (Nasdaq: CSCO), GREEN TREE FINANCIAL (NYSE: GNT), ORACLE (NYSE: ORCL), and PRIME MEDICAL (Nasdaq: PMSI) -- was ATLAS AIR's $4 5/8 descent.

Yesterday, Atlas plummeted $2 3/8 following the company's announcement that its results for the June quarter would be "below current analyst expectations." Atlas attributed this to its continuing problems with five 747-200s it leases from FEDERAL EXPRESS (NYSE: FDX).

Atlas has decided to wash its hands of the matter, returning the aircraft to FedEx early next year when the leases are up and taking a charge of approximately $17 million, after tax. (That one-time charge will be substantially offset by an after-tax gain of around $16.6 million related to refinancing $235 million in debt during the quarter.)

The write-off makes good sense. Atlas also has additional aircraft coming into service this year, and the first of 10 brand new BOEING (NYSE: BA) 747-400s is slated for delivery next May. That pipeline of additional aircraft should keep Atlas on track for continued strong growth. Revenue and earnings projections for the balance of 1997 will almost certainly be affected to some degree by the operational limitations of the five FedEx freighters, however.

This morning, Morgan Stanley analyst Jordan Sherman cut his rating on Atlas to "neutral" from "outperform."

In an interview with Reuters, Sherman said, "It seems we're going to have more near-term volatility in earnings than we had assumed, and the volatility is going to last a little longer than we expected."

"We still like the company a great deal on a longer term basis, it just for the near-term we will see this volatility," he continued.

That pretty much describes how I see it.

So what's an individual investor to do if he or she holds Atlas stock?

That's a question that has no single "right" answer. The answer that's right for an individual shareholder depends on a number of factors: what the reasoning was behind the purchase in the first place, one's tolerance for risk, one's time horizon for reaping a gain on the investment, and so on.

When I purchased a stake in Atlas for the Borefolio in March, it was with full acceptance of the inherent risks. In my "buy" report, I wrote:

"Atlas Air ... is still relatively small and unknown, and the stock was weak during the fourth quarter of last year and got clobbered a few weeks ago.

Clearly, Atlas is not a stock for everyone -- and perhaps not even for anyone. I've followed the company for over a year and am of the opinion that they will recover from temporary growing pains."

Out of respect for the risks, I explicitly made a smaller than average stock purchase in Atlas's case: approximately $3500 versus an average initial purchase in the neighborhood of $5000.

In light of that relatively small stake and the reasonable possibilities for longer-term growth -- as the Morgan analyst said, "We still like the company a great deal on a longer term basis." -- the Borefolio will hang onto its ATLS shares.

But I can certainly understand why others -- including those who sold 2.9 million shares today -- might opt otherwise.

Atlas Air will be reporting results for the June quarter in a couple of weeks or so. That report, along with information that the company will provide in the follow-up conference call -- should provide a clearer picture of Atlas's flight plan for the rest of 1997 and beyond.

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(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  -4 5/8   26.00
BGP   -  3/4   24.50
CSL   +  1/4   35.25
CSCO  + 13/16  74.69
GNT   +  3/16  37.00
ORCL  +1 9/16  50.88
OXHP  +4 1/8   80.25
PMSI  +  3/8   11.00
TDW   -  3/16  45.94
                   Day   Month    Year  History
        BORING   -0.19%   1.83%  13.86%  31.03%
        S&P:     +0.72%   3.80%  24.03%  47.80%
        NASDAQ:  +0.98%   2.98%  15.03%  42.67%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     24.50   117.66%
  5/24/96  100 Oxford Hea    48.02     80.25    67.10%
  6/26/96  100 Cisco Syst    53.90     74.69    38.57%
  8/13/96  200 Carlisle C    26.32     35.25    33.90%
   2/2/96  200 Green Tree    30.39     37.00    21.76%
   3/5/97  150 Atlas Air     23.06     26.00    12.76%
   3/8/96  400 Prime Medi    10.07     11.00     9.25%
 11/21/96  100 Oracle Cor    48.65     50.88     4.57%
 12/23/96  100 Tidewater     46.52     45.94    -1.26%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   9800.00  $5297.51
  5/24/96  100 Oxford Hea  4802.49   8025.00  $3222.51
  6/26/96  100 Cisco Syst  5389.99   7468.75  $2078.76
  8/13/96  200 Carlisle C  5264.99   7050.00  $1785.01
   2/2/96  200 Green Tree  6077.49   7400.00  $1322.51
   3/5/97  150 Atlas Air   3458.74   3900.00   $441.26
   3/8/96  400 Prime Medi  4027.49   4400.00   $372.51
 11/21/96  100 Oracle Cor  4864.99   5087.50   $222.51
 12/23/96  100 Tidewater   4652.49   4593.75   -$58.74

                             CASH   $7788.54
                            TOTAL  $65513.54