Boring Portfolio Report
Tuesday, July 15, 1997
by Mark Weaver, MD (MWEAV@aol.com)
St. Louis, MO (July 15, 1997) -- It is with great pleasure that I begin my Foolish task as contributing Borefolio recap writer. I feel as though I have come full circle.
Greg and I came to The Motley Fool at approximately the same time and with many of the same interests. As Greg launched the Boring Stocks folder, I was starting the nascent Healthcare Industry folder. I was an active participant in Greg's folder and came to appreciate his *style* and his sensibility. Boring is fun, and that's why I'm here: to have some fun!
In my other job in Fooldom as one of the Daily Double and Daily Trouble writers I often encounter stocks that are far from Boring: rockets that go up and rockets that come down. Regular readers of those features will notice, however, that quite often a very Boring stock lands in the Daily Double column. Take BADGER METER (AMEX: BMI) featured today for example. Boring is good investing!
In preparation for this assignment I reviewed Greg's review of The Boring Approach to investing. Here's his take on what constitutes a Boring stock. They are:
* attractively-priced stocks
* of really high-quality companies
* that offer terrific products or services,
* are situated in reliably growing industries,
* earn lots of money for shareholders thereby,
* and are likely to continue doing so for a good while longer.
With that in mind I'd like to focus on one of the Borefolio stocks, PRIME MEDICAL SERVICES (Nasdaq: PMSI).
Prime was one of my picks in the long defunct Healthfolio. Late last spring, PMSI was a 3-bagger for me, and at the same time it was the best performer in the Borefolio.
Over the past year, though, the stock has languished. What's the deal?
Well, PMSI has not been alone as a snoozer in the outpatient and homecare stock group. The entire group has underperformed the market in the past year, as uncertainties about Medicare reform and managed care reimbursement have cooled investors enthusiasm for these companies.
This stock group sports a relative strength rank of 91 out of 197 groups covered in Investor's Business Daily -- almost precisely where the group stood six months ago. So far in 1997, the sector is up only 10.8% -- less than half the S&P 500's return. In my opinion, the underperformance of these stocks presents a golden opportunity to pick up some bargains.
Is PMSI a bargain? To my eyes that question can be answered with an unequivocal yes! Using the Boring Stock criteria, I see an undervalued stock, a high quality company that is a leader in it's business, offering excellent service in a steadily growing business (especially with the new Prostatron joint partnership for benign prostate enlargement), and the company is poised to continue making money for a long time to come. Top this off with exceptional management and you've got a winner.
Speaking of management, yesterday Chairman Kenneth Shifrin was honored by Ernst & Young with the 1997 Entrepeneur of the Year Award in the "Services" category. He was honored for the dramatic turnaround he has engineered at PMSI.
Looking at valuation, I see a stock with a PEG of 0.67 based on estimates of $0.86 for fiscal year '98. The YPEG valuation is over $20 per share based on these estimates and an estimated annual growth of 24%.
If you look at First Call estimates, don't be tricked by what appears to be only a modest projected earnings increase between fiscal year '97 and '98 earnings estimates. PMSI enjoys a favorable tax rate of only 24% for the 1997 fiscal year whereas 1998 earnings are fully taxed. Taking this into account near term growth is in the 43% range. In this frothy market PMSI appears to be a steal.
Prime will report results for the June quarter on July 24. According to First Call, analysts' consensus expectation is for earnings of $0.19 per share.
Today, Prime fell $1/8 to $11 7/8 on the heels of a recent runup from $10 1/2 per share.
In other Borefolio news, ORACLE (Nasdaq: ORCL) announced last night that the company's board approved a 3-for-2 stock split. The market liked the news and propelled ORCL up $2 1/4 on the bid. The other Boretech CISCO SYSTEMS (Nasdaq: CSCO) rose $2 15/16 to an all time high. Yawn....
Other winners included ATLAS AIR (Nasdaq: ATLS) up $9/16, BORDERS GROUP (NYSE: BGP) up $5/16, OXFORD HEALTH PLANS (Nasdaq: OXHP) bouncing back $2 1/4, GREENTREE FINANCIAL (NYSE: GNT) up $5/8 ahead of earnings news and TIDEWATER (NYSE: TDW) up $5/16.
Overall, I'd say I had a pretty nice debut. If only I could have taken credit for a Dow close above 8000...but, I guess that would have been boring.
Boards -- what are Fools saying?
Evening News -- Big movers, up and down.
Daily Double -- How can you find the next double?
Daily Trouble -- Value in this beaten down stock?
The Fool Portfolio -- The Comeback Kid.
Fool Four -- 23% annual historic returns.
(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 + 9/16 23.56 BGP + 5/16 26.75 CSL - 5/16 35.06 CSCO +2 15/16 79.50 GNT + 5/8 37.75 ORCL +2 3/4 56.44 OXHP +2 1/4 81.00 PMSI - 1/8 11.88 TDW + 5/16 45.94
Day Month Year History BORING +1.57% 5.11% 17.53% 35.25% S&P: +0.80% 4.59% 24.98% 48.93% NASDAQ: +1.20% 6.94% 19.45% 48.14% Rec'd # Security In At Now Change 2/28/96 400 Borders Gr 11.26 26.75 137.65% 5/24/96 100 Oxford Hea 48.02 81.00 68.66% 6/26/96 100 Cisco Syst 53.90 79.50 47.50% 8/13/96 200 Carlisle C 26.32 35.06 33.19% 2/2/96 200 Green Tree 30.39 37.75 24.23% 3/8/96 400 Prime Medi 10.07 11.88 17.94% 11/21/96 100 Oracle Cor 48.65 56.44 16.01% 3/5/97 150 Atlas Air 23.06 23.56 2.19% 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 10700.00 $6197.51 5/24/96 100 Oxford Hea 4802.49 8100.00 $3297.51 6/26/96 100 Cisco Syst 5389.99 7950.00 $2560.01 8/13/96 200 Carlisle C 5264.99 7012.50 $1747.51 2/2/96 200 Green Tree 6077.49 7550.00 $1472.51 11/21/96 100 Oracle Cor 4864.99 5643.75 $778.76 3/8/96 400 Prime Medi 4027.49 4750.00 $722.51 3/5/97 150 Atlas Air 3458.74 3534.38 $75.64 12/23/96 100 Tidewater 4652.49 4593.75 -$58.74 CASH $7788.54 TOTAL $67622.92