Boring Portfolio

Boring Portfolio Report
Tuesday, August 5, 1997
by Greg Markus (TMF Boring)

PRINCEVILLE, HI (Aug. 5, 1997) -- It may have been 11AM Eastern time, but the sun had not yet peeked over Makaleha Mountain when I dialed into the OXFORD HEALTH PLANS (Nasdaq: OXHP) conference call to learn that the company had earned $0.45 per share in its June quarter, up 61% over a year ago. Quarterly revenues passed the $1 billion mark, coming in at $1.06 billion, a 46% increase over last year's second quarter. Enrollment stood at 1,833,500 on June 30 -- up almost 39%, with the heavy fall enrollment period coming up.

Great news. So, uh, why'd the stock fall $3 11/16?

Not having polled every seller today, I'm left to speculate. Here goes.

Oxford's EPS result beat the Street's consensus forecast by a penny but was within the range of estimates that spanned from $0.42 to $0.47, according to First Call. This may have disappointed a few momentum investors who piled on during the past few days.

News that Oxford's founder Stephen Wiggins had handed over his position as CEO to president Bill Sullivan may have also rattled a few folks. If so, it shouldn't have. Sullivan had effectively been running day to day operations for some months now, and Wiggins remains as a company officer focusing on strategy, government relations, and related "big picture" stuff -- and retains his position as board chairman.

The cratering of AETNA (NYSE: AET) stock following that company's quarterly earnings news today may have had some repercussions for Oxford, as well. The recently combined Aetna-U.S.Healthcare behemoth is perhaps Oxford's strongest competitor, so it's not implausible that whatever problems Aetna faced might affect Oxford, as well.

Even a cursory glance at Aetna's results, also released this morning, suggests otherwise, however. Aetna resorted to some fancy accounting footwork affecting reserves for claims to make its number. Oxford beat its number, while increasing reserves considerably. Aetna's medical loss ratio was up; Oxford's was down -- and projected to continue falling through the balance of 1997. Aetna's enrollments are slowing; Oxford's continue to rocket along. And so forth.

Of more interest to the talking heads at CNBC as was the two-day-old "news" that Oxford and New York State Attorney General Dennis Vacco had agreed that Oxford would pay interest on any NY provider claims Oxford did not manage to process and pay within 30 days, effective July 25, 1997.

As Oxford followers know only too well, the company has been, uh, "challenged" all year in processing both new memberships and providers' claims as it implemented a fork-lift upgrade of its entire computer and information management systems. Oxford has admitted the problems, apologized for them, and even taken the unprecedented step of advancing $271 million to hospitals and docs to mitigate their cash flow crunch while Oxford got its claims-processing act back in gear.

In any event, CNBC pulled out the stops (such as they are) in sensationalizing the story about the New York settlement, and A.G. Vacco appeared only too happy to assist. Vacco appeared on CNBC to celebrate his role as champion of the people and describe how his office had decisively addressed a problem that had placed "enormous" stress on New York's healthcare system (even though by June Oxford was turning around better than 90% of claims within 30 days).

Viewers watched as Vacco and a CNBC reporter related a tale about "a cancer patient" who was told by a doctor that the patient would have to pay for essential drugs out of the patient's own pocket unless Oxford paid its bills. (There's nothing like a story about a cancer patient suffering as a consequence of a seemingly money-grubbing HMO to spice things up ... regardless of how accurately portrayed or isolated the incident might have been.)

We heard CNBC speculate repeatedly about whether the "management shake-up" at Oxford might be related to the New York settlement (even though Wiggins had been guiding analysts for some time now to expect the management transition to occur at some point).

Look, I'm not defending Oxford's tardiness in paying claims. For one thing, any defense from me would matter not a whit. Besides, I'm not entirely delighted with the way the systems upgrade has swelled (and will continue to swell, for a quarter or two yet) Oxford's administrative expenses. More importantly, Oxford has consistently demonstrated -- demonstrated, not just talked about -- that it is less interested in making excuses than it is in making things right. CNBC missed that part.

Oxford's stock hasn't appreciated as rapidly and persistently as it has -- and within such an enormously challenging time for the healthcare industry -- for no reason. Oxford is the leader in revolutionizing healthcare provision in ways that benefit and treat with respect both consumers and providers.

That's why I invested the Borefolio in Oxford Health, and that's why the stock is staying there.

And now, back to St. Louis, Missouri for the full recap from Fool Mark Weaver, MD, including Cisco's earnings result. Aloha! And Fool on...

(FOOL GLOBAL WIRE -- Tuesday, August 05, 1997)
by Mark Weaver, MD (MWEAV)

ST. LOUIS, Mo. (Aug. 5, 1997) - Thanks for passing the baton across the Pacific, Greg!

Stocks moved generally higher Tuesday with a small 0.22% gain in the S&P 500 and an even better 1% move in the technology-laden Nasdaq. The Borefolio didn't participate in the rally as it closed down 0.07%. Actually, the majority of our holdings were up but for one, Oxford Health Plans, which was down big.

Today was a big day on the earnings front as OXFORD HEALTH PLANS (Nasdaq: OXHP) reported earnings this morning, which Greg wrote about, and CISCO SYSTEMS (Nasdaq: CSCO), hot off the presses, reported earnings this afternoon.

First, briefly, to shed more light on what Greg wrote about, Oxford came in with better than expected earnings of $0.45 per share (estimates were for $0.44). This represents a 66% increase over last year on a healthy 46% increase in revenues. Oxford hit on all cylinders with a decrease in the medical loss ratio to 79.7%, an exceptional level in the current market. Administrative expenses were also down indicating improved operating efficiencies. Enrollments were up to 1.9 million. In spite of what was by all measures an exceptional report, the stock was down $3 3/4. What gives?

There are at least two reasons the stock may have dropped today, as Greg touched on. In the earnings report Oxford announced that Stephen Wiggins has stepped down as CEO but will remain as Chairman. President and COO William Sullivan will replace Wiggins. In effect, as the company reported, this formalizes what had been happening in practice for the past year. Wiggins will focus on disease specific programs, alternative medicine programs and governmental relations. He will do the "vision thing." Perfect. Although this may have had a negative impact on the stock today, I don't see it as a problem down the road. Sullivan is very highly regarded and analysts were quoted as being quite pleased with the move.

Secondly, as Greg shared, Oxford may have been down as a result of the lackluster earnings report of AETNA (NYSE: AET). Aetna swallowed up US Healthcare last year and appeared to have a bit of indigestion as earnings declined year over year. In addition, medical costs rose. Aetna was down $14 1/4, over 12%, today. The entire HMO sector took a hit "in sympathy" with Aetna's problems.

All in all I was very happy with Oxford's report. As usual, The Motley Fool will post complete coverage on the conference call in the near future. I can't wait.

Cisco's earnings were released after the bell and came in at $0.55, right at expectations. Revenues were up 37%.

CEO John Chambers was quoted as saying, "We continue to see an increasing acceptance of end-to-end networking solutions in all of our markets. Customers are realizing the enhanced productivity, cost of ownership savings and time to market advantages gained through partnering with a single networking vendor and its partners. This trend, combined with Cisco's leadership in almost all product segments, positions us well as the preferred end-to-end network provider." This was the 30th consecutive quarter of revenue and earnings growth for Cisco... how Boring.

Over on the Cisco message board, "whisper" numbers of $0.60 were being tossed about, so who knows how "the street" will receive this earnings report. The Motley Fool will have full coverage of this evening's conference call - stay tuned.

Finally, I felt it my duty as a physician to calm all of you about the safety of holding money. In 1972 a report noted that 19% of coins and fully 60% of bills were contaminated with disease causing bacteria. Based on this data, when Money Magazine shouts "Sell Stocks Now" an investor contemplating a move to cash has to be concerned for his or her health.

From a report published in Infections in Medicine comes the happy news that money is much cleaner today than it was in 1972. A survey of the staff at New York Methodist Hospital found that only 3% of coins and 11% of bills were contaminated with disease causing bacteria. Now if that doesn't make you feel more secure, I don't know what will.

Stay Foolish!

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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  +  3/16  26.63
BGP   +  1/4   24.63
CSL   -  3/8   42.31
CSCO  +  1/4   81.94
GNT   +  1/16  46.75
ORCL  +  5/8   56.75
OXHP  -3 3/4   82.00
PMSI  +  1/2   11.50
TDW   -  1/4   50.69
                   Day   Month    Year  History
        BORING   -0.07%   0.33%  23.89%  42.57%
        S&P:     +0.22%  -0.20%  28.57%  53.21%
        NASDAQ:  +1.00%   1.74%  25.60%  55.77%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     24.63   118.77%
  5/24/96  100 Oxford Hea    48.02     82.00    70.74%
  8/13/96  200 Carlisle C    26.32     42.31    60.73%
   2/2/96  200 Green Tree    30.39     46.75    53.85%
  6/26/96  100 Cisco Syst    53.90     81.94    52.02%
 11/21/96  100 Oracle Cor    48.65     56.75    16.65%
   3/5/97  150 Atlas Air     23.06     26.63    15.47%
   3/8/96  400 Prime Medi    10.07     11.50    14.22%
 12/23/96  100 Tidewater     46.52     50.69     8.95%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   9850.00  $5347.51
  5/24/96  100 Oxford Hea  4802.49   8200.00  $3397.51
   2/2/96  200 Green Tree  6077.49   9350.00  $3272.51
  8/13/96  200 Carlisle C  5264.99   8462.50  $3197.51
  6/26/96  100 Cisco Syst  5389.99   8193.75  $2803.76
 11/21/96  100 Oracle Cor  4864.99   5675.00   $810.01
   3/8/96  400 Prime Medi  4027.49   4600.00   $572.51
   3/5/97  150 Atlas Air   3458.74   3993.75   $535.01
 12/23/96  100 Tidewater   4652.49   5068.75   $416.26

                             CASH   $7890.00
                            TOTAL  $71283.75