Boring Portfolio Report
Thursday, August 7, 1997
by Jeff Fischer (TMF Jeff)
ALEXANDRIA, VA, (August 7, 1997) -- The Boring Port lost 0.97% in value today as the S&P fell 0.95%.
The largest loser in the Bore Port was, yet again, OXFORD HEALTH (Nasdaq: OXHP). The stock has shed about $10 since TMF Boring went on vacation last week. Peer stocks have recently fallen sharply with reason, but Oxford has declined mainly in sympathy. This has happened in the past with Cisco Systems, Intel, and with nearly any leading stock that has peers -- which is all stocks.
Today Randy Befumo wrote of Oxford in the Fool's Lunchtime News, citing the tendency of investors to throw away good stocks in the wake of bad news from lesser peers.
At $74 Oxford trades at 30 times fiscal 1998 estimates, six quarters away. The YPEG value on the stock is $91. YPEG is accomplished by multiplying the long-term growth rate (37%) by the farthest earnings estimate ($2.47 per share). At $91 the stock would trade at 37 times 1998 earnings, a multiple equal to the company's growth rate. Give the stock the intrinsic value that it deserves (it being the leader, as is further evidenced by the company's business strength while peers have hit some snags) and the stock may also be owed a slight premium.
All of that is moot, though, until investors overcome nervousness regarding the sector. Since this column has recently covered Oxford in detail, let's move on and look at the valuations of two industry-dominating companies held in the Boring Portfolio.
After announcing earnings, CISCO SYSTEMS (Nasdaq: CSCO) has trailing sales of $6.4 billion and trailing earnings per share of $2.05. At $79 per share the company has a market cap of $53 billion and trades at 8.2 times sales. This is reasonable for a company with 30% operating margins and expected to grow earnings 34% annually while dominating a fast-growing industry.
The YPEG value of Cisco Systems is $89 per share. Intrinsic value -- being the best-run, leading networker in the world -- should grant the stock a premium to the growth rate. Cisco trades at 38 times trailing earnings, but only 30 times 1998 estimates of $2.61 per share.
Have you seen a graph of Cisco? It was only a sucker punch that dropped the stock early this year -- meaning the stock has gotten back up as quickly as it was knocked down.
Why would an investor sell a world-leader that is continuing to lead? Simply because the Wise state that networking is slowing down somewhat? This is natural. Where was the bad news? There was none. The quick rise of the stock emulates investors waking up to the fact. The story didn't significantly change, only the stock price did.
A long-term lesson to remember -- follow the story, don't focus on the stock price. Cisco is $10 below the current YPEG value.
The second-largest software company in the world, ORACLE CORP (Nasdaq: ORCL), is increasing its lead in the database software market, especially if the recent performance of Informix and Sybase is any indication. Oracle recently completed fiscal 1996 with sales of $5.7 billion and net income of $1.23 per share. In the final quarter Oracle's net profit margin reached 18% -- a nice jump that hopefully bodes a trend. Oracle's margins haven't matured and climbed like Microsoft's, for one, but Oracle is selling to a different world of buyers.
A YPEG value puts the stock fairly priced at $67 per share. Currently at $57, Oracle has a market cap of $37.2 billion and trades at 6.5 times sales. Again, this is reasonable considering the industry leadership and consistent growth that Oracle has displayed.
The stock trades at 46 times trailing earnings, 34 times May of 1998 estimates, and 26 times 1999 estimates, 8 quarters away. The company is expected to grow about 31% annually. It appears reasonably priced, and a stock trading at the YPEG value of $67 would seem reasonable by early next spring.
The stock has climbed 67% from $34 in March to recent new highs. Oracle will split the stock 3-for-2 in about a week. One thing Fools would like to see is more cash ending up in Oracle's bank account, and that resulting in more company stock buy-backs to increase the earnings per share potential. As of June Oracle had slightly less than $700 million in cash and over $300 million in long-term debt. Oracle's stock is trading $10 below the current YPEG value.
Let's all Foolishly welcome Greg Markus home tomorrow!
--Jeff Fischer, Fool
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Stock Change Bid ATLS + 1/4 27.13 BGP + 15/16 24.13 CSL - 9/16 41.69 CSCO -2 1/8 78.81 GNT -1 7/16 45.56 ORCL -1 1/16 56.88 OXHP -5 1/8 74.00 PMSI + 1/8 11.13 TDW + 7/8 53.75
Day Month Year History BORING -0.97% -1.69% 21.41% 39.71% S&P: -0.95% -0.33% 28.41% 53.02% NASDAQ: -0.38% 1.91% 25.80% 56.03% Rec'd # Security In At Now Change 2/28/96 400 Borders Gr 11.26 24.13 114.33% 8/13/96 200 Carlisle C 26.32 41.69 58.36% 5/24/96 100 Oxford Hea 48.02 74.00 54.09% 2/2/96 200 Green Tree 30.39 45.56 49.94% 6/26/96 100 Cisco Syst 53.90 78.81 46.22% 3/5/97 150 Atlas Air 23.06 27.13 17.64% 11/21/96 100 Oracle Cor 48.65 56.88 16.91% 12/23/96 100 Tidewater 46.52 53.75 15.53% 3/8/96 400 Prime Medi 10.07 11.13 10.49% Rec'd # Security In At Value Change 2/28/96 400 Borders Gr 4502.49 9650.00 $5147.51 8/13/96 200 Carlisle C 5264.99 8337.50 $3072.51 2/2/96 200 Green Tree 6077.49 9112.50 $3035.01 5/24/96 100 Oxford Hea 4802.49 7400.00 $2597.51 6/26/96 100 Cisco Syst 5389.99 7881.25 $2491.26 11/21/96 100 Oracle Cor 4864.99 5687.50 $822.51 12/23/96 100 Tidewater 4652.49 5375.00 $722.51 3/5/97 150 Atlas Air 3458.74 4068.75 $610.01 3/8/96 400 Prime Medi 4027.49 4450.00 $422.51 CASH $7890.00 TOTAL $69852.50