Boring Portfolio

Boring Portfolio Report
Monday, January 13, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich. (Jan. 13) -- Although trading volume continued to be heavy on Monday, as it has all month so far, benchmark indices were little-changed. The Dow rose 5 points, while the S&P was flat for the session. The Nasdaq lost a point (0.08%).

The situation would have been equally unexceptional for the Boring Portfolio -- a few stocks up fractionally, a few down by the same amount -- were it not for significant losses in Oxford Health Plans (Nasdaq: OXHP) and Green Tree Financial (NYSE: GNT). The Ox slipped $2 5/8, while Green Tree shed $1 1/4. Trading was exceptionally brisk in both stocks. I therefore devote tonight’s Boring recap to them.

First, Oxford Health.

Last Thursday, spokesmen for the company reportedly told the assembled multitude at the Hambricht & Quist Healthcare Conference in San Francisco that all was well: Oxford was comfortable with EPS estimates of $1.75 to $1.80 for 1997 and a goal of increasing membership to 2 million by end of the year. Furthermore, Jay Silverstein, Oxford's VP for Marketing, stated that New York’s new hospital deregulation law would have no effect on OXHP's margin.

That news helped buoy OXHP late last week. On Friday afternoon, however, a Reuters story pointed out that U.S. health maintenance organizations as a group had “a dismal year” in 1996 and that “dissatisfied with narrow profit margins, Wall Street is turning cautious on many HMO stocks.”

Then this morning, the influential “Small Stock Focus” column in The Wall Street Journal reiterated the same downbeat theme, under the headline “Health-Care Investors Seek Stock Cure.”

With words like “dismal,” “slump,” “gloom” and “downdraft” surrounding healthcare stocks in these and similar stories, it’s perhaps a wonder that Oxford slid only $2 5/8.

Trading floor rumors may have added to the volatility. Shares of Physicians Health Services (Nasdaq: PHSV) leaped on Friday amid speculation that the New York regional HMO would be acquired. Physicians Health serves about 400,000 members in basically the same geographical areas in which Oxford focuses. Although PHSV is struggling financially, it was rated the best health plan serving the its area in a survey last year -- hence, a not unattractive target.

I mention these items because they are bits of data in the air that may be exerting some short-term impact upon OXHP. For me, they are of interest and, perhaps, some amusement. The bigger theme, as I see it, is that in 1997 Oxford will likely once again be far ahead of the field. The company’s margins are solid, it continues to be the innovator in the health care industry, and prospects for strong enrollment growth are excellent.

Should Oxford Health achieve the $1.75 to $1.80 EPS goal it has established for itself, that would put earnings growth in the mid-40% range yet again.

Okay, so what about Green Tree? GNT is down 16% from its recent all-time high of $42 1/2. At $35 5/8, the stock is trading at less than 12-times estimated EPS of $2.98 for 1997. Yet analysts are forecasting EPS to grow 30% this year, and 20%-25% over the longer haul. That multiple is not only at the low end of Green Tree’s historical range, it’s also below that of (more-or-less) peer stocks, such as First USA (NYSE:FUS) or MBNA (NYSE:KRB). Why?

Well, one good way to get some answers is to call the company. So that’s what I did -- and what I recommend you to do, too, whenever you’ve got reasonable questions about stocks you own.

Green Tree is reporting their 1996 earnings in a couple of weeks, and so company spokesmen are limited in what they can say right now. I was able to learn, though, that the company has released absolutely no news that would account for the recent weakness in the stock. Furthermore, as a number of recent reports have confirmed (and as has been noted here), the market for Green Tree’s asset-backed securities is exceptionally strong. The company spokesman pointed out that Green Tree stock has gone through periods of weakness in the past and, historically, those occasions have proved to be fine investment opportunities.

Suffice it to say, I’m delighted to have shares of Oxford Health and Green Tree Financial in the Borefolio.

Today's Numbers

Stock  Change    Bid
BGP   +  1/8   37.13
CSL   -  1/8   60.00
CSCO  +  5/8   69.13
GNT   -1 1/4   35.63
ORCL  +  1/4   41.00
OXHP  -2 5/8   55.00
PMSI  -  3/8   11.75
SLR   +  3/8   55.88
TDW   -  3/4   48.75
                   Day   Month    Year  History
        BORING   -1.02%   1.19%   1.19%  16.45%
        S&P 500  +0.01%   2.54%   2.54%  22.19%
        NASDAQ:  -0.08%   3.09%   3.09%  27.86%

    Rec'd   #  Security     In At       Now    Change

  2/28/96  200 Borders Gr    22.51     37.13    64.91%
  6/26/96  100 Cisco Syst    53.90     69.13    28.25%
   2/2/96  200 Green Tree    30.39     35.63    17.24%
   3/8/96  400 Prime Medi    10.07     11.75    16.70%
  5/24/96  100 Oxford Hea    48.02     55.00    14.52%
  8/13/96  100 Carlisle C    52.65     60.00    13.96%
 12/23/96  100 Tidewater     46.52     48.75     4.78%
 10/15/96  100 Solectron     54.52     55.88     2.48%
 11/21/96  100 Oracle Cor    48.65     41.00   -15.72%

    Rec'd   #  Security     In At     Value    Change

  2/28/96  200 Borders Gr  4502.49   7425.00  $2922.51
  6/26/96  100 Cisco Syst  5389.99   6912.50  $1522.51
   2/2/96  200 Green Tree  6077.49   7125.00  $1047.51
  8/13/96  100 Carlisle C  5264.99   6000.00   $735.01
  5/24/96  100 Oxford Hea  4802.49   5500.00   $697.51
   3/8/96  400 Prime Medi  4027.49   4700.00   $672.51
 12/23/96  100 Tidewater   4652.49   4875.00   $222.51
 10/15/96  100 Solectron   5452.49   5587.50   $135.01
 11/21/96  100 Oracle Cor  4864.99   4100.00  -$764.99

                             CASH   $5999.08
                            TOTAL  $58224.08