Boring Portfolio

Boring Portfolio Report
Thursday, January 30, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich., January 30, 1997 -- The Dow advanced strongly for the second-straight day, and this time -- unlike Wednesday -- the broader marker came along for the ride. The Dow gained 85 points, or 1.2%. The Nasdaq rose an equivalent amount percentage- wise, while the S&P 500 soared 12 points, or 1.5%. Big Board volume topped 520 million shares. Nasdaq volume was heavier yet: 639 million shares.

The Boring Portfolio continued to lag the broader averages, held back by the performance of stocks beginning with the letter "O" -- as in Oracle Corp. (Nasdaq: ORCL) and Oxford Health Plans (Nasdaq: OXHP).

Larry Ellison watched shares of his company fall another quarter-point today, while those of Bill's shop, Microsoft (Nasdaq: MSFT), raced ahead toward the century mark. Which is likely to be the better value for the remainder of 1997? Consider the following:

1. According to statistics in Value Line, both ORCL and MSFT have traded in recent years at prices ranging around 28 to 30 times annual earnings per share projected two quarters ahead. So both stocks are pretty much equal in that regard.

2. Microsoft is slated to have a hot new product coming out later this year -- although the company is often late to market, and the debut products tend to be a little buggy. As for Oracle, its slated to have a hot new product coming out later this year -- although the company is often late to market, and the debut products tend to be a little buggy. Tie score.

3. For its fiscal year ending in May, analysts expect Oracle's EPS to grow 34% over FY96, to $1.27. Meantime, Microsoft's EPS is projected to grow 35% in its FY97, ending in June, to $2.29. (Those data are from First Call.) So the two companies are pretty much indistinguishable in terms of earnings growth in their current fiscal years, which they are both halfway through. Still neck and neck.

4. In terms of projected growth FY97 to FY98, analysts' current forecasts are for Oracle's EPS to climb 32%, while Microsoft's increases 17%. Chalk one up for Oracle.

5. Looking further down the, uh, road ahead: Oracle's 5-year compound annual growth rate, as projected by analysts, is 31%. Microsoft's five-year CAGR: 25%. Another point for Oracle.

6. Finally, at current prices ORCL is trading at 29-times projected EPS for FY97 (i.e., within its historic range) whereas MSFT is trading at (get this) 43-times projected EPS for FY97 -- well beyond its historic range. Heck, Microsoft shares at trading at 37-times estimated EPS for fiscal 1998. Game, set, and match to Mr. Ellison.

The Boring fair value for ORCL on Jan. 30, 1997 is $1.41 x 30 = $42.30. Okay, use the lower-end 28 as a multiple instead -- minus two points for screwing up on the Continent. That yields $39.48. Let's hear it for the efficient market.

As for the Boring current fair value for MSFT: $2.29 x 30 = $68.70. Oops.

In conclusion, all I can say to the contestants is:

Bill. I love ya, man. I'm writing this recap on Word 6.0, and I crunched the numbers on my Excel spreadsheet. Heck, I even own your Microsoft Art Gallery CD-ROM and would be happy to watch Soledad demo the Yellow Pages on MS-NBC. But your stock is like way expensive, dude.

As for you, Larry, I think you let your testosterone get the better of you sometimes. And the multiple press releases you released the other day to gloat about how that Oracle babe was found guilty of faking an email in order to set you up -- man, that was uncool. But you built one mother of a company, and it's still the best in the world at what it does. Also, ORCL stock is a fair deal right now, according to my numbers.

Even if they were crunched on Bill's spreadsheet.

****

LATE-BREAKING NEWS

Were you wondering why shares of Borders Group (NYSE: BGP) leapt two bucks today to hit $40? Me, too. I figured it wasn't due to the news that they were going to open a new superstore in Mishawka, Indiana.

Well, as I was tapping in the last bit of tonight's recap, what should come across the Boring fax machine but a release from Borders relating as to how the company "today made announcements regarding several matters including ... preliminary EPS estimates for 1996 and guidance for 1997."

Based on number crunching of their own (probably not with Excel, and I don't know if they use Oracle), Borders "expects" 1996 earnings to come in around $1.38 to $1.40 per share (or five to seven cents above consensus) and offers $1.80 per shares as guidance for 1997, which is sixteen cents above the current consensus.

Wow.

They also announced several executive promotions and reshufflings. More on this tomorrow.

Today's Numbers


Stock  Change    Bid
--------------------
BGP   +2       40.00
CSL   ---      30.38
CSCO  +1 1/2   67.38
GNT   +  1/4   39.13
ORCL  -  1/4   37.38
OXHP  -  1/2   51.00
PMSI  +  1/4   11.88
SLR   ---      61.00
TDW   +  1/8   46.88
                   Day   Month    Year  History
        BORING   +1.09%   2.56%   2.56%  18.02%
        S&P:     +1.51%   5.86%   5.86%  26.15%
        NASDAQ:  +1.17%   6.20%   6.20%  31.71%

    Rec'd   #  Security     In At       Now    Change

  2/28/96  200 Borders Gr    22.51     40.00    77.68%
   2/2/96  200 Green Tree    30.39     39.13    28.75%
  6/26/96  100 Cisco Syst    53.90     67.38    25.00%
   3/8/96  400 Prime Medi    10.07     11.88    17.94%
  8/13/96  200 Carlisle C    26.32     30.38    15.38%
 10/15/96  100 Solectron     54.52     61.00    11.88%
  5/24/96  100 Oxford Hea    48.02     51.00     6.19%
 12/23/96  100 Tidewater     46.52     46.88     0.75%
 11/21/96  100 Oracle Cor    48.65     37.38   -23.18%

    Rec'd   #  Security     In At     Value    Change

  2/28/96  200 Borders Gr  4502.49   8000.00  $3497.51
   2/2/96  200 Green Tree  6077.49   7825.00  $1747.51
  6/26/96  100 Cisco Syst  5389.99   6737.50  $1347.51
  8/13/96  200 Carlisle C  5264.99   6075.00   $810.01
   3/8/96  400 Prime Medi  4027.49   4750.00   $722.51
 10/15/96  100 Solectron   5452.49   6100.00   $647.51
  5/24/96  100 Oxford Hea  4802.49   5100.00   $297.51
 12/23/96  100 Tidewater   4652.49   4687.50    $35.01
 11/21/96  100 Oracle Cor  4864.99   3737.50 -$1127.49

                             CASH   $5999.08
                            TOTAL  $59011.58



Transmitted: 1/30/97