Boring Portfolio

Boring Portfolio Report
Wednesday, February 5, 1997
by Greg Markus (MF Boring)

ANN ARBOR, MICH. (Feb. 5, 1997) -- The Dow, down more than 100 points for a few minutes this afternoon, finished the day off 87, or 1.27%. That's the good news.

The S&P 500 lost 1.39%, and a sell-off in four-letter stocks sent the Nasdaq tumbling 25 points, or 1.84%. You think that's bad? Shoot, that ain't nuthin'.

The Boring Portfolio suffered through one of the worst sessions in its one year and seven day life, losing 2.68%. Eight of nine Boring holdings dived, including a spectacular belly-flop from the ten meter platform executed by Cisco Systems (Nasdaq: CSCO). Only Green Tree Financial stayed rooted in place, unchanged at $41 1/4.

I suspect there are Cisco shareholders reading this recap who are confused and distressed by today's debacle. If so, then to them I say, humbly: Amigos, I mean no disrespect -- and I certainly don't intend to add to your discomfort. But in the slightly altered words of the Innkeeper at 1600 Pennsylvania Avenue: I don't feel your pain.

Sorry, I just can't. The irony is just too delicious to ignore. Consider the following:

Cisco Systems far and away dominates the fastest growing industry in the world -- perhaps the fastest growing industry in the history of the world.

In each of the past two years in which Fortune Magazine has ranked the top 1,000 U.S. companies in terms of their ability to translate capital into market value-added (MVA), Cisco has emerged as "the most efficient wealth creator," bar none.

Last night, Cisco, which will do perhaps $8 billion in business this year, reported that it grew revenues last quarter by a stunning 73% as compared with the year-ago quarter and by an equally impressive 11% as compared with the immediately preceding quarter. Cisco actually expanded its operating margins in a business in which declining margins are a basic condition of life (as they are for virtually every technology company on earth). And it met and surpassed the ambitious expectations of analysts who devote a fair chunk of their lives to dissecting and examining the company's progress.

Cisco described last night how it has managed to integrate a large and culturally distinctive business (StrataCom) seamlessly into Cisco's operations -- so well, in fact, that StrataCom's sales increased by 60% in a matter of months.

Within minutes of when Cisco Systems was explaining to the telephonically assembled analysts how it achieved all of this, and how it intended to accomplish even more in the future, the President of the United States was explaining to the televisually assembled citizenry that "we must bring the power of the Information Age into all our schools," ... "connect every hospital to the Internet, so doctors can instantly share data about their patients with the best specialists in the field," and "build the second generation of the Internet so our leading universities and national laboratories can communicate at speeds 1,000 times faster than today."

Moreover, said the President, "We cannot stop there. As the Internet becomes our new town square, a computer in every home -- a teacher of all subjects, a connection to all cultures -- will no longer be a dream, but a necessity. And over the next decade, that must be our goal."

Wow. Sounds like networking might be a good biz to be in these few years.

Then as I attempted to sign on to America Online this afternoon to retrieve the daily news and, later, to file this report -- I could not. As rapidly as the internetworking infrastructure is expanding, it still cannot keep pace with demand.

And within that assemblage of facts, shares of Cisco Systems sold off today.

Why? Who knows.

"Cisco faces a challenging quarter ahead," some said. Well, Cisco always faces a challenging quarter this time of year.

"Margins could suffer, and sales could slow." Oh, you mean the company cannot grow 60-70% per year forever, and eventually overtake the GNP of planet earth? Why had we not thought of that before? Might not growth within the projected 30-50% range of the overall networking industry for the near-term to warrant a multiple at the low end of that range?

"Maybe they stuffed the channel to make the number," the Street-wise gooroos opined. Well, perhaps. Perhaps not. In any event, suppose Cisco only grew sales, say, 70% rather than 73%. How horrible would that have been?

So it is that I cannot share the pain of those who may be distraught at Cisco's sell-off today. I can only stare wide-eyed, as in the amazement of a young innocent... and grin at the wonderful opportunities that may be at hand.

A quick note: Carlisle Companies (NYSE: CSL) just reported its fourth quarter and annual results for 1996. The company earned $0.42 per share on revenues of $277.5 million in the quarter. Those figures represent increases of 24% and 28% respectively over last year. According to First Call, the two listed analysts who follow the company were looking for EPS of $0.40. As of its Dec. 13 report, Value Line was forecasting $0.42. The post-report conference call will take place tomorrow, and The Motley Fool will be covering it.

Today's Numbers

Stock  Change    Bid
BGP   -1 7/8   41.75
CSL   -1       29.50
CSCO  -4       62.88
GNT   ---      41.25
ORCL  -1 3/8   38.50
OXHP  -  3/4   51.50
PMSI  -  3/8   11.63
SLR   -1 7/8   56.25
TDW   -  7/8   44.63

                   Day   Month    Year  History
        BORING   -2.68%   1.72%   1.72%  17.05%
        S&P:     -1.39%   5.07%   5.07%  25.20%
        NASDAQ:  -1.84%   4.45%   4.45%  29.54%

    Rec'd   #  Security     In At       Now    Change

  2/28/96  200 Borders Gr    22.51     41.75    85.45%
   2/2/96  200 Green Tree    30.39     41.25    35.75%
  6/26/96  100 Cisco Syst    53.90     62.88    16.65%
   3/8/96  400 Prime Medi    10.07     11.63    15.46%
  8/13/96  200 Carlisle C    26.32     29.50    12.06%
  5/24/96  100 Oxford Hea    48.02     51.50     7.24%
 10/15/96  100 Solectron     54.52     56.25     3.16%
 12/23/96  100 Tidewater     46.52     44.63    -4.08%
 11/21/96  100 Oracle Cor    48.65     38.50   -20.86%

    Rec'd   #  Security     In At     Value    Change

  2/28/96  200 Borders Gr  4502.49   8350.00  $3847.51
   2/2/96  200 Green Tree  6077.49   8250.00  $2172.51
  6/26/96  100 Cisco Syst  5389.99   6287.50   $897.51
  8/13/96  200 Carlisle C  5264.99   5900.00   $635.01
   3/8/96  400 Prime Medi  4027.49   4650.00   $622.51
  5/24/96  100 Oxford Hea  4802.49   5150.00   $347.51
 10/15/96  100 Solectron   5452.49   5625.00   $172.51
 12/23/96  100 Tidewater   4652.49   4462.50  -$189.99
 11/21/96  100 Oracle Cor  4864.99   3850.00 -$1014.99

                             CASH   $5999.08
                            TOTAL  $58524.08
Transmitted 02/05/97