Boring Portfolio

Boring Portfolio Report
Thursday, February 20, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich. (Feb. 20, 1997) -- The Labor Department reported this morning that new claims for jobless benefits edged up by 1,000 last week. That was not nearly enough newly unemployed folks for Wall Street's tastes, and stocks took it on the chin because, ... well because that's what traders are conditioned to do, whether it makes any sense or not.

Add to the news on unemployment claims a little options expirations-eve jitters and you've got a scenario for a nice little intra-day sell-off -- which is exactly what we got. The Dow was off more than 100 points for a while this afternoon, ending the session off 93, or 1.3%. The Nasdaq Composite lost an equivalent amount, while the S&P 500 fell slightly less: 1.19%.

The Boring Portfolio lost "only" 1.17%. Yippy.

Stocks in the financial sector, sensitive to any news that might affect interest rates, were hit especially hard, and that included GREEN TREE FINANCIAL (NYSE: GNT). The Tree had $1 1/2 whacked off the top.

As luck would have it, I happened to check in with Green Tree today to find out how things were going in the aftermath of the implosion of subprime lenders, a topic much hashed over in recent Borefolio recaps. In particular, I was wondering why Green Tree hadn't offered up any asset-backed securities for sale lately.

A five-minute phone call to the Investor Relations office at a company in which you hold a stake can sometimes do wonders for a troubled head. Answering shareholders' questions is what IR officers get paid to do. So if you've done a reasonable amount of homework and still can't find the answer to your question, call the IR office. You'll probably hit voice mail, but if you leave your number and politely identify yourself as a shareholder (or prospective shareholder) with a quick question, chances are good that you'll get a prompt reply.

What I learned from Green Tree's highly efficient IR office is that the company just yesterday sold a half-billion dollars in securities backed by manufactured home (MH) loans. Not only that, the offering was highly successful, with Green Tree garnering the most favorable interest-rate spread on the deal that it had ever received for MH-backed securities, and at an exceptionally small premium to the yield on Treasurys. I see that as evidence of a flight to quality.

So is Green Tree still comfortable with analysts' earnings estimates of $3.00 per share for 1997? "Of course," was the reply -- which means that at its current price, GNT is trading at 13-times projected 1997 EPS. Not a bad multiple for stock in a company that is expected to grow earnings by 36% this year and by 20% or so longer term. Oh, yes: there's a small dividend, too.

Despite weakness in shares of a number of software outfits, ORACLE (Nasdaq: ORCL) tacked a $3/8 advance onto yesterday's $5/8 gain. ORCL remains one of very, very few high quality technology stocks that is trading at a discount to its sustainable EPS growth rate.

That apparently hasn't escaped the firm's attention. Oracle did something fairly unusual for a software company: it just offered $300 million in debt, in two parts, with the intention of using the proceeds in part to buy up some of its own stock. According to a story on the Dow Jones wire, bond traders expect the offering to be very popular, resulting in a spread of 51 to 54 basis points over Treasurys for $150 million of seven-year debt and a spread over Treasuries of 61 to 64 basis points for $150 million of 10-year debt. Morgan Stanley and Merrill Lynch are the lead underwriters.

PRIME MEDICAL SERVICES (Nasdaq: PMSI) lost $3/8 on the bid side. The company will be reporting fourth quarter and 1996 results next Thursday, Feb. 27, in the morning. According to First Call, analysts' consensus estimate is for $0.17 per share in earnings. I'll be covering the follow-up conference call -- Prime Medical's first ever.

SOLECTRON (NYSE: SLR) gained $1 1/4 Thursday on top of a $1/4 rise the day before. The company was featured in a Dow Jones story as an example of how electronics contract manufacturers have been growing rapidly by acquiring facilities from original equipment manufacturers (OEMs) and then using the facilities to provide a range of value-added services to those same OEMs.

Solectron will report results for its February quarter on March 17. Analysts are looking for EPS of $0.65, which would constitute a 25% gain over a year ago. The consensus earnings estimates for the company's fiscal year ending August is $2.74, which would be a 26% gain over FY95. Even with the recent rise in the share price, SLR is trading at less than 21-times projected earnings for the current fiscal year.

Today's Numbers

Stock  Change    Bid
BGP   -  1/4   43.63
CSL   ---      34.38
CSCO  -1 7/8   62.88
GNT   -1 1/2   38.88
ORCL  +  3/8   41.63
OXHP  -  3/4   58.63
PMSI  -  3/8   11.13
SLR   +1 1/4   57.25
TDW   -1 1/8   42.38
                   Day   Month    Year  History
        BORING   -1.17%  -0.12%   4.45%  20.20%
        S&P:     -1.19%   2.12%   8.38%  29.15%
        NASDAQ:  -1.33%  -2.35%   4.37%  29.44%

    Rec'd   #  Security     In At       Now    Change

  2/28/96  200 Borders Gr    22.51     43.63    93.78%
  8/13/96  200 Carlisle C    26.32     34.38    30.58%
   2/2/96  200 Green Tree    30.39     38.88    27.93%
  5/24/96  100 Oxford Hea    48.02     58.63    22.07%
  6/26/96  100 Cisco Syst    53.90     62.88    16.65%
   3/8/96  400 Prime Medi    10.07     11.13    10.49%
 10/15/96  100 Solectron     54.52     57.25     5.00%
 12/23/96  100 Tidewater     46.52     42.38    -8.92%
 11/21/96  100 Oracle Cor    48.65     41.63   -14.44%

    Rec'd   #  Security     In At     Value    Change

  2/28/96  200 Borders Gr  4502.49   8725.00  $4222.51
   2/2/96  200 Green Tree  6077.49   7775.00  $1697.51
  8/13/96  200 Carlisle C  5264.99   6875.00  $1610.01
  5/24/96  100 Oxford Hea  4802.49   5862.50  $1060.01
  6/26/96  100 Cisco Syst  5389.99   6287.50   $897.51
   3/8/96  400 Prime Medi  4027.49   4450.00   $422.51
 10/15/96  100 Solectron   5452.49   5725.00   $272.51
 12/23/96  100 Tidewater   4652.49   4237.50  -$414.99
 11/21/96  100 Oracle Cor  4864.99   4162.50  -$702.49

                             CASH   $5999.08
                            TOTAL  $60099.08