Boring Portfolio

Boring Portfolio Report
Tuesday, February 25, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich. (Feb. 25, 1997) -- The Dow tacked on 30 points on late-afternoon buying. The S&P 500 rose 2, or 0.22%, while the Nasdaq Composite gained 3, or 0.19%.

The Boring Portfolio gained 0.38%, as seven stocks advanced, one -- CARLISLE COMPANIES (NYSE: CSL) -- declined fractionally, and another -- CISCO SYSTEMS (Nasdaq: CSCO) --displayed continued weakness.

At it has for a while now, the Cisco story continues to command attention. The stock was higher briefly this morning, but slumped again after CEO John Chambers took the stage at the annual Robertson Stephens technology conference in San Francisco.

Before we get to what Chambers said, first a word on something I said here last night. Specifically, I pointed out that Cisco had fallen $4 1/2 on Friday but "made up that ground and a bit more" on Monday.

In my dreams. Cisco gained $ 5/8 on Monday, which, after consulting Fractions Can be Fun, I understand now to be considerably less than $4 1/2. My boring brain appears to have fixated on the fact that Cisco had closed higher on Monday and well off its intra-day low -- at least I think that's the explanation for my flub.

That's all moot, of course, because Cisco closed today at $56 1/2, down $2 3/8. Trading volume was, once again, well in excess of 20 million shares, suggesting to me that market-makers in Cisco stock must rake in something more per day than, say, John Chambers does.

Speaking of whom, based on today's wireservice reports-- and a quick check with Cisco's Investor Relations office -- Chambers basically reiterated points he made during the teleconference following Cisco's quarterly earnings report earlier this month. For example, he affirmed that the "fundamental business drivers have not changed" and that projections of 30% to 50% annual industry growth over the next three to five years are "in line."

He cautioned, however, that revenue growth in the current quarter could fall below the 11% per-quarter rate experienced last quarter -- because Cisco's third fiscal quarter has historically been a tough one and also because visibility of sales has declined as orders arrive and are filled with increasingly rapid turnaround.

As he did in the teleconference earlier this month, Chambers told the audience in San Francisco that customer spending is becoming more closely tied to regional economic conditions and capital spending cycles. "In areas where the economy has been slower, capital spending is slowing and the dollar has been strong, we are seeing growth rates" below the overall industry average of 30 to 50 percent, Chambers said. He singled out Japan, Germany and France as particular trouble spots.

Chambers also reiterated that the company plans to reduce the rate of new hires in the current quarter to a level below that of recent past quarters. Last Friday, Cisco Chief Financial Officer Larry Carter was quoted in a published report as saying that the company intends to slow its hiring rate from about 900 new employees a quarter to about 500 as part of an effort to moderate spending for the time being.

Other points that Chambers noted were that LAN switching sales continue to expand at a growth rate in the "teens" and that fast Ethernet is outselling ATM equipment seven or eight units to one. Also, Cisco plans to make 8 to 12 acquisitions this year, he said.


By the way, when Chambers refers to LAN switching sales expanding at a growth rate "in the teens," he's talking about a quarterly growth rate, not an annual one (and that's straight from Cisco Investor Relations). Some folks who ripped through the Dow Jones wire story earlier today might not have realized that.

I find nothing new in what Chambers said today -- although 29 million shares worth of Cisco apparently thought otherwise.

"Wait a minute!" I hear someone saying. "Chambers basically came out and said not to expect sequential growth anywhere near 11% this quarter! What about that!?"

I believe him. And apparently so do all the three dozen analysts who follow Cisco and its competitors for a living. They're projecting approximately 5% quarter-to-quarter growth between February and April -- and they have been for some time now. Looking out to FY98, analysts are forecasting Cisco's EPS to grow at around 31% to 32% -- or around 7% sequential growth.

Analysts have been making those same projections for over three months now.

According to the latest figures from First Call, three months ago analysts were forecasting Cisco's earnings to come in around $2.08 per share for the 1997 fiscal year (ending in July). Today's consensus estimate is $2.10. Three months ago, the consensus EPS estimate for FY98 was $2.74. Today it is $2.76.

Cisco does not provide specific guidance for EPS projections. The company regularly meets with analysts to discuss the basic assumptions underlying the models that analysts' use to generate sales and earnings forecasts, however, and Cisco is well aware of what those forecasts are. If the company had reason to believe that analysts' forecasts were noticeably at odds with Cisco's internal projections, the company would issue a press release in that regard. They have not done so.

As I see it, nothing has really changed for Cisco -- other than that its stock has gotten kinda cheap.

Now that I've spent the entire recap obsessing about the one stray lamb in the Borefolio, perhaps the seven stocks that rose today might merit at least a wave in their general direction.

GREEN TREE FINANCIAL (NYSE: GNT) and OXFORD HEALTH PLANS (Nasdaq: OXHP) each gained $1/2, while ORACLE (NASDAQ: ORCL) advanced $5/8 and TIDEWATER (NYSE: TDW) rose $3/8. SOLECTRON (NYSE: SLR) gained $7/8.

Also, PRIME MEDICAL SERVICES (Nasdaq: PMSI) gained an eighth-point on trading volume around 50% above its average. That follows yesterday's $1/4 increase, also on heavy volume. The company reports its fourth quarter results on Thursday morning.

(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Today's Numbers

Stock  Change    Bid
BGP   +  3/4   43.25
CSL   -  3/8   34.13
CSCO  -2 3/8   56.50
GNT   +  1/2   38.13
ORCL  +  5/8   40.88
OXHP  +  1/2   57.50
PMSI  +  1/8   11.50
SLR   +  7/8   56.13
TDW   +  3/8   43.38

                    Day   Month    Year  History
        BORING   +0.38%  -1.72%   2.78%  18.27%
        S&P:     +0.22%   3.30%   9.63%  30.64%
        NASDAQ:  +0.19%  -2.33%   4.39%  29.47%

    Rec'd   #  Security     In At       Now    Change

  2/28/96  200 Borders Gr    22.51     43.25    92.12%
  8/13/96  200 Carlisle C    26.32     34.13    29.63%
   2/2/96  200 Green Tree    30.39     38.13    25.46%
  5/24/96  100 Oxford Hea    48.02     57.50    19.73%
   3/8/96  400 Prime Medi    10.07     11.50    14.22%
  6/26/96  100 Cisco Syst    53.90     56.50     4.82%
 10/15/96  100 Solectron     54.52     56.13     2.93%
 12/23/96  100 Tidewater     46.52     43.38    -6.77%
 11/21/96  100 Oracle Cor    48.65     40.88   -15.98%

    Rec'd   #  Security     In At     Value    Change

  2/28/96  200 Borders Gr  4502.49   8650.00  $4147.51
  8/13/96  200 Carlisle C  5264.99   6825.00  $1560.01
   2/2/96  200 Green Tree  6077.49   7625.00  $1547.51
  5/24/96  100 Oxford Hea  4802.49   5750.00   $947.51
   3/8/96  400 Prime Medi  4027.49   4600.00   $572.51
  6/26/96  100 Cisco Syst  5389.99   5650.00   $260.01
 10/15/96  100 Solectron   5452.49   5612.50   $160.01
 12/23/96  100 Tidewater   4652.49   4337.50  -$314.99
 11/21/96  100 Oracle Cor  4864.99   4087.50  -$777.49

                             CASH   $5999.08
                            TOTAL  $59136.58