Boring Portfolio

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

ANN ARBOR, Mich. (March 5, 1997) -- Yesterday, Kentucky Congressman Jim Bunning hurled a couple of brush-back pitches at Alan Greenspan during the Fed Chairman's appearance before the U.S. House Budget Committee. Bunning wondered aloud why Greenspan thought it was his role to lecture equities investors about their behavior in a free market.

It appears that Bunning's tactic achieved the intended effect, as Greenspan backed noticeably away from the plate today.

When asked to elaborate on his recent remarks about possible "irrational exuberance" and "financial excesses" in the stock market, Greenspan told Congress Wednesday that monetary policy should not be used as a means of stemming the recent sharp rise in stock prices and that he had not intended to "jawbone" stock prices down. Moreover, if profits of U.S. corporations continue to rise as analysts are forecasting, stocks are "probably properly priced," said Greenspan.

With that matter out of the way, traders promptly broke out the party hats and streamers, sending the Dow up 93 points, or 1.4%, and the S&P 500 up an equivalent amount. In keeping with protocol, the lower classes were also permitted to partake of the festivities, but only up to a point: the Nasdaq Composite Index rose 0.89% and the Russell 200 index of small-capitalization stocks, 0.56% -- less than half of the Dow's gain.

The Boring Portfolio had a decent day, gaining 0.82% in net value. Seven holdings advanced, while three declined. Among those closing lower today was ATLAS AIR (Nasdaq: ATLS), which debuts in the Borefolio.

In keeping with past practice, I managed to purchase 150 shares of ATLS at the intra-day high of $22 7/8. The stock had moved up sharply earlier in the week, so I'll chalk up today's drop to that old stand-by, "profit-taking." Sorta like explaining that the reason you can't sleep at night is because you have insomnia.

GREEN TREE FINANCIAL (NYSE: GNT) re-grew the $7/8 it lost yesterday -- and on trading volume of over one million shares, no less. The other day, Fitch Investors Service rated Green Tree's $424 million manufactured housing (MH) asset-backed securities offering as 'AAA.' An additional $39 million got an 'AA-" rating, while a $17.5 million class of certificates garnered an 'A.' According to Fitch, the ratings are based upon "the quality of the MH contracts, the respective levels of credit enhancement, the integrity of the legal and financial structure, and Green Tree's servicing capabilities."

CISCO SYSTEMS (Nasdaq: CSCO) took another step on the road to recovery, adding $11/8. I've yet to see any major news coverage of the tremendous implications for networking and communications infrastructure companies of AT&T's announcement that it intends to spend $9 billion on capital improvements in 1997. This is a major development, in my opinion, but it obviously doesn't fit very well into the "networking is dead" theme that off-line journalists are pushing these days.

Oh, my. Look at OXFORD HEALTH PLANS (Nasdaq: OXHP). A few weeks ago, traders were certain that HMOs were trash. Now they're not so sure. The Ox tacked $2 7/8 onto yesterday's $2 gain to push above the $60 mark once again.

Last up tonight is PRIME MEDICAL SERVICES (Nasdaq: PMSI). Prime reclaimed a quarter-point of the $3/8 the stock lost yesterday, but the bid is still below $11. I spoke briefly with the company today to inquire about how much overhang remained of the 2.26 million shares registered back in September to be sold by a group of stockholders -- mostly docs who received the stock as part of Prime's lithotripter acquisition strategy.

The reply I received was that once the registration was made, Prime had no direct involvement with, or knowledge of, what the selling stockholders did, since they were not company insiders. The company assumed, however, that the vast majority of those shares had probably made it into the market by now. The exception to that, according to Prime, would be approximately 500,000 shares held by two financial institutions; they would probably be retaining their interests in Prime indefinitely.

I've got one other bit of Prime-related information. An item in Wednesday's Investor's Business Daily showcased a company called UROLOGIX INC. (Nasdaq: ULGX). Urologix has filed for FDA approval of its Targeted Transurethral Thermoablation, or T3, system. The device uses microwave energy to treat benign prostate hyperplasia (BPH), a common disorder of aging men (a group that I continue to insist does not include me).

According to the story, analysts expect T3 to be approved for use in the U.S. early next year. I mention this because the T3 product would compete with the Prostatron device manufactured by France-based EDAP Technomed. And as Prime followers probably remember, Prime is in the late stages of negotiating a joint venture to develop Prostatron routes similar to the company's lithotripsy business.

According to the story in IBD, almost 700 patients have been treated with T3 worldwide, with an average of 60% to 70% improvement in their symptoms. Urologix claims that its product is superior to the Prostatron because T3 costs less (around $100,000 versus $395,000) and has better long-term results: "While 12% of patients went on to other treatments within two years of T3, 45% sought further treatment after Prostatron therapy."

What's Prime's take on this?

First, regulatory approval for the T3 is still a year off, while the Prostatron is already FDA-approved.

Second, the T3 is cheaper than the Prostatron out of the box, but the consumables for the T3 are double the cost of those for the Prostatron.

Third, the outcomes data for the T3 are less reliable than, and not directly comparable to, those for the Prostatron. There are only two years of experience with the T3, and with only 700 patients, while the Prostatron has been used to treat 35,000 patients and has outcomes data stretching back as far as three years.

Finally, Prime is not averse to considering the T3 at some later date, should it make sense to do so. Prime's pending agreement with EDAP is a non-exclusive one. Prime uses several different makes of lithotripters currently, and the company could conceivably employ several different devices for BPH treatment.

I think it's important not to lose sight of the forest for the trees here. The trees are the various competing devices, all of which would appear to have various pluses and minuses. The forest is that effective microwave treatment of a disorder currently afflicting 6 million men in the U.S. will be increasingly available -- and demanded -- soon.

As outcomes data accumulate, more and more insurers will agree to reimburse treatment costs. Urologix, EDAP, Prime Medical, and probably other companies as well, will all benefit -- not to mention a bunch of guys in the age group of yours truly.

Today's Numbers

Stock  Change    Bid
ATLS  -  7/8   22.00
BGP   +  1/2   42.25
CSL   -  1/2   31.88
CSCO  +1 1/8   56.75
GNT   +  7/8   37.38
ORCL  +  1/8   39.63
OXHP  +2 7/8   60.38
PMSI  +  1/4   10.75
SLR   -  7/8   50.75
TDW    + 1/2   43.50
                   Day   Month    Year  History
        BORING   +0.82%   0.24%   0.22%  15.33%
        S&P:     +1.40%   1.41%   8.27%  29.02%
        NASDAQ:  +0.89%   1.53%   2.95%  27.68%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  200 Borders Gr    22.51     42.25    87.67%
  5/24/96  100 Oxford Hea    48.02     60.38    25.72%
   2/2/96  200 Green Tree    30.39     37.38    22.99%
  8/13/96  200 Carlisle C    26.32     31.88    21.08%
   3/8/96  400 Prime Medi    10.07     10.75     6.77%
  6/26/96  100 Cisco Syst    53.90     56.75     5.29%
   3/5/97  150 Atlas Air     23.06     22.00    -4.59%
 10/15/96  100 Solectron     54.52     50.75    -6.92%
 11/21/96  100 Oracle Cor    48.65     39.63   -18.55%
 12/23/96  100 Tidewater     46.52     43.50    -6.50%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  200 Borders Gr  4502.49   8450.00  $3947.51
   2/2/96  200 Green Tree  6077.49   7475.00  $1397.51
  5/24/96  100 Oxford Hea  4802.49   6037.50  $1235.01
  8/13/96  200 Carlisle C  5264.99   6375.00  $1110.01
  6/26/96  100 Cisco Syst  5389.99   5675.00   $285.01
   3/8/96  400 Prime Medi  4027.49   4300.00   $272.51
   3/5/97  150 Atlas Air   3458.74   3300.00  -$158.74
 11/21/96  100 Oracle Cor  4864.99   3962.50  -$902.49
 10/15/96  100 Solectron   5452.49   5075.00  -$377.49
 12/23/96  100 Tidewater   4652.49   4350.00  -$302.49

                             CASH   $2662.96
                            TOTAL  $57662.96