Boring Portfolio

Boring Portfolio Report
Thursday, March 6, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich. (March 6, 1997) -- The Boring Portfolio lost less percentage-wise than the S&P 500 or "technology-laden" (who invented that phrase?) Nasdaq did.

Four-letter stocks in the Borefolio got clobbered today -- with the notable exception of PRIME MEDICAL SERVICES (Nasdaq: PMSI) -- while their three-lettered mates did just dandy, technology-laden SOLECTRON (NYSE: SLR) being the anomaly there.

I'm pleased to report that ATLAS AIR (Nasdaq: ATLS) descended $1 3/4 today, following the addition of the stock to the Borefolio yesterday. Trading volume topped one million shares.

I'm pleased because this suggests that the message is being communicated successfully to relative newbies to The Motley Fool that the purpose of "buy" and "sell" reviews in the Borefolio and Foolfolio are expressly not to invite mindless "do as I do" investing. They are intended as concrete examples -- always open for critical comment -- of how to do your own homework on stocks -- and the companies behind them.

We don't offer stock tips. We don't make recommendations, as one investment firm did yesterday when it cut a certain semiconductor stock from "aggressive buy" to "aggressive accumulate(??)" and sent the stock tumbling. What we offer is information and opinion, and we try to do that in a way that is interesting, enjoyable ... and, most of all, collaborative.

The Motley Fool is a learning community -- an overused phrase, to be sure, but an accurate one in this case. The stock folders at The Motley Fool's site on AOL exist for all of us to pool our insights, ideas, questions, and answers. Our real-time chat rooms serve the same purpose. That approach is fundamentally different from the one-way "Me write, you read" paradigm that has dominated publishing, journalism, and education from the time of Gutenberg.

As a teacher for over 25 years, I find this all very exciting -- even on bummer days for the Borefolio like today.

"That's cool," you may be thinking. "But can we, like, get back to the stocks? Why did Atlas hit an air pocket today?"

Dunno. It may simply have been some fast flipping by folks who bought the stock in the high teens a few days ago. Or it may have had something to do with the fact that Atlas was mentioned today in the New York Times in a list of hot-stocks-gone-cold that also included Jayhawk Acceptance and Chicago Miniature Lamp, among others.

Whatever. Assuming Atlas executes its plan over the remainder of 1997, the stock could certainly see $34 this year (based on projected EPS of $2.28 and a conservative multiple of 15). I'd be delighted if it reached that altitude gradually over the coming months rather than in one face-smooshing climb.

In contrast to the appropriately subdued reception that greeted the Borefolio's purchase of Atlas Air, traders fell all over themselves to unload shares of the world's second-largest software company after an analyst at UBS Securities cut his firm's rating on ORACLE (Nasdaq: ORCL) from "strong buy" all the way to "hold."

The analyst simultaneously trimmed his earnings projections by a nickel (to $1.25) for Oracle's current fiscal year, which ends in May, and by 12 cents (to $1.58) for the coming fiscal year.

"UBS said Oracle could post lackluster growth in the fiscal third quarter because of ongoing troubles in Europe and no assurance of an upturn in the U.S.," according to a story on the Dow Jones wires. A story on Bloomberg cites an analyst at Paine Webber as agreeing that Oracle's earnings growth this year will probably be around 33%, below last year's 42% rise.

Wait a minute. This is not news. The consensus estimate of Oracle's FY97 earnings has been in the $1.25 to $1.30 range for at least the past three months. Everyone's known about the "troubles" in Europe since Oracle discussed them in last quarter's conference call.

According to the UBS guy's own numbers, he expects Oracle's EPS to grow 32% this year. The Paine Webber analyst's statement is consistent with that. Since when was 32% annual growth "lackluster"?

"Yeah, but the UBS guy's forecast of earnings growth next year is only 26%," I hear someone say.

True enough. But have you checked what, say, Microsoft's projected growth is for FY98? Answer: 16%.

I called Oracle this afternoon to find out what they had to say. I wasn't able to get through to the head of investor relations, but one of her assistants said that she had been told that the UBS analyst had not actively covered Oracle in the past year and had not spoken with management at the company in some time. She added that he was probably trimming his 1997 numbers to bring them into line with those of other analysts. (I note that an estimate of $1.30 -- i.e., UBS's former number -- is the highest estimate currently listed in First Call.)

That's all she could say, since the company is in the legally imposed "quiet period" prior to the release of quarterly results on March 13. Amazing how analysts seem to wait until the quiet period begins to hammer a stock, isn't it?

Now that I've complained about an analyst's treatment of one Borefolio stock, I suppose I should say something nice about an analyst who brightened the day for shareholders of  BORDERS GROUP (NYSE: BGP). Merrill Lynch today raised its intermediate term rating on the stock to "buy," and reiterated its long-term "buy."

Earlier in the week, the investment firm of Alex. Brown removed Borders from its "focus list," whatever that means. According to First Call, Borders is slated to report fourth quarter results early next week.

The results won't be much of a surprise, since Borders has already stated that they expect to report earnings of between $1.38 and $1.40 per share for the year. We might get some updates on plans for 1997, however. The company's current guidance is for EPS in the neighborhood of $1.80, which at today's prices puts the stock at around 23 times projected earnings. That's not bad, considering EPS is projected to grow around 30% this year and 25% or so longer term.

Finally tonight, GREEN TREE FINANCIAL (NYSE: GNT) added $5/8 to the $7/8 it gained Wednesday, despite a weaker bond market.

Speaking of bond markets, tomorrow morning brings the release of the government's report on February nonfarm payrolls. Market reactions to these stats have been known to add a bit excitement to our Fridays.

(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
ATLS  -1 3/4   20.25
BGP   +1 5/8   43.88
CSL   ---      31.88
CSCO  -2 1/4   54.50
GNT   +  5/8   38.00
ORCL  -3 1/8   36.50
OXHP  -1       59.38
PMSI  +  3/4   11.50
SLR   -1 5/8   49.13
TDW   +1       44.50
                   Day   Month    Year  History
        BORING   -0.37%  -0.13%  -0.15%  14.90%
        S&P:     -0.42%   0.98%   7.81%  28.47%
        NASDAQ:  -1.03%   0.49%   1.89%  26.37%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  200 Borders Gr    22.51     43.88    94.89%
   2/2/96  200 Green Tree    30.39     38.00    25.05%
  5/24/96  100 Oxford Hea    48.02     59.38    23.63%
  8/13/96  200 Carlisle C    26.32     31.88    21.08%
   3/8/96  400 Prime Medi    10.07     11.50    14.22%
  6/26/96  100 Cisco Syst    53.90     54.50     1.11%
 10/15/96  100 Solectron     54.52     49.13    -9.90%
   3/5/97  150 Atlas Air     23.06     20.25   -12.18%
 11/21/96  100 Oracle Cor    48.65     36.50   -24.97%
 12/23/96  100 Tidewater     46.52     44.50    -4.35%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  200 Borders Gr  4502.49   8775.00  $4272.51
   2/2/96  200 Green Tree  6077.49   7600.00  $1522.51
  5/24/96  100 Oxford Hea  4802.49   5937.50  $1135.01
  8/13/96  200 Carlisle C  5264.99   6375.00  $1110.01
   3/8/96  400 Prime Medi  4027.49   4600.00   $572.51
  6/26/96  100 Cisco Syst  5389.99   5450.00    $60.01
   3/5/97  150 Atlas Air   3458.74   3037.50  -$421.24
 11/21/96  100 Oracle Cor  4864.99   3650.00 -$1214.99
 10/15/96  100 Solectron   5452.49   4912.50  -$539.99
 12/23/96  100 Tidewater   4652.49   4450.00  -$202.49

                             CASH   $2662.96
                            TOTAL  $57450.46