Boring Portfolio

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

PHILADELPHIA, Pa. (March 20, 1997) -- Spring shined its face on the Boring Portfolio today. Seven stocks rose, while two fell -- BORDERS GROUP (NYSE: BGP) and CARLISLE (NYSE: CSL) -- for a 0.55% gain in net asset value.

That compared with a 59-point drop in the Dow, a 0.40% loss for the S&P 500, and a 0.80% gain in the Nasdaq, as bargain hunters moved in following eight successive declines in that index.

I'm observing the vernal equinox appropriately enough in the City of Brotherly Love -- and am about to head back to the airport just as the market is closing, so as I write this I don't know what results 3COM (Nasdaq: COMS) has reported for its last quarter -- nor what the likely impact of that report will be on CISCO SYSTEMS (Nasdaq: CSCO), if any. Today, though, Cisco rebounded nicely, gaining $1 1/8.

In last night's recap, I promised not to obsess about the Borefolio "tech" holdings. So let's look at a Boring stock in another sector that's been relatively weak recently after a prolonged period of strength. The sector is the financial one, and the stock is, of course, GREEN TREE FINANICAL (NYSE: GNT).

Green Tree rose $3/8 today to close at $36, but the stock is still well of its high of $42 1/2 established last October. Part of the problem has been continuing concerns about Alan and the Eyeshades: Will the Fed raise rates? The evidence is unassailable that moderate changes in interest rates do not noticeably affect the health of financial service companies -- and certainly not Green Tree. Still, the worries persist.

Beyond that, investors are increasingly concerned about consumer creditworthiness. Consumer debt has been growing steadily for at least the past year, and a number of financial service companies have recently gotten clobbered as a result of their inability to manage their consumer credit biz properly. First it was the so-called sub-prime auto lenders. More recently, the "monoline" credit card issuers -- such as ADVANTA CORP (Nasdaq: ADVNA) -- have suffered.

So the question of the day is: Where does Green Tree stand in all of this?

The answer, as best as I can determine it, is: Standing tall in the forest among the lesser scrub and brambles, thanks. That's based on information I received from the company the other day, a review of the company's recent SEC filings, and recent comments from analysts.

First, recall that Green Tree is not exactly new to the business of lending and managing credit. They've been at it for something like 21 years. Green Tree is not a high-rate lender, it's a *low* rate lender. The company has systematically developed perhaps the finest credit-rating systems in the business and has an impressive track record of keeping defaults and delinquencies low -- as low as one-third the magnitude of comparable rates among competitors -- and setting aside more than ample reserves to cushion whatever delinquencies do occur.

Unlike some of the troubled outfits, 96% of Green Tree's lending involves secured loans -- secured by manufactured homes, home equity, airplanes, trailers, recreational vehicles, pianos, and other big ticket items. Green Tree has never issued a used car loan, and its small (but growing) credit card operation is carefully linked to specific businesses, such as home improvement centers.

Green Tree is an S&P 500 company. More than that, it was just named to Business Week's top 50 S&P companies.

So far this quarter, Green Tree has offered three securitizations of its asset-backed debt: a $500 million offering of manufactured home (MH) loans, a second $550 million package of such loans, and -- just the other day -- a $250 million package of consumer loans for purchases of trailers, RVs, aircraft, sport vehicles, and pianos. According to the company, they will roll out a fourth offering -- backed by home improvement and home equity loans -- before the end of this month.

The first of this quarter's MH offerings generated the most favorable rate spread of any in the company's history, by the way.

Other financial services companies -- the monoline credit card issuers, for example -- are trying rapidly to diversify their business. Green Tree's already there. Whereas a few years ago MH loans provided virtually all of Green Tree's profits, now new business lines -- home equity and home improvement loans, in particular -- rival the original MH operation in scope.

Finally, the company is comfortable with earnings forecasts for the quarter and the full year. Based on consensus estimates of $3.00 for 1997, the stock is trading at a mere 12-times earnings -- and this for a company with earnings expected to grow by 36% this year, and by 20% or so over the long haul.

All of which is to say that I'm delighted to have Green Tree growing in the Boring garden.

(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  +  1/4   22.75
BGP   -1 1/8   39.75
CSL   -  1/8   31.38
CSCO  +1 1/8   51.00
GNT   +  3/8   36.00
ORCL  +  1/2   39.75
OXHP  +1 3/4   62.00
PMSI  +  1/2   11.00
TDW  + 2 3/4  46.38
                   Day   Month    Year  History
        BORING   +0.55%  -1.28%  -1.31%  13.57%
        S&P:     -0.40%  -1.03%   5.66%  25.90%
        NASDAQ:  +0.80%  -3.80%  -2.46%  20.97%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  200 Borders Gr    22.51     39.75    76.57%
  5/24/96  100 Oxford Hea    48.02     62.00    29.10%
  8/13/96  200 Carlisle C    26.32     31.38    19.18%
   2/2/96  200 Green Tree    30.39     36.00    18.47%
   3/8/96  400 Prime Medi    10.07     11.00     9.25%
   3/5/97  150 Atlas Air     23.06     22.75    -1.34%
  6/26/96  100 Cisco Syst    53.90     51.00    -5.38%
 11/21/96  100 Oracle Cor    48.65     39.75   -18.29%
 12/23/96  100 Tidewater     46.52     46.38    -0.32%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  200 Borders Gr  4502.49   7950.00  $3447.51
  5/24/96  100 Oxford Hea  4802.49   6200.00  $1397.51
   2/2/96  200 Green Tree  6077.49   7200.00  $1122.51
  8/13/96  200 Carlisle C  5264.99   6275.00  $1010.01
   3/8/96  400 Prime Medi  4027.49   4400.00   $372.51
   3/5/97  150 Atlas Air   3458.74   3412.50   -$46.24
  6/26/96  100 Cisco Syst  5389.99   5100.00  -$289.99
 11/21/96  100 Oracle Cor  4864.99   3975.00  -$889.99
 12/23/96  100 Tidewater   4652.49   4637.50   -$14.99

                             CASH   $7635.47
                            TOTAL  $56785.47