Boring Portfolio

Boring Portfolio Report
Friday, March 21, 1997
by Greg Markus (MF Boring)

ANN ARBOR, Mich. (March 21, 1997) -- Tough day -- and week, and month -- for stocks. Options expiration games on Friday probably contributed to late-day selling of technology issues following a fairly upbeat beginning for the Nasdaq. The Naz lost 0.40% on the session and a more than 3% for the week. The S&P 500 managed a small gain on Friday but was also off for the week, by 1.14%.

By comparison, the Boring Portfolio gained 0.47% Friday, as five holdings rose and four declined. Despite the gain, the Borefolio was off 0.98% for the week.

The Nasdaq's early "up-beatness" Friday stemmed from a decent (under the circumstances) earnings report from Foolfolio holding 3COM (Nasdaq: COMS) and an emphatic endorsement by 3Com executives of the "30 to 50 percent annual growth in sales through the end of the century" projection that networking industry research firms offer.

CISCO SYSTEMS (Nasdaq: CSCO) moved sharply higher in the immediate wake of the 3Com news but ended Friday's session below the $50 mark and off $1 7/8 (bid side).

Cisco's investor relations office replied today to questions I had about comments Cisco's CEO John Chambers made the other day at a networking industry conference in Virginia. The company says (and I believe them, after reviewing my tape of the Cisco post-earnings conference call from last month) that all Chambers did was reiterate in Virginia information that was passed on during Cisco's conference call.

At that point in time, according to the IR office, Cisco management expressed caution about Q3 FY97 for three key reasons:

1. It is historically the company's most challenging quarter.

2. Japan's economy is weak and there are also pockets of weakness in Europe, including France, Italy and Germany. European business in other countries, however, continues to be good, especially in the U.K. and the Nordic countries.

3. Finally, Chambers said that the Internet access provider space is currently characterized by erratic spending. Some large outfits, such as MCI and Sprint, continue to buy well. The Baby Bells are somewhat erratic in their spending. And the Internet service provider's continue to purchase but are taking longer looks as they try to figure out how to build a profitable business.

That said, Cisco continues to be "very optimistic" about the Internet access businesses and feels that they are going to be the ones building the large networking infrastructures of the future. Furthermore, as 3Com's Eric Benhamou said last night, Cisco continues to endorse the 30-50% annual growth rate forecast by industry pundits.

Yesterday, Wheat First Butcher Singer initiated coverage of Cisco with a "buy" rating, a contact at the firm said. Wheat First estimates Cisco will earn $2.05 a share for fiscal 1997 ending July and offers a price target of $68. That price target works out to 33 times Wheat First's FY97 estimate, which sounds plausible to me. Also, that EPS estimate is toward the low end of the current range, so it's hardly irrationally exuberant.

While we're on the "tech" holdings, ORACLE CORP (Nasdaq: ORCL) issued a press release Friday to say that INFORMIX (Nasdaq: IFMX) had "downgraded" its lawsuit against Oracle, dropping claims that former Informix employees had breached their confidentiality agreements with the company when they left to join Oracle. Informix also dropped its request that the court prohibit the individuals from working at Oracle. Oracle said that this follows a ruling by the court that Informix had not sufficiently specified the trade secrets at issue in the case to allow for relief of any kind.

In Thursday's recap, I focused on GREEN TREE FINANCIAL (NYSE: GNT), spelling out my case for why the stock is substantially undervalued. This morning, Lehman Brothers analyst Thomas Facciola started coverage of Green Tree with an "outperform" rating. By comparison, other big names in financial services, such as AMERICAN EXPRESS (NYSE: AXP), BENEFICIAL (NYSE: BNL), HOUSEHOLD INTERNATIONAL (NYSE: HI), and MONEY STORE (Nasdaq: MONE), merely garnered "neutral" ratings.

This ratings-game stuff is fairly superficial, and I personally don't regard it as particularly important in the scheme of things. I thought the analyst's rating of Green Tree relative to its peers was telling, though. (Of course, if he had rated them the other way, I'd probably be ripping him in six different directions now, so take what you read here with a critical eye, of course.)

Speaking of the ratings game, Jefferies analyst Byron Dunn upgraded his rating on TIDEWATER INC. (NYSE:TDW) from "hold" to "accumulate." The stock gained $1/8 Friday, following a rise of more than $2 the day before.

The reaction is to news that Tidewater has signed an agreement to acquire Ocean Group PLC's O.I.L. unit and its related international marine-operating companies in a deal valued at $525 million. The acquisition is expected to be completed in late April and will be accounted for as a purchase, financed under Tidewater's $600 million credit facility.

O.I.L. owns a fleet of about 100 vessels, mostly platform-supply and towing-supply vessels. That will complement nicely Tidewater's existing fleet of approximately 650 vessels. Tidewater Chairman William O'Malley said in a conference call Thursday that he expects the acquisition to add two cents a share to earnings in the first year. O'Malley also said he expects international day rates to rise over the next three years, to come into line with higher U.S. day rates.

Finally, Alex. Brown analyst Will Wrightson initiated coverage of ATLAS AIR (Nasdaq: ATLS) with a "buy" on Friday -- details not available. The stock leaped $1 7/8 in response. Earlier this week, Atlas said it had extended two current contracts with China Airlines -- the combined value of which is approximately $150 million. One existing five-year contract has been extended from April 1998 to October 2001, and another existing three-year contract has been extended from March 1998 to February 2001, with an option to extend to 2003.

Well, almost finally. Finally-finally, your humble Borefolio manager will be taking the next week off. No phones, no stocks, no nothin' but the undersea life and me. Alan Greenspan will just have to make his decision about raising interest rates without me.

The Borefolio will be in excellent hands while I'm away. Gary Wall, MF Osprey will be handling chores on Tuesday and Thursday, while Fool HQ recaps the Borefolio on Monday and Wednesday. What about Friday, you ask? Friday, the market is closed. And about time, too, in my opinion.

See you in a week!

(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 7/8   24.63
BGP   +  1/4   40.00
CSL   -  3/8   31.00
CSCO  -1 7/8   49.13
GNT   +1 3/8   37.38
ORCL  +  1/8   39.88
OXHP  -  1/2   61.50
PMSI  -  1/8   10.88
TDW    + 1/8  46 1/2
                   Day   Month    Year  History
        BORING   +0.47%  -0.82%  -0.84%  14.11%
        S&P:     +0.19%  -0.85%   5.85%  26.14%
        NASDAQ:  -0.41%  -4.20%  -2.86%  20.47%

     Rec'd   #  Security     In At       Now    Change
  2/28/96  200 Borders Gr    22.51     40.00    77.68%
  5/24/96  100 Oxford Hea    48.02     61.50    28.06%
   2/2/96  200 Green Tree    30.39     37.38    22.99%
  8/13/96  200 Carlisle C    26.32     31.00    17.76%
   3/8/96  400 Prime Medi    10.07     10.88     8.01%
   3/5/97  150 Atlas Air     23.06     24.63     6.79%
  6/26/96  100 Cisco Syst    53.90     49.13    -8.86%
 11/21/96  100 Oracle Cor    48.65     39.88   -18.04%
 12/23/96  100 Tidewater     46.52     46.50    -0.05%

     Rec'd   #  Security     In At     Value    Change
  2/28/96  200 Borders Gr  4502.49   8000.00  $3497.51
   2/2/96  200 Green Tree  6077.49   7475.00  $1397.51
  5/24/96  100 Oxford Hea  4802.49   6150.00  $1347.51
  8/13/96  200 Carlisle C  5264.99   6200.00   $935.01
   3/8/96  400 Prime Medi  4027.49   4350.00   $322.51
   3/5/97  150 Atlas Air   3458.74   3693.75   $235.01
  6/26/96  100 Cisco Syst  5389.99   4912.50  -$477.49
 11/21/96  100 Oracle Cor  4864.99   3987.50  -$877.49
 12/23/96  100 Tidewater   4652.49   4650.00    -$2.49

                             CASH   $7635.47
                            TOTAL  $57054.22