Boring Portfolio

Boring Portfolio Report
Monday, March 31, 1997
by Gary Wall (MF Osprey)

ANN ARBOR, Mich. (March 31, 1997) -- Last week, the Boring Portfolio managed to survive a Fed-inspired sell-off in the stock market, actually managing to gain a few bucks. Not so today.

The Dow, S&P 500, and Nasdaq Composite indices all dropped well in excess of two percentage points, closing near their intra-day lows. The Borefolio did that and more, losing nearly 4% in net value -- easily one of its worst days since we wheeled out this online, real-time learning laboratory in investing more than 14 months ago. All nine Boring holdings lost ground.

I suppose that's one way of getting me back into the swing of things after a week off. Yeesh.

Last week's interest rate increase by the Federal Reserve Board was already ancient history this morning, and the financial pages of the Wall Street Journal, the New York Times, My Weekly Reader, and other journals of record were already fretting about the possibility -- nay, the likelihood, according to some -- of a second shoe hitting the floor soon in the form of another rate hike.

Some gooroos were even forecasting a third hike -- or a fourth! -- later in the year. Lots of shoes hitting the floor. Entire Imelda Marcos collections of pumps, sling-backs, mules, loafers, muk-luks, and galoshes raining down on stocks.

Issues presumed to be most sensitive to fluctuations in interest rates -- stocks of banks, brokerages, financial services, and the like -- were particularly hard hit. Needless to say, GREEN TREE FINANCIAL (NYSE: GNT) felt the bite of Mr. Market's chain saw, losing $1 3/4 off its already well-pruned top.

As has been noted here before -- and as a glance at Green Tree's earnings record over the years will confirm, the company has managed to flourish in interest-rate environments a heck of lot tougher than 1997 is likely to be. Analysts expect the company's earnings to increase as much as 36% this year, to $3 per share. Yet today the stock is trading at only a bit more than 11 times those projected results.

Green Tree will post its first quarter results in about two weeks. At that time, we should get an update from the company (and, subsequently, from analysts) about how the picture is shaping up for the balance of the year.

On the technology front, the big news this morning was the pending merger of ASCEND COMMUNICATIONS (Nasdaq: ASND) and CASCADE COMMUNICATIONS (Nasdaq: CSCC), which was announced late Sunday evening. The news is, of course, significant for Borefolio holding CISCO SYSTEMS (Nasdaq: CSCO) because it offers the possibility of a large, well-positioned competitor to Cisco.

Cisco management acknowledges that Ascend got off the mark faster than Cisco did in getting the right products at the right time to the fast-growing niche market of Internet service providers. Furthermore, the combination of Ascend and Cascade could provide the kind of end-to-end solutions that only Cisco provides currently. In that regard, "Ascade" is very different from recently-announced "RoboCom" merger of 3COM (Nasdaq: COMS) and U.S. ROBOTICS (USRX) in that the latter combo still comes up short on the high end of "end-to-end," whereas Cascade's carrier-class switches appear to fill nicely a remaining hole in Ascend's higher-end offerings.

On the one hand, then, the news from Ascend and Cascade can be viewed as a threat to Cisco. On the other hand, the Ascend-Cascade move is an unambiguous endorsement of the strategy that Cisco initiated last year with its acquisition of leading switch-maker StrataCom -- namely, consolidation with a focus on providing end-to-end solutions and the latest technology.

Furthermore, Ascend and Cascade have ahead of them the task of integrating their management, workers, culture and products. If they can do that as well as Cisco did with StrataCom (along with more than a half-dozen smaller acquisitions in the past year) -- and that's no small "if" -- well, then Ascade will be only about two years back of Cisco.

In the meantime, Cisco won't be standing around waiting for Ascend and Cascade to get their act together. The trade magazines have indicated that Cisco's BFR ("Big Fast Router") and a suite of high-end router, carrier-class switch, and upgraded access server (code-named "Popeye") will all ship this year.

I'm not interested in trashing Ascend and Cascade. The networking boom -- and make no mistake, it's a prolonged, rolling-thunder kind of boom -- is not a zero-sum game. Cisco will make lots of money, and Ascend will make lots of money.

By the way, as all eyes were on Ascend and Cascade, Cisco announced today that Bell Atlantic selected Cisco's AS5200 Universal Access Server as its dial platform in the deployment of more than 64 points of presence (POPs) throughout Bell Atlantic's service region.

Shares of PRIME MEDICAL SERVICES fell $7/8 to a bid of $9 5/8 on no news. Volume was nearly a half-million shares, but more than half of that apparently came in a block transaction recorded after the market's close.

Today's drop puts PMSI below the price at which I bought it in March of 1996. Yet Prime's prospects for 1997 and beyond are, if anything, brighter than they were a year ago. The company is about to begin mobile lithotripsy services in Hawaii, its newest geographic market, and the company continues to develop its plan for offering treatment of benign prostate enlargement with the proven Prostatron technology, thus complementing its stone-busting business. Additional lithotripter acquisitions during the year are probable, as well.

(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       26.50
BGP   -1 1/8   19.00
CSL   -  3/4   29.63
CSCO  -2 3/4   48.25
GNT   -1 3/4   33.75
ORCL  -  7/8   38.50
OXHP  -2 5/8   58.50
PMSI  -  7/8   9.63
                   Day   Month    Year  History
        BORING   -3.94%  -4.63%  -4.65%   9.72%
        S&P:     -2.17%  -4.26%   2.21%  21.80%
        NASDAQ:  -2.22%  -6.67%  -5.37%  17.36%

    Rec'd   #  Security     In At       Now    Change

  2/28/96  400 Borders Gr    11.26     19.00    68.80%
  5/24/96  100 Oxford Hea    48.02     58.50    21.81%
   3/5/97  150 Atlas Air     23.06     26.50    14.93%
  8/13/96  200 Carlisle C    26.32     29.63    12.54%
   2/2/96  200 Green Tree    30.39     33.75    11.07%
   3/8/96  400 Prime Medi    10.07      9.63    -4.41%
  6/26/96  100 Cisco Syst    53.90     48.25   -10.48%
 11/21/96  100 Oracle Cor    48.65     38.50   -20.86%
 12/23/96  100 Tidewater     46.52     45.75    -1.67%

    Rec'd   #  Security     In At     Value    Change

  2/28/96  400 Borders Gr  4502.49   7600.00  $3097.51
  5/24/96  100 Oxford Hea  4802.49   5850.00  $1047.51
   2/2/96  200 Green Tree  6077.49   6750.00   $672.51
  8/13/96  200 Carlisle C  5264.99   5925.00   $660.01
   3/5/97  150 Atlas Air   3458.74   3975.00   $516.26
   3/8/96  400 Prime Medi  4027.49   3850.00  -$177.49
  6/26/96  100 Cisco Syst  5389.99   4825.00  -$564.99
 11/21/96  100 Oracle Cor  4864.99   3850.00 -$1014.99
 12/23/96  100 Tidewater   4652.49   4575.00   -$77.49

                             CASH   $7660.41
                            TOTAL  $54860.41