Boring Portfolio

Boring Portfolio Report
Thursday, August 28, 1997
by Mark Weaver, MD (MWEAV)

ANN ARBOR, Mich. (August 28, 1997) -- Am I the only one getting dizzy? The market had another wild ride today as trading curbs on the NYSE were triggered an uprecedented four times. The market ended lower with the S&P 500 off 1.1% and the Nasdaq off 0.89%. The Borefolio continues to gain on the indices but it still lost money, down 0.76% for the day.

CISCO SYSTEMS (Nasdaq: CSCO) was at the center of the technology turmoil as the stock took some of the punishment intended for ALTERA (Nasdaq: ALTR) and ASCEND COMMUNICATIONS (Nasdaq: ASND).

Altera warned of a slowdown in sales and analysts quickly revised earnings estimates downward. Since Cisco is Altera's #1 customer, "investors" implied that Cisco's sales would fall in lockstep with its supplier. Not so says Cisco, as they stated that their forecast remains unchanged and that no Cisco orders to Altera had been cancelled.

As for Ascend, Merrill Lynch changed its near term rating to "neutral" from "accumulate," but kept its long term rating of "accumulate" intact. Can you imagine what babble might be forthcoming if said analyst was asked to explain that manuever? Tonight the Fool Portfolio discussed Cisco.

Only two Borefolio stocks advanced today: CARLISLE COMPANIES (NYSE: CSL) and GREEN TREE FINANCIAL (NYSE: GNT).

Carlisle might have benefited from the news that it purchased privately held tire and wheel maker Tilden Corporation yesterday. Green Tree had no company specific news but may well have been bolstered by the nice rally in the bond market.

PRIME MEDICAL SYSTEMS (Nasdaq: PMSI) was the recipient of a very nice article in the Texas edition of the Wall Street Journal. In the "Heard in Texas" column the bullish case for Prime Medical is laid out very nicely. Regular readers of the Borefolio report will find little new there. Steady double-digit growth (masked by a change in tax rate), a potentially explosive new business opportunity (Prostatron) and a relatively undervalued stock were the themes of the piece. But, you knew all of that already.

Let me digress a bit from the events of the day. I get many e-mails asking how to find a good stock. I thought I would share some of my stock finding ideas.

First of all, I'd recommend you look right here. Greg has nine stocks in the Borefolio. All nine are winners with the smallest gain being 11.9%. Greg gives the investor a good starting point for doing their own research on the stocks he holds.

Another great place for ideas about stocks is the Fool message boards. But let's face it, there are hundreds of boards, and there isn't time to look through all of them. It may be better to visit the boards for specific stocks after you've narrowed your list down to a dozen or so likely candidates.

So where do you get that list?

One source of great ideas is the The Daily Double and the The Daily Trouble, also right here in The Motley Fool. (Yes, I know, this is shameless self-promotion)

In order to give the stocks some time to move, I looked at stocks covered in the columns up until the end of May, 1997. Through the end of that month 74 Daily Doubles were published. Even without regard to valuation -- and therefore including some stocks that had clearly gotten ahead of themselves -- this group of 74 stocks was up an average of 25.5% through the end of last week. Winners outpaced gainers by more than 2 to 1. While six of the stocks enjoyed triple digit returns only two were down more than 30%. The Daily Double is a great place to start looking for a stock.

Now how about the Daily Trouble? To qualify for this column a stock needs to be down over 50% in the prior 6-12 months. Needless to say, this group of stocks does not look good "technically." The Trouble just got started in May, so it covered only fourteen stocks through the end of that month. Those fourteen stocks were up an average of 41.5% through last week, with winners outpacing losers by more than 3 to 1. There were two triple-digit gainers and only one stock down 30%. Suffice it to say, the Daily Trouble is a great place for a contrarian to shop for stocks.

Stock screens can also generate lists of stocks worthy of further research. Last September, after reading the book What Works on Wall Street by James O'Shaughnessy, I decided to screen for his "Cornerstone Growth" stocks using Morningstar Equities on Floppy (now know as Stock Tools). This screen is based on stocks having a market capitalization greater than $150 million, a price-to-sales ratio of less than 1.5, and positive earnings growth the past 5 years.

The group of 25 stocks which came out on top early last September are up 97.7% for the ensuing year, with only two losers out of the 25 stocks. While the list was varied as to industry groups, there was a notable weighting towards semiconductor and semiconductor equipment stocks. Everyone knows now that the chip sector has been red hot. But let me assure you, last September when I looked at that list, I thought, "You've got to be kidding." Those stocks were totally out of favor at that time.

The criteria used by Mr. O'Shaughnessy tend to uncover solid companies which are reasonably priced. These stocks are typically quite Boring.

I just ran that screen again. The two groups with the largest number of stocks on the list are Business Services (EMPLOYEE SOLUTIONS (Nasdaq: ESOL), REMEDYTEMP (Nasdaq: REMX),and AUSPEX SYSTEMS (Nasdaq: ASPX)); and Electronics Products (ACT MANUFACTURING (Nasdaq: ACTM), TECHNITROL (NYSE: TNL), TECH-SYM (NYSE: TSY), LAM RESEARCH (Nasdaq:LRCX) and GENLYTE GROUP (Nasdaq: GLYT)). Employee Solutions is a former Daily Trouble stock... hmmm.

Suffice it to say, Greg and I are pouring over these and the rest of the stocks looking for a good stock for the Borefolio.

Let's hope Friday is a bit calmer...

Drip Portfolio -- $500 and $100 per month turned into $150K?
Fool Message Boards -- Speak your mind!
Evening News -- All the news, early.
Daily Double
-- More room to run?
Daily Trouble -- Value in this butchered stock?
The Fool Portfolio -- Fool Port trying to catch the S&P.
Fool Four -- 23% annualized.

(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.

Stock  Change    Bid
ATLS  -  1/8   27.50
BGP   -  3/16  23.63
CSL   + 15/16  42.69
CSCO  -115/16  75.13
GNT   +  7/16  44.00
ORCL  -2 1/16  36.31
OXHP  -1 9/16  73.06
PMSI  -  1/16  12.06
TDW   -  1/4   52.56
                  Day   Month    Year  History
        BORING   -0.76%  -2.68%  20.18%  38.30%
        S&P:     -1.10%  -5.31%  21.99%  45.37%
        NASDAQ:  -0.89%  -0.78%  22.49%  51.91%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     23.63   109.88%
  8/13/96  200 Carlisle C    26.32     42.69    62.16%
  5/24/96  100 Oxford Hea    48.02     73.06    52.13%
   2/2/96  200 Green Tree    30.39     44.00    44.80%
  6/26/96  100 Cisco Syst    53.90     75.13    39.38%
   3/8/96  400 Prime Medi    10.07     12.06    19.80%
   3/5/97  150 Atlas Air     23.06     27.50    19.26%
 12/23/96  100 Tidewater     46.52     52.56    12.98%
 11/21/96  150 Oracle Cor    32.43     36.31    11.96%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   9450.00  $4947.51
  8/13/96  200 Carlisle C  5264.99   8537.50  $3272.51
   2/2/96  200 Green Tree  6077.49   8800.00  $2722.51
  5/24/96  100 Oxford Hea  4802.49   7306.25  $2503.76
  6/26/96  100 Cisco Syst  5389.99   7512.50  $2122.51
   3/8/96  400 Prime Medi  4027.49   4825.00   $797.51
   3/5/97  150 Atlas Air   3458.74   4125.00   $666.26
 12/23/96  100 Tidewater   4652.49   5256.25   $603.76
 11/21/96  150 Oracle Cor  4864.99   5446.88   $581.89

                             CASH   $7890.00
                            TOTAL  $69149.38