Boring Portfolio

Boring Portfolio Report
Tuesday, October 14, 1997
by Greg Markus (TMF

ANN ARBOR, Mich. (Oct. 14, 1997) -- Major market indices closed mixed in skittish trading ahead of the much-anticipated quarterly earnings report from technology bellwether INTEL (Nasdaq: INTC). The S&P 500 gained 0.23%, but the Nasdaq fell 0.54%. The Boring Portfolio's performance was somewhere in between. It fell 0.45%, with losing holdings outnumbering gainers six to three.

CARLISLE COMPANIES (NYSE: CSL) rose $7/8 to close at a record high of $47 5/8. For its part, GREEN TREE FINANCIAL (NYSE: GNT) grew $11/16 to close at $49 13/16, a 'teenth below its all-time closing high. Both companies report their third quarter results tomorrow morning. According to First Call, analysts are looking earnings of $0.60 per share for Carlisle and $0.83 for Green Tree. The Motley Fool will be covering both follow-up conference calls.

OXFORD HEALTH PLANS (Nasdaq: OXHP) dipped $1 7/8 on the bid. Up, down, up, down. There's no extra charge for all this excitement when you ride the Ox, folks. Crude oil prices continued to ease Tuesday after an extended runup. That sent most oil-related issues lower, including our entry, TIDEWATER (NYSE: TDW), which receded $3/16.

ORACLE (Nasdaq: ORCL) also numbered among today's loser's, falling $3/8. As of today, the Borefolio has but a 10.8% return to show on the money it invested 11 months ago in the second-largest software company in the world. I certainly had greater expectations than that when I made the investment, and I suspect there were few if any folks at the time who would have thought Oracle would have had a hard time merely matching the broader market.

In that stretch of time, Oracle has failed to keep pace with such peer stocks as MICROSOFT (Nasdaq: MSFT), COMPUTER ASSOCIATES (NYSE: CA), BMC SOFTWARE (Nasdaq: BMCS), BAAN (Nasdaq: BAANF) or COMPUWARE (Nasdaq: CPWR). On the other hand, it has outperformed a number of other large-cap software issues, such as PEOPLESOFT (Nasdaq: PSFT) and PARAMETRIC TECHNOLOGY (Nasdaq: PMTC). Until very recently, Oracle was also beating ADOBE (Nasdaq: ADBE) handily, until the 'Dobe mounted an impressive sprint to catch Oracle.

So much for looking backwards. More important is what the likely prospects are from here. Surveying the leading software companies, analysts expect a few of them to grow per-share earnings more rapidly than Oracle over the near-term (Compuware, Autodesk) or the longer-term (Baan, Peoplesoft). Comparing each stock's price-earnings ratio based on calendar -year 1998 estimated EPS to its near-term and long-term expected rate of EPS growth-that is, variations of the oft-used "PEG" ratio-it appears that expectations for above-average growth are fully priced into the stocks, however.

To take an extreme case, Microsoft currently trades at nearly 40-times projected 1998 earnings per share. Yet Bill's company is projected to grow earnings in the low 20%-range from here on out. Of course, Microsoft merits some premium for the demonstrated consistency of its earnings stream, as well as for the billions in cash sitting in 'softy's bank account. But even the company's executive's have said they think the stock looks awfully expensive at its current altitude.

Although not nearly as extreme, CA, BMCS, and BAANF also appear to be quite expensive on a PEG basis-perhaps by as much as 30% or so. So even if a company is expected to increase its earnings by 30%, if the stock is already 30% overpriced, that doesn't leave a lot of room for near-term price appreciation.

Oracle, in contrast, comes off as fairly priced and perhaps even a bit of a bargain. Based on projected earnings of $1.22 per share for calendar 1998, the stock is trading at 29.5-times forward earnings. With expected EPS expected to grow by 30% per annum over both the near and longer-term, ORCL is no raging bargain, but neither is it overpriced. So are there any real bargains out there? Well, the PEG-o-meter points to Parametric Tech as one possibility. The company is waging a battle against competitors offering lower-priced software for computer-aided design, and the stock displays some of the resulting battle scars. So PMTC could merit closer study.

Another one to consider is Adobe. Despite its strong recent run-up, ADBE trades at only 20.3-times forward earnings-a bit below the company's projected growth rate over the next year or so and in line with longer term growth forecasts. By no stretch of the imagination are we in any rush to boot Oracle out of the Borefolio. But should the stock continue to underperform, you can be sure we'll get a replacement warming up in the bull-pen. It might be one of the gorillas mentioned here, or it might be some smaller prospect with the talent to become one of the next generation of big guys.

Drip Portfolio -- Randy on finding value.
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Fool Four -- 23% annualized, historically

Stock  Change    Bid
ATLS  +  1/16  27.06
BGP   -  1/4   26.94
CSL   +  7/8   47.63
CSCO  -  3/4   80.94
GNT   +  11/16 49.81
ORCL  -  3/8   35.94
OXHP  -1 7/8   74.00
PMSI  -  9/16  13.88
TDW   -  3/16  64.38
                   Day   Month    Year  History
        BORING   -0.45%   2.89%  30.74%  50.44%
        S&P:     +0.23%   2.43%  30.99%  56.09%
        NASDAQ:  -0.54%   2.80%  34.22%  66.46%

     Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     26.94   139.31%
  8/13/96  200 Carlisle C    26.32     47.63    80.91%
   2/2/96  200 Green Tree    30.39     49.81    63.92%
  5/24/96  100 Oxford Hea    48.02     74.00    54.09%
  6/26/96  100 Cisco Syst    53.90     80.94    50.16%
 12/23/96  100 Tidewater     46.52     64.38    38.37%
   3/8/96  400 Prime Medi    10.07     13.88    37.80%
   3/5/97  150 Atlas Air     23.06     27.06    17.37%
 11/21/96  150 Oracle Cor    32.43     35.94    10.80%

     Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49  10775.00  $6272.51
  8/13/96  200 Carlisle C  5264.99   9525.00  $4260.01
   2/2/96  200 Green Tree  6077.49   9962.50  $3885.01
  6/26/96  100 Cisco Syst  5389.99   8093.75  $2703.76
  5/24/96  100 Oxford Hea  4802.49   7400.00  $2597.51
 12/23/96  100 Tidewater   4652.49   6437.50  $1785.01
   3/8/96  400 Prime Medi  4027.49   5550.00  $1522.51
   3/5/97  150 Atlas Air   3458.74   4059.38   $600.64
 11/21/96  150 Oracle Cor  4864.99   5390.63   $525.64

                             CASH   $8028.59
                            TOTAL  $75222.34