Boring Portfolio

Boring Portfolio Report
Thursday, November 21, 1997
by Greg Markus (TMF Boring@aol.com)


Denver, Colo. (Nov. 21, 1997) -- The Boring Portfolio posted a solid gain of 1.22% on a double-witching Friday that saw the S&P 500 rise 0.43%% and the Nasdaq fall 0.36%.

Green Tree Financial (NYSE: GNT) grew $2 3/8 in very heavy trading, recovering somewhat from the chopping it suffered after warning a week ago of a writedown in the value of some manufactured home loans the company made in 1994 and 1995. Green Tree's pruning is the subject of an article in the current issue of Business Week.

Morgan Stanley reiterated its "strong buy" on Green Tree and maintained its 1998 EPS estimate of $3.75. The analyst emphasizd the Tree's competitive advantages, supported by its business model and powerful distribution network.

Borders Group (NYSE: BGP) gained $13/16 to establish a new high of $30 1/16 after reporting solid quarterly earnings on Monday. A summary of Borders's follow-up conference is provided in The Motley Fool's Conference Call section.

Cisco Systems (Nasdaq: CSCO) eased $3/8 in moderate trading. The stock remains just under its all-time high, however.

Earlier this week, Cisco president and CEO John Chambers delivered a keynote address at Comdex in Las Vegas. This was the first time that Cisco had presented such a high profile at the huge consumer electronics trade show. It signifies the company's intention to raise its brand awareness and communicate the benefits of Cisco as an end-to-end networking supplier to businesses large and small.

In his Comdex pitch, Chambers reiterated a number of themes I heard him air at Cisco's annual shareholders' meeting the week before.

First, Chambers is driving home the message (to anyone who hasn't been clued in yet) that the Internet Revolution is on a par with the Industrial Revolution of the 19th Century in terms of its impact of all aspects of human society.

As Chambers said, "The Internet will change the way we work, play, live, and learn." To illustrate that point, he offered examples ranging from the rise of virtual companies such as Amazon.com (Nasdaq: AMZN) to way his son uses email to communicate with kids on the soccer team he coaches.

Cisco is itself an exemplar of the value of the Internet to businesses. Chambers said that nearly 40% of its product sales occur through its Cisco Connection Online Website, thereby saving $270 million a year in staff, software distribution, and paperwork costs.

At the shareholders' meeting, Chambers also reviewed the goals Cisco had set two years ago, and the goals they had established for the coming year.

Two years ago, he said, Cisco aimed to become the #1 market leader in LAN switching -- even though it had no presence in that market at the time. Six months later, the company had a 34% market share, and it currently has a 50% share, said Chambers.

Also in fiscal 1995, Cisco set the goals of achieving a worldwide customer satisfaction level of 4.1 (on a 5-point scale), implementing company-wide Enterprise Resource Planning tools within one year (rather than the three years it takes most companies), reorganizing Cisco's divisions in terms of categories of customers rather than along lines of particular products, achieving a 5% productivity improvement, and increasing its market share in Japan to 50%.

The company accomplished all of those goals, often in less time than had been budgeted. In doing so, Cisco moved from being a "routers only" company to becoming the #1 or #2 market leader in 12 of 15 major product areas in networking.

The three areas where the Kid has not yet attained such leadership are token ring, network management, and dial access. As for the last category, Cisco is rapidly taking share from Ascend (Nasdaq: ASND) and 3Com (Nasdaq: COMS), with bookings increasing more than 25% quarter over quarter.

As for the coming year, Cisco's major initiatives include: extending its leadership as a single end-to-end vendor for networking, focusing on data/voice/video network integration, extending its strategic partnerships to include perhaps 8 to 10 major partners, upping its customer satisfaction rating to 4.15, and establishing Cisco IOS as the de facto standard internetwork operating system.

Chambers cautions that none of this comes easily. Establishing meaningful strategic partnerships with key companies -- such as a Lucent (NYSE: LU) or a Northern Telecom (NYSE: NT), for example -- is no small feat. Sluggish economies in Asia and other parts of the world present their own special challenges.

If Chambers insists that Cisco maintains a constant state of "paranoia" about such challenges, it is also true that he can't help letting the level of paranoia slip a notch or two on occasion. At Comdex, for example, Chambers observed that electronic commerce is growing at such a speed that Cisco could see revenues of $15 billion to $20 billion by the year 2000.

Cisco's revenues were $6.5 billion in fiscal 1997. So Chambers is in effect raising the possibility of 40% compound annual growth in revenues over the next three years. That's smack in the middle of the "30% to 50% annual revenue growth projected by industry pundits" mantra that Ciscophiles have heard Chambers repeat so many times that they can repeat it in their sleep.

After the shareholders' meeting concluded, Chambers stuck around at the front of the room for a good 20 minutes, saying hello and answering questions. Yours truly got to extend greetings to him from The Motley Fool and later visit the corporate offices with Cisco's Director of Investor Relations, Mary Thurber.

The tour ended with a half-hour conversation with Mary about her history at Cisco, the company's philosophy about investor relations, and what she saw as the most exciting opportunities for the Kid in the coming year. Our conversation took place in CFO Carter's conference room -- which was slightly smaller and even more modestly furnished than the conference room at Fool HQ.

I'll save that story for next week. As it is, I've got to hurry out to DIA and catch a plane back home... where in less than 24 hours the Wolverines will demonstrate the finer points of football to a team aptly named after a nut.


TODAY'S NUMBERS
Stock  Change    Bid
CGO   -  1/8   27.00
BGP   +  13/16 30.06
CSL   +  1/4   43.00
CSCO  -  3/8   85.06
FCH   +  5/16  37.19
GNT   +2 1/4   33.50
ORCL  -  3/16  34.94
PMSI  +  1/16  13.31
TDW   -  3/16  60.75
                   Day   Month    Year  History
        BORING   +1.22%  -0.86%  16.41%  33.96%
        S&P:     +0.43%   5.30%  30.02%  54.93%
        NASDAQ:  -0.36%   1.70%  25.54%  55.70%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     30.06   167.07%
  8/13/96  200 Carlisle C    26.32     43.00    63.34%
  6/26/96  100 Cisco Syst    53.90     85.06    57.82%
   3/8/96  400 Prime Medi    10.07     13.31    32.22%
 12/23/96  100 Tidewater     46.52     60.75    30.58%
   3/5/97  150 Atlas Air     23.06     27.00    17.09%
   2/2/96  200 Green Tree    30.39     33.50    10.24%
 11/21/96  150 Oracle Cor    32.43     34.94     7.72%
  11/6/97  200 FelCor Sui    37.59     37.19    -1.07%

    Rec'd   #  Security     In At     Value    Change
 2/28/96  400 Borders Gr  4502.49  12025.00  $7522.51
  8/13/96  200 Carlisle C  5264.99   8600.00  $3335.01
  6/26/96  100 Cisco Syst  5389.99   8506.25  $3116.26
 12/23/96  100 Tidewater   4652.49   6075.00  $1422.51
   3/8/96  400 Prime Medi  4027.49   5325.00  $1297.51
   2/2/96  200 Green Tree  6077.49   6700.00   $622.51
   3/5/97  150 Atlas Air   3458.74   4050.00   $591.26
 11/21/96  150 Oracle Cor  4864.99   5240.63   $375.64
  11/6/97  200 FelCor Sui  7518.00   7437.50   -$80.50

                             CASH   $3021.10
                            TOTAL  $66980.48


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