Boring Portfolio

Boring Portfolio Report
Monday, January 5, 1998
by Greg Markus (TMFBoring@aol.com)


ANN ARBOR, Mich. (Jan. 5, 1998) -- The Boring Portfolio managed to post a small gain today despite a $3 5/16 dive in shares of marine services leader Tidewater (NYSE: TDW), to $50 3/16. Offsetting that loss were fractional gains in five of the other seven holdings.

Pretty much any stock connected with the oil and gas industry fell sharply today as the spot price on crude oil slipped below the $17 mark. Industry analysts attribute the decline to everything from concerns about weakening Asian demand to the possibility of increased Iraqi sales to unseasonably warm weather in the northern U.S. (It approached 50 degrees here in Michigan today, and regular gas is under a buck a gallon at some stations -- cheaper than the bottled water selling inside).

Tidewater faced the added pressure of having been named as a prime "short" candidate by Prudential's Ralph Acampora on "Wall Street Week" Friday.

Acampora is Pru's chief technician, so I can't tell you whether he can knows a supply boat from a surfboard. One person who does, however, is a fella by the name of Bill, who posts regularly under the screenname of "Gapped Up" in the Oil & Gas Industry area within The Motley Fool's site on AOL.

Bill (who, citing company policy, declined to give his full name) described himself to me as a geophysicist with a large oil service company in Houston and an 18-year industry veteran. He posted a note recently to say that his company "has chartered vessels from Tidewater and others, and I can tell you most assuredly that vessel day rates continue to rise, although the rate of acceleration has slowed from the explosive rate increases of the last two years."

"This is not news to anyone familiar with the industry," he added.

Bill concluded, "I am not a shareholder in Tidewater, and I don't care whether people buy or sell the stock. But I do want people to understand the facts, and I hope they do not blindly follow the supposed wisdom of so-called analysts."

Should energy prices continue to tumble, it would almost certainly lead to some reduction in oil and gas exploration and production, and that would in turn cut into Tidewater's profits. No one of whom I'm aware has provided any evidence to indicate that we're anywhere near that point yet, however. So we watch and wait -- especially as quarterly earnings reports begin rolling in imminently.

On to other stuff. In Friday's recap, I offered a few thoughts about our expectations for the coming year regarding the first three stocks (alphabetically) inhabiting the Borefolio. I continue that theme tonight by turning to our clean-up batter, Cisco Systems (Nasdaq: CSCO).

Pundits at places like Dell'Oro, Dataquest, and the Yankee Group are projecting that 1998 could be a good year for the networking industry. Consensus forecasts are that industrywide growth this year will be perhaps 5 to 7 percentage points above 1997's sub-par 16% growth rate. Certain key segments of the market -- such as LAN switching and ATM WAN switching -- are expected to grow at a far faster clip, closer to 45% or so.

Happily for Cisco shareholders, these are segments in which the Kid has leadership positions. Cisco's recent acquisitions and product releases should also help it compete strongly in the higher end of the remote access segment.

In a Dow Jones wire story today, analysts said that key drivers of networking business in 1998 include continuing "explosive" growth in the Internet, a pick-up of sales in Europe, and the trend for businesses to use the Web not only for communication but also for commerce.

Some of these analysts are, of course, the same folks who were urging you to sell Cisco last spring at precisely the time that you'd have profited handsomely by buying instead, but no matter.

What I've not yet seen analysts say much about yet is that Cisco stands to benefit not only because of favorable industry trends and its strong product line but also because it is quietly rolling out some attractive ways for businesses to lease equipment from Cisco at attractive terms and with minimal hassle. Heck, it's possible to do the deal right over the Web.

Talking about stuff like equipment leasing is deadly dull, but folks at places like GE Capital or GMAC will tell you that it's the dull stuff like this that can make the difference between a company that brings in the bucks and one that has great stuff but doesn't move it out the door.

According to First Call, the consensus forecast is that Cisco will earn $1.74 per share for the fiscal year ending in July, and perhaps $1.95 or so for calendar year 1998. Should Cisco achieve those numbers, it would represent annual earnings growth in the high 20% range.

At its current price of just under $58, CSCO is selling at 33x projected EPS for FY98 and just under 30x projected EPS for calendar '98.

There's no way I can call that cheap. On the other hand, it's perhaps not an outrageous multiple for the leading company in the fastest growing industry on earth.


TODAY'S NUMBERS
Stock  Change    Bid 
 CGO   +  3/8   24.63 
 BGP   +  5/16  30.88 
 CSL   +  7/16  43.06 
 CSCO  -  1/4   57.88 
 FCH   +  5/16  36.06 
 GNT   +  7/16  27.81 
 PMSI  -  1/16  13.31 
 TDW   -3 5/16  50.19 
 
                   Day   Month    Year  History 
         BORING   +0.04%  -0.05%  -0.05%  25.77% 
         S&P:     +0.21%   0.69%   0.69%  57.18% 
         NASDAQ:  +0.80%   1.51%   1.51%  53.14% 
  
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     30.88   174.29% 
   8/13/96  200 Carlisle C    26.32     43.06    63.58% 
   6/26/96  150 Cisco Syst    35.93     57.88    61.06% 
    3/8/96  400 Prime Medi    10.07     13.31    32.22% 
  12/23/96  100 Tidewater     46.52     50.19     7.87% 
    3/5/97  150 Atlas Air     23.06     24.63     6.79% 
   11/6/97  200 FelCor Sui    37.59     36.06    -4.06% 
    2/2/96  200 Green Tree    30.39     27.81    -8.47% 
  
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  12350.00  $7847.51 
   8/13/96  200 Carlisle C  5264.99   8612.50  $3347.51 
   6/26/96  150 Cisco Syst  5389.99   8681.25  $3291.26 
    3/8/96  400 Prime Medi  4027.49   5325.00  $1297.51 
  12/23/96  100 Tidewater   4652.49   5018.75   $366.26 
    3/5/97  150 Atlas Air   3458.74   3693.75   $235.01 
   11/6/97  200 FelCor Sui  7518.00   7212.50  -$305.50 
    2/2/96  200 Green Tree  6077.49   5562.50  -$514.99 
  
                              CASH   $6427.47 
                             TOTAL  $62883.72