Boring Portfolio

Boring Portfolio Report
Thursday, February 12, 1998
by Mark Weaver, MD (MWEAV@aol.com)


St. Louis, MO (Feb. 12, 1998) -- Stocks moved lower out of the gates this morning on renewed weakness in Asian markets. However, stocks moved sharply higher at the close on positive remarks by Secretary Rubin. It was yet another record setting day on the street with the S&P 500 rising 0.4% and the Nasdaq rising 0.34%.

The under-invested Borefolio did not participate in the celebration with only two of six stocks climbing. Not a single stock moved more than a point in either direction. For the day the portfolio was clipped for a 0.22% loss.

Holding a large cash position in an up market is painful, but hasty buy decisions can really hurt. And let's face it folks, it's tough to find great value, especially lately.

Arguably the best investor of the past 50 years, Warren Buffett, has been buying at these levels...buying silver that is! If you stopped to look at the relative strength charts last month, precious metals were floundering near the bottom of the heap. Mr. Buffett might be making a market commentary don't you think?

How hard is it to find stocks that are reasonably priced you ask? I ran a screen using my Morningstar database of over 7700 stocks and asked it just one question. Find out how many stocks are trading below their 5 year average Price/Sales ratio. Only 1800 stocks qualified and you might imagine the flotsam and jetsam I found on that list!

Fear not, there are values to be found out there. It just takes an above average amount of digging. In addition to the stocks Greg has mentioned in the past couple of days, I find Federal Signal (NYSE: FSS) and Arrow International (Nasdaq: ARRO) to be interesting and, coincidentally, trading a bit below their historic mean valuation. As usual we invite your input over on the Boring Stocks message board.

On to stock news... well, there isn't any. As per our Thursday tradition, the Borefolio holdings take a day off from press releases.

Atlas Air (NYSE: CGO) rose $15/16 today on the heels of a positive earnings report yesterday and on the wings of the red hot airline sector. The Dow Transports were up 78 points today and the airline group led all comers in relative strength.

Our biggest loser was Felcor Suite Hotels (NYSE: FCH), down $7/8. I note that other hotel REITS were equally weak so, this may have been sector-related selling. And then again, it may have been Brownian movement.

In any case, it is about time for our friends in Texas to do a bit more hotel buying. Hotel deals are the growth engine we are counting on to carry Felcor higher. If things stay quiet you can count on us to give the company a jingle and find out what is or isn't up.

While the Borefolio has been underperforming the averages for the year, this is largely due to the now discarded stocks Green Tree Financial (NYSE: GNT), Tidewater. I took a look at what is left behind and have come to a happy conclusion about our holdings.

Morningstar Stock Tools has a feature which allows me to enter the Borefolio holdings and evaluate them as though they were a "mutual fund." When I plug in the Boring holdings I came up with some interesting results.

Our six stocks have a 3-year average revenue growth rate of 18.5% versus 10.1% for the S&P 500. Earnings per share have grown at an average rate of 25.3% versus 18.1% for the index.

The profitability of our stocks has been generally above average as well. Our stocks have an average net margin of 11.8% versus 9.3% for the S&P. Return on Equity weighs in at 19.8% which is a smidge less than the 19.9% recorded for the index stocks. However, the Borefolio companies average only 7% debt/market cap versus 38% for the S&P.

Needless to say, investors tend to pay up for superior performance and the Borefolio is no exception. Our portfolio PE averages 27 which is 12% above the market multiple. The Price/cash flow multiple is 19.3 which is 22% above the index. However, we are only paying 1.3 times sales which is substantially under the PSR of the S&P which sits at 2.2.

Excluding the losses resulting from Green Tree and Tidewater sales, the remaining stocks in our portfolio have been ahead of the market this year. Through today the current Borefolio holdings were up 4.23% more than the S&P. All of this says that we are happy with our current holdings. We hope to find equally compelling stocks to add to the fold.

Oh yeah, the Morningstar program also gives our portfolio a rating. As it currently stands, our portfolio has a 5-star ranking. Not a bad foundation to build on if I do say so myself!

FoolWatch -- It's what's going on at the Fool today.


TODAY'S NUMBERS
Stock  Change    Bid 
 ANDW  -  3/8   28.25 
 CGO   +  15/16 28.44 
 BGP   -  1/8   32.50 
 CSL   -  1/8   48.88 
 CSCO  +  5/16  65.19 
 FCH   -  7/8   36.63 
 
                   Day   Month    Year  History 
         BORING   -0.22%   3.66%   0.10%  25.95% 
         S&P:     +0.40%   4.47%   5.53%  64.75% 
         NASDAQ:  +0.34%   5.87%   9.17%  64.69% 
  
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     32.50   188.73% 
   8/13/96  200 Carlisle C    26.32     48.88    85.66% 
   6/26/96  150 Cisco Syst    35.93     65.19    81.41% 
    3/5/97  150 Atlas Air     23.06     28.44    23.33% 
   1/21/98  200 Andrew Cor    26.09     28.25     8.28% 
   11/6/97  200 FelCor Sui    37.59     36.63    -2.57% 
  
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13000.00  $8497.51 
   8/13/96  200 Carlisle C  5264.99   9775.00  $4510.01 
   6/26/96  150 Cisco Syst  5389.99   9778.13  $4388.14 
    3/5/97  150 Atlas Air   3458.74   4265.63   $806.89 
   1/21/98  200 Andrew Cor  5218.00   5650.00   $432.00 
  
   11/6/97  200 FelCor Sui  7518.00   7325.00  -$193.00 
  
                              CASH  $13182.97 
                             TOTAL  $62976.72