Boring Portfolio

Boring Portfolio Report
Thursday, March 05, 1998
by Mark Weaver (MWEAV@aol.com)


St. Louis, MO (March 5, 1998) -- Whew!!!

That was the sound of the collective sigh of relief coming from investors after their fears of a market catastrophe were not realized. Market laggard Intel (Nasdaq: INTC) pre-announced an earnings disappointment for the upcoming first quarter leading many to believe this would be a rough day for stocks. While it was no picnic, it was no disaster either. Just another hectic day in a volatile market. Frankly, since the Borefolio is holding excessive cash we were hoping for a bit more downside to allow us to pick up a couple of stocks that we've been eyeballing. Valuations remain a concern for us.

I previously referred to Intel as a laggard because... well... it has been. In the face of major bull market among its large cap brethren Intel has now achieved a 12 month return of 1.27% (including its 0.1% dividend). You would have been better off in a money market fund for the past year than to have owned Intel stock. That is an amazing fact given this raging bull market. Perhaps one reason the sell-off was muted was because Intel has basically been struggling for the past year and continued struggles were not that surprising.

When all of the dust settled the S&P 500 was off 1.17%, the Nasdaq lost 2.71%, and the Borefolio dropped a mere 0.58%. It was no major catastrophe, that's for sure. The Bore was aided by the addition of $600 in interest and dividends to its coffers today. On days like this interest and dividends are nice to have, even if they are a bit boring.

In keeping with recent Thursdays, there was no news on any of the Borefolio holdings. It comes as no surprise that our technology holding Cisco Systems (Nasdaq: CSCO) was our weakest stock today, off $3 1/4. The skid was due, in large part, to the technology share dumping that was the theme du jour.

Our lone winner was Carlisle Companies (NYSE: CSL). The $1/4 increase was insignificant except to point out that truly Boring companies like Carlisle are often a shelter from the market's storms. The level of microprocessor sales doesn't have much impact on sales of golf cart tires and lawnmower wheels. As far as I'm concerned Carlisle is the Boring-est of the Boring.

Since there was no news on Borefolio holdings today, I tried to drum some up myself. I put in a call to our friends at FelCor Suites Hotel (NYSE: FCH) but was unable to connect with them today. I am not at all thrilled with the gradual deterioration in the price of our FelCor stubs. For the day the stock closed down $1/4 at $35 3/8.

There are many potential reasons for the sluggish performance.

First of all, the pace of "deals" has been much lower than we had anticipated. FelCor has added only one hotel this year, not a pace that warms my heart. Once I connect with FelCor my first question will be directed at the pace of acquisitions.

The second factor may be the report put out by Smith Travel indicating that luxury hotel occupancy rates may decline a small bit in 1998. FelCor's hotels aren't the Ritz but they are on the upper-end of the lodging spectrum. Occupancy rates drive RevPAR and it is RevPAR which is the fuel for earnings. I also intend to ask FelCor about occupancy rates.

In a very interesting post on the Real Estate message board on AOL, Michael Dowd (TMF Yorick), discussed problems at Starwood (NYSE: HOT) and Marriott (NYSE: MAR). One of the factors discussed in relation to Starwood is the excessive prices paid for some of Starwood's hotel properties. If acquisition prices continue to rise, needless to say, there will less profit in any new acquisitions FelCor ultimately makes. The rich pricing of these acquisitions has had a chilling effect on expectations for earnings growth in the hotel REIT sector generally.

There is another interesting discussion, also on the Real Estate board, of seasonal factors that may weigh on REIT share prices. Evidently there are studies to show that REIT shares lag early in the year when the market is strong. Interestingly, when the market has above average first half gains REIT shares shine in the second half of the year. The presumption is that money managers want to lock in some of their gains with a more conservative, less volatile investment. In any case, there is some evidence that REIT stocks as a group are weak due to the general market as opposed to company specific factors.

Finally, hotel and motel stocks have been weak as a subgroup for the past three months. Whereas in early December these companies had a relative strength above the 60th percentile of all Investor's Business Daily industry groups, they have now fallen to the 22nd percentile. Even a good company will struggle in a weak industry.

Once I get through to FelCor count on a post from me on the message boards. Until then, when you make your travel plans think about an Embassy Suites or Doubletree Guest Suites hotel.

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


TODAY'S NUMBERS
Stock  Change    Bid 
 ANDW  -  5/8   27.13 
 CGO   -  1/2   29.19 
 BGP   -  3/8   33.63 
 CSL   +  1/4   47.44 
 CSCO  -3 3/8   61.81 
 FCH   -  1/4   35.38 
 
                   Day   Month    Year  History 
         BORING   -0.58%  -0.83%  -0.32%  25.43% 
         S&P:     -1.17%  -1.36%   6.66%  66.51% 
         NASDAQ:  -2.72%  -3.31%   9.01%  64.46% 
  
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     33.63   198.72% 
   8/13/96  200 Carlisle C    26.32     47.44    80.20% 
   6/26/96  150 Cisco Syst    35.93     61.81    72.02% 
    3/5/97  150 Atlas Air     23.06     29.19    26.58% 
   1/21/98  200 Andrew Cor    26.09     27.13     3.97% 
   11/6/97  200 FelCor Sui    37.59     35.38    -5.89% 
  
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13450.00  $8947.51 
   8/13/96  200 Carlisle C  5264.99   9487.50  $4222.51 
   6/26/96  150 Cisco Syst  5389.99   9271.88  $3881.89 
    3/5/97  150 Atlas Air   3458.74   4378.13   $919.39 
   1/21/98  200 Andrew Cor  5218.00   5425.00   $207.00 
   11/6/97  200 FelCor Sui  7518.00   7075.00  -$443.00 
  
                              CASH  $13625.51 
                             TOTAL  $62713.01