Boring Portfolio

Boring Portfolio Report
Friday, March 06, 1998
by Greg Markus (TMF Boring)

ANN ARBOR, Mich. (March 6, 1998) -- Shrugging off an earnings warning from Motorola (NYSE: MOT) and a stronger than expected February jobs and wages report, investors repeated what they've done regularly whenever stocks drop sharply in this bull market: they bought the dip.

The S&P 500 soared 2% to 1056, a new high, and the Nasdaq recovered 41 of the 48 points lost on Thursday to close higher by 2.43%. The Boring Portfolio's 1.27% gain, fine though it was, paled by comparison.

The weekly stats were more favorable to the Borefolio: S&P up 0.61%, Nasdaq down 0.91%, and Borefolio in the middle, higher by 0.43%.

The fact that Moto's news of weak sales of its semiconductor and analog cellular products followed warnings by Intel (Nasdaq: INTC) and Disney (NYSE: DIS) earlier this week appeared to matter not at all. Stay tuned for similar warnings, as we've entered the closing weeks of the quarter, a time when companies that conclude they're not going to hit their targets alert the Street of the fact.

Borders Group (NYSE: BGP) rose $3/4 Friday to $34 3/8. The stock established an all-time high this week and also became the Borefolio's first triple, having risen 205% since we made our investment in Borders on Feb. 28, 1996.

The Ann Arbor-based retailer is slated to report its fiscal fourth quarter results on Monday morning. As always, we'll be covering the follow-up conference call. We and everyone else on the call will be looking for an update on the launch of the company's long-awaited Web site for selling books, music, and videos over the Internet.

Speaking of e-commerce, Cisco Systems (Nasdaq: CSCO) chief executive John Chambers appeared at an investor conference in New York this past week and reportedly announced that Cisco's sales via its Web site are zipping along at an annual run rate of $3.6 billion. According to Chambers, the Kid's Cisco Connection Online site has resulted in operating expense savings $360 million, or an 18% productivity improvement.

Cisco thus leads the way not only selling the equipment that makes up the Internet, but also in selling stuff over the Internet. The Kid eats its own cooking, I guess.

Oh, yeah: CSCO rose $2 1/2 to a bid of $64 9/16 on Friday.

As my partner Mark Weaver noted in Thursday's Borefolio recap, shares of FelCor Suite Hotels (NYSE: FCH) have pretty much slept in this winter. Although the stock pays its way thanks to what works out to a 6.1% annual dividend at current prices, we had expected to see the share price move up by now towards our 1998 target price of around $42.

That target is derived by tacking an industry-average multiple of 11 onto FelCor's projected "funds from operation" (FFO) of $3.81 for 1998, according to First Call. As you may recall, FFO is the REIT industry's analog to "cash flow." You can read more about FFO -- and about FelCor -- in our "buy" report from last November.

Mark had a cordial conversation with FelCor president and CEO Thomas Corcoran, Jr. today. Corcoran is the "Cor" of FelCor, by the way.

Mark tells me that Corcoran assured him that FelCor is on track to achieve its 1998 goals despite some recent softness in the stocks of FelCor and a number of other companies in the lodging industry. Corcoran expects FelCor's occupancy rates to increase, and the REIT is on track to meet its RevPAR (revenues per available room) expectations for the year.

Corcoran acknowledged that it's getting somewhat tougher to make acquisitions at good prices. He said that some of the deals currently available won't generate the kind of return on investment that FelCor wants to achieve for its shareholders. FelCor declines to participate in such deals.

Other, more profitable, deals involving FelCor's strategic partners in the hotel industry are anticipated as we move further into 1998, according to Corcoran.

Sounds good to us.

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

Stock  Change    Bid 
 ANDW  +  5/8   27.75 
 CGO   +  13/16 30.00 
 BGP   +  3/4   34.38 
 CSL   -  3/16  47.25 
 CSCO  +2 1/2   64.31 
 FCH   -  7/16  34.94 
                   Day   Month    Year  History 
         BORING   +1.27%   0.43%   0.95%  27.02% 
         S&P:     +1.99%   0.61%   8.79%  69.83% 
         NASDAQ:  +2.43%  -0.96%  11.66%  68.45% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     34.38   205.39% 
   8/13/96  200 Carlisle C    26.32     47.25    79.49% 
   6/26/96  150 Cisco Syst    35.93     64.31    78.98% 
    3/5/97  150 Atlas Air     23.06     30.00    30.11% 
   1/21/98  200 Andrew Cor    26.09     27.75     6.36% 
   11/6/97  200 FelCor Sui    37.59     34.94    -7.06% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13750.00  $9247.51 
   6/26/96  150 Cisco Syst  5389.99   9646.88  $4256.89 
   8/13/96  200 Carlisle C  5264.99   9450.00  $4185.01 
    3/5/97  150 Atlas Air   3458.74   4500.00  $1041.26 
   1/21/98  200 Andrew Cor  5218.00   5550.00   $332.00 
   11/6/97  200 FelCor Sui  7518.00   6987.50  -$530.50