Boring Portfolio

Borefolio Surges
Thursday, March 19, 1998
by Mark Weaver (MWEAV)

ST.LOUIS, MO (March 19, 1998) -- The Dow blew past 8800 for the first time in history and closed at yet another all time high.

A couple of weeks back Goldman Sachs' Abby Cohen made news by declaring that the market was not fully valued. In that discussion she had an 8700 target for the Dow. Earlier this week Ms. Cohen raised her target to 9300, which is only 5.6% higher than today's close. Granted, this appears to be a moving target but I note that the long bond closed today with a yield of 5.9%. It makes me wonder.

The Borefolio was the big winner today, up 1.27%. Four of our six stocks rose and only one declined. The S&P posted yet another gain, up 0.39%. The Nasdaq split the difference rising 0.65%.

The Thursday tradition continues with no news on any kind on the Borefolio holdings. This is getting to be a habit.

Borders Group (NYSE: BGP) was our best performing stock of the day, up $1 7/16. This move may have been in sympathy with the Books-a-Million (Nasdaq: BAMM) earnings report which was released today. This was nicely covered in our Lunchtime News. Louis Corrigan did a nice job comparing BAMM, Barnes and Noble (NYSE: BKS) and Borders. Looking at the charts, I am glad we are riding the Borders horse in this race.

Cisco Systems (Nasdaq: CSCO) was up $3/4 and Carlisle Companies (NYSE: CSL) edged higher, up $5/8. There was no news on either stock.

On the downside was Atlas Air (NYSE: CGO), which may have been reacting to oil prices which have bounced off of recent 10 year lows. Any airline or air transport company's profits are very sensitive to the price of oil. Recent weakness in oil prices contributed to Atlas' recent run-up. What goes around, comes around.

Over on the Boring Stocks AOL message board there has been some good natured sparring going on. We are reminded periodically that an unmanaged portfolio consisting of the S&P 500 Index, The S&P Midcap 400 Index and the Dow Jones Industrial Average is beating the pants off of the Borefolio this year. While today is an exception, the unmanaged indices are a tough target.

The indices have been a tough target for the past several years. This fact should lead a sensible investor to ask themselves "Why bother to pick individual stocks?" I would submit that the relationship between time spent on investing activities and investment return will favor index investments 100% of the time. Let's face it, it takes less than 10 seconds of research per year. Choosing individual investments in a sensible way takes a lot of time and the incremental return, if achieved, may well not be worth it.

So, why do we bother with all of this? My simple answer is this: It is a lot of fun! Finding hidden value in a stock is like solving a puzzle. This is particularly true for the Boring type of company.

The process can also have other rewards. I occasionally get a jump on what is coming in the medical field when I research medical products companies.

I also get a charge out of finding companies with seemingly simple products and stories that have turned out to be great investments. For example, earlier this week I spent some time with Koala Corp. (Nasdaq: KARE). While you may not have heard of this small company, I guarantee you that you have encountered its flagship product, the diaper changing station, which adorns many public bathrooms in this country. For good measure the company also makes car seats and child play tables. Zzzzzzzz...

Koala is a small company with a market cap of only $41 million. Over the past three years it has grown revenues at a 32% clip and earnings at an average of 23% annually. Long term growth estimates are in the 26% range. The company is debt free and sports a return on equity of almost 25% and a return on assets of 24%. The company enjoys net margins of 18%.

In this market a stock with this description should be trading at a premium multiple. For example, another K stock, Kellogg (NYSE: K), is trading at a PE of over 30 with long-term growth estimated at 10%, debt at 42% of capitalization and ROE and ROA numbers that pale by comparison to Koala.

Therefore, you might be surprised to find out that Koala's PE is only 18. In fact, the company is trading right near its average valuation for the past 5 years. Yes indeed, Dow 8800 or not, there are some interesting and affordable stocks out there. And that, my friends, is why indexing doesn't do it all for me.

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

Stock  Change    Bid 
 ANDW  +  1/8   20.50 
 CGO   -  3/8   32.56 
 BGP   +1 7/16  33.88 
 CSL   +  5/8   46.75 
 CSCO  +  3/4   64.31 
 FCH     ---    36.25 
                   Day   Month    Year  History 
         BORING   +1.27%  -1.32%  -0.81%  24.81% 
         S&P:     +0.39%   3.85%  12.29%  75.31% 
         NASDAQ:  +0.65%   1.66%  14.62%  72.91% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     33.88   200.94% 
   6/26/96  150 Cisco Syst    35.93     64.31    78.98% 
   8/13/96  200 Carlisle C    26.32     46.75    77.59% 
    3/5/97  150 Atlas Air     23.06     32.56    41.22% 
   11/6/97  200 FelCor Sui    37.59     36.25    -3.56% 
   1/21/98  200 Andrew Cor    26.09     20.50   -21.43% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13550.00  $9047.51 
   6/26/96  150 Cisco Syst  5389.99   9646.88  $4256.89 
   8/13/96  200 Carlisle C  5264.99   9350.00  $4085.01 
    3/5/97  150 Atlas Air   3458.74   4884.38  $1425.64 
   11/6/97  200 FelCor Sui  7518.00   7250.00  -$268.00 
   1/21/98  200 Andrew Cor  5218.00   4100.00 -$1118.00 
                              CASH  $13625.51 
                             TOTAL  $62406.76