Boring Portfolio

A VCR Instruction Manual?
Friday, March 20, 1998
by Greg Markus (TMF Boring)

DAYTON, OHIO (March 20, 1998) -- This Boring Portfolio manager is on the road today, blissfully unaware of whatever rockin' and rollin' may have occurred on triple-witching Friday. If you want to know how our stocks fared today, please consult the Borefolio's daily stats.

Regular participants in our online, real-time experience in investing know that we've been searching for perhaps as many as three more stocks to fill out the Borefolio. The problem hasn't been one of locating fine companies with records of above-average growth and reasonable prospects for more of the same.

My partner, Mark Weaver, and I have turned up a number of them, and you folks have recommended a good number more: uniforms-provider Cintas (Nasdaq: CTAS); financial services leader Fannie Mae (NYSE: FNM); consumer products multinational Unilever (NYSE: UN); Danaher (NYSE: DHR) and Crane Co. (NYSE: CR), both manufacturers and distributors of diversified boring products; and Newell (NYSE: NWL), maker and distributor of a zillion consumer items -- marking pens, pencils, window blinds, picture frames, cookware... whew!

All great companies. The problem has been price -- or more precisely, valuation. In these days of soaring equities markets, all these stocks -- and many more -- are trading with price-to-earnings, and price-to-cash flow ratios at or beyond historic highs.

So we watch and wait on those stocks, as we continue the search for good growth at a reasonable price.

I think I may have finally located a stock that qualifies. The company manufactures and distributes a well-diversified range of products for a number of industries that continue to enjoy solid growth, including aerospace, communications, construction, and transportation.

The company has virtually no exposure to weak Asian markets at the moment, but it recently opened an office in Singapore, and its plans for international expansion have a good chance of ramping up just about the time that Asian economies do.

The company has a stated goal of growing sales and earnings at a 15% annual growth rate -- or about double the growth expected by the S&P 500 this year. And it has delivered the goods: earnings per share have increased at a compound annual growth rate (CAGR) of 24% over the past five years, while revenues per share have risen at a CAGR of better than 19%. The stock also pays a small dividend, currently around 1.2%.

To top it off, this company delivers earnings growth well in excess of the S&P 500 yet with less volatility than the blue-chip index. The stock's beta is a placid 0.85.

Return on equity for this company I've discovered topped 20% last year, return on assets came through at 13.8%. Operating margin has increased for eight years running, to 13.3% in 1997. Cash flow is strong, and Value Line rates the company's financial strength as "A."

Surely one must pay a fancy price for such a fine investment, right?

Nope. At its current price of around $47, the stock trades at less than 18 times projected 1998 earnings -- or about a 16% discount to the S&P 500.

If you haven't guessed by now, the stock is Carlisle Companies (NYSE: CSL).

True, we already hold 200 Carlisle stubs. We could add another 50 or even 100 shares to our current holdings without pushing the Borefolio's diversification noticeably out of shape. Indeed, one could argue that such a move would improve the portfolio's balance by reducing the current bulge in our bourse attributable to the tripling in value of Borders Group (NYSE: BGP) shares.

Two other tidbits to consider: the company's CFO apparently thought the stock represented a good enough investment to add to his own holdings recently, and favorable weather in the Northeast and Midwest has helped residential and commercial construction activity get an early jump on the '98 season.

I admit that my preference would be to locate a stock that offers as good a value as Carlisle's stock does while simultaneously exposing us to a growth industry not already represented in the Borefolio. Mark and I continue to stare at Newell, for example, as well as at a couple of medical device companies, a rocks and cement outfit or two, and an industrial services firm.

If we can't soon find an investment in an outstanding company and at a good price, however, I figure that we could do a heck of a lot worse than simply buying some more Carlisle.

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

Stock  Change    Bid 
 ANDW  -  1/8   20.38 
 CGO   -  1/16  32.50 
 BGP   +  1/8   34.00 
 CSL   +  9/16  47.31 
 CSCO  -  11/16 63.63 
 FCH     ---    36.25 
                   Day   Month    Year  History 
         BORING   +0.04%  -1.28%  -0.77%  24.86% 
         S&P:     +0.86%   4.75%  13.27%  76.82% 
         NASDAQ:  -0.60%   1.05%  13.93%  71.88% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     34.00   202.06% 
   8/13/96  200 Carlisle C    26.32     47.31    79.72% 
   6/26/96  150 Cisco Syst    35.93     63.63    77.06% 
    3/5/97  150 Atlas Air     23.06     32.50    40.95% 
   11/6/97  200 FelCor Sui    37.59     36.25    -3.56% 
   1/21/98  200 Andrew Cor    26.09     20.38   -21.90% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13600.00  $9097.51 
   8/13/96  200 Carlisle C  5264.99   9462.50  $4197.51 
   6/26/96  150 Cisco Syst  5389.99   9543.75  $4153.76 
    3/5/97  150 Atlas Air   3458.74   4875.00  $1416.26 
   11/6/97  200 FelCor Sui  7518.00   7250.00  -$268.00 
   1/21/98  200 Andrew Cor  5218.00   4075.00 -$1143.00 
                              CASH  $13625.51 
                             TOTAL  $62431.76