Boring Portfolio

The World Cup
Tuesday, June 16, 1998
by Mark Weaver (MWEAV)

SPRINGFIELD, IL (June 16, 1998) -- The markets bounced back today as concerns about Asia took a back seat to good news on the inflation front. For the day as a whole the S&P 500 index rose 0.98%, the Nasdaq was up a striking 2.18%, and the Borefolio followed the trend climbing 0.47%.

Three Boring stocks rose while four fell and one was unchanged.

Over the past several days I have enjoyed watching the biggest sporting event on the planet -- the World Cup soccer tournament. It appears that folks in soccer-mad Columbia are now better able to listen to the tournament because of newly installed equipment provided by Borefolio resident Andrew Corp. (Nasdaq: ANDW). Andrew recently completed an installation of Earth Station Antennas and 2000 feet of cable to Radio Cadena Nacional in Bogota. These antennas will allow the broadcast to reach even the more remote parts of that country. Andrew rose $7/8 today.

Borders Group (NYSE: BGP) has been one of the strongest Borefolio stocks over the past week. This has been largely due to Borders inclusion in the S&P 400 Mid-cap index. Today the company announced a strategic agreement with Muze. Muze is "the leading provider of book, music and video content" and will incorporate this content throughout the new website.

Muze provides digital information, marketing support and technology to many music and book merchants including: (Nasdaq: AMZN), Barnes & Noble (NYSE: BKS), Tower Records, Columbia House and many others. Borders was unchanged on the day.

Otherwise, it was a quiet day for Boring stocks.

I have had a theme of valuation running through my last several columns and I thought I would continue the thread. Money Magazines online site recently put up a valuation tool ( Fair value worksheet ) which is based on Morgan Stanley's model for estimating the fair value of a stock. The variables include estimates of earnings growth and a measure of inherent stability of earnings to comes up with a "Fair-Value PE." After reading the text I got the notion that the formula was a bit of a black box, but I was very impressed with how well the Fair-Value PE tracked the performance of the market. Any major deviations from fair-value have been historically short-lived.

The article also points to an interesting bit of data. High quality stocks with earnings growth rates of 12-18% per year will outperform stocks with more rapid growth rates. This is because investors tend to overpay for consistent growth.

While I am a bit concerned that the valuation tool promulgated at the Money website doesn't lend itself to critical evaluation, the correlation drawn using the tool are quite impressive. With that in mind I put the Borefolio to the test.

Most Undervalued: Andrew (30%), Pentair (NYSE: PNR) (27%) and FelCor Suites Hotels (NYSE: FCH) (16%).

Most Overvalued: Cisco Systems (Nasdaq: CSCO) (+74%) and Borders Group (NYSE: BGP) (+16%)

The rest of our stocks were right about fair value according to the formula. These results jive pretty closely to other measures of valuation we've looked at over the past several weeks. This recent market decline has provided an opportunity to pick up some of our stocks at bargain prices according to some measures. The strength of our two "overvalued" stocks during the recent decline is a testimony to how highly the market values these companies. That valuation does increase the risk of owning these shares, but for now it is a risk that appears to be worth taking.

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

Stock  Change    Bid 
 ANDW  +  7/8   19.88 
 CGO   -  13/16 32.31 
 BGP     ---    34.13 
 CSL   -  3/8   43.94 
 CSCO  +1 11/16 79.94 
 FCH   -  1/16  32.56 
 PNR   -  1/4   39.38 
 TBY   +  1/4   8.56 
                   Day   Month    Year  History 
         BORING   +0.47%  -1.63%  -0.44%  25.27% 
         S&P:     +0.98%  -0.30%  12.07%  74.96% 
         NASDAQ:  +2.18%  -1.45%  11.64%  68.41% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     34.13   203.17% 
   6/26/96  150 Cisco Syst    35.93     79.94   122.46% 
   8/13/96  200 Carlisle C    26.32     43.94    66.90% 
    3/5/97  150 Atlas Air     23.06     32.31    40.13% 
   4/14/98  100 Pentair       43.74     39.38    -9.98% 
   11/6/97  200 FelCor Sui    37.59     32.56   -13.37% 
   5/20/98  400 TCBY Enter    10.05      8.56   -14.76% 
   1/21/98  200 Andrew Cor    26.09     19.88   -23.82% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13650.00  $9147.51 
   6/26/96  150 Cisco Syst  5389.99  11990.63  $6600.64 
   8/13/96  200 Carlisle C  5264.99   8787.50  $3522.51 
    3/5/97  150 Atlas Air   3458.74   4846.88  $1388.14 
   4/14/98  100 Pentair     4374.25   3937.50  -$436.75 
   5/20/98  400 TCBY Enter  4018.00   3425.00  -$593.00 
   11/6/97  200 FelCor Sui  7518.00   6512.50 -$1005.50 
   1/21/98  200 Andrew Cor  5218.00   3975.00 -$1243.00 
                              CASH   $5511.82 
                             TOTAL  $62636.82