Boring Portfolio

Cisco Soars
...while the Bore descends
by Mark Weaver

SPRINGFIELD, IL. (June 18, 1998) -- The market spent most of the day in slightly negative territory as the woes of the Japanese economy weighed on the market. An expanding trade deficit may have put a damper on things as well. The "Asian effect" is starting to show up in hard numbers. This is another sign of potential pain for companies heavily dependent on Asia for sales.

On the day the S&P 500 fell 0.07% and the Nasdaq was off 0.21%, while the Borefolio continued to struggle, dropping 1.20%.

There was plenty of news today on Borefolio holdings. First of all, as Greg wrote last night, Andrew (Nasdaq: ANDW) issued a warning after the close yesterday that earnings would fall some 10% below expectations. The culprit seems to be sluggish U.S. sales and the Asian situation. Decreased sales in Asia and the U.S. outweigh the more robust sales in Latin America. There was a silver lining in the announcement in the form of authorization of more share buybacks. This ultimately will enhance earnings per share.

Andrew's stock fell sharply at the open but rebounded to close off only $1 1/4. This action illustrates an important point about stocks which are undervalued. They tend to be very resilient to bad news. There are no lofty expectations when your stock is trading at modest multiples. If a high-flying stock had announced a 10% shortfall in quarterly earnings... look out below!

Also on the downside today was Pentair (NYSE: PNR), off $2 1/8. The stock fell after the company announced a $60 million cost reduction program. Pentair is going to focus on leveraging its purchasing power and cutting administrative costs. The goal, according to Chairman and CEO Winslow Buxton, is to improve profitability. Why this should result in a sell-off is a mystery to me. Pentair trades at only 15 times 1998 full year estimates.

Carlisle (NYSE: CSL) also continued its recent decline, losing $2 5/16. As noted here last night, Carlisle's stock has softened in the past week. Two possible explanations occur to us. First, it could be related to news of work stoppages at General Motors (NYSE: GM), which is a customer of one of Carlisle's divisions. Or it might be related to CEO Stephen Munn's filing with the SEC in late April of his intent to sell 220,000 shares of his company's stock.

The first hypothesis turns out to have little substantive basis to it -- at least from the perspective of Carlisle's actual business. Carlisle's management has confirmed to us that only around 4% of the company's revenues derive from sales to GM.

Today, we obtained information directly from Carlisle President Dennis Hall regarding the second hypothesis. According to Mr. Hall, Carlisle has very strict policies regarding insider trading. The window for such activity opens two working days following the release of material news from the company (typically, a quarterly earnings report), and closes ten working days thereafter. That window has long since closed for this quarter, and CEO Munn's shares were disposed of within that time frame.

Munn continues to have a substantial financial interest in Carlisle. His recent sale was for personal reasons and unrelated to the strength of the company's business, according to Hall. That business remains solidly on track, Hall said.

Hall reiterated that the GM strike is "not material" to Carlisle. He said he was at a loss to account for the recent decline in the stock, other than to speculate that perhaps some investors thought the GM strike would impact Carlisle much more than it actually will.

Carlisle's stock closed at $41 1/4. At this price, the stock is trading at just over 15-times estimated 1998 EPS of $2.70 and 13.5-times next year's projected earnings of $3.05. That's a substantial discount to the S&P 500 -- and that for a stock that has consistently outperformed the S&P 500 in recent years. Anyone interested in investing in a top-quality company at a potentially bargain price might want to take a look at Carlisle.

On the upside, our high-flying Cisco Systems (Nasdaq: CSCO) hit a new all-time high today as the stock bucked the trend and rose $1 1/2. Cisco announced that it had completed the acquisition of CLASS Data Systems. The software made by CLASS is helpful in networks that mix voice, data and video. Cisco will take a $0.02-0.04 per share charge against earnings in the 4th quarter to account for this acquisition.

Not advancing today, but not declining either, was Felcor Suites Hotels (NYSE: FCH). I sent an e-mail to chairman, Tom Corcoran, last week to get his thoughts on the action in the stock. He kindly replied. He feels that the "market" is telling REITs to behave and not overpay for properties. He also feels that uncertainty about Congressional action on paired-share REITs is influencing prices. These REITs, such as Starwood (NYSE: HOT), combine ownership and operation of properties, something ordinary REITs can't do. Some feel that this special status needs to be changed and Congress may well legislate the separation of the "pairs." If congress acts Mr. Corcoran sees this as a potential boost to REIT share prices.

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

06/18/98 Close

Stock  Change    Bid 
 ANDW  -1 1/4   18.25 
 CGO   -  1/16  33.44 
 BGP   +  1/8   34.88 
 CSL   -2 5/16  41.25 
 CSCO  +1 1/2   82.13 
 FCH     ---    32.69 
 PNR   -2 1/8   37.25 
 TBY   -  1/4    8.63 
                   Day   Month    Year  History 
         BORING   -1.20%  -1.99%  -0.80%  24.82% 
         S&P:     -0.07%   1.43%  14.01%  77.98% 
         NASDAQ:  -0.21%  -0.35%  12.88%  70.29% 
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     34.88   209.83% 
   6/26/96  150 Cisco Syst    35.93     82.13   128.55% 
   8/13/96  200 Carlisle C    26.32     41.25    56.70% 
    3/5/97  150 Atlas Air     23.06     33.44    45.01% 
   11/6/97  200 FelCor Sui    37.59     32.69   -13.04% 
   5/20/98  400 TCBY Enter    10.05      8.63   -14.14% 
   4/14/98  100 Pentair       43.74     37.25   -14.84% 
   1/21/98  200 Andrew Cor    26.09     18.25   -30.05% 
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13950.00  $9447.51 
   6/26/96  150 Cisco Syst  5389.99  12318.75  $6928.76 
   8/13/96  200 Carlisle C  5264.99   8250.00  $2985.01 
    3/5/97  150 Atlas Air   3458.74   5015.63  $1556.89 
   5/20/98  400 TCBY Enter  4018.00   3450.00  -$568.00 
   4/14/98  100 Pentair     4374.25   3725.00  -$649.25 
   11/6/97  200 FelCor Sui  7518.00   6537.50  -$980.50 
   1/21/98  200 Andrew Cor  5218.00   3650.00 -$1568.00 
                              CASH   $5511.82 
                             TOTAL  $62408.70