Boring Portfolio

Boring End
... to an Unboring Week
by Greg Markus

PORTLAND, Ore. (Aug. 7, 1998) -- Major market averages closed mixed Friday, with the S&P 500 falling nominally but the Nasdaq posting a solid gain of 0.94%. The Boring Portfolio rose in value, as well, up 0.66%.

A week that had market gooroos arguing about whether or not a bear market was about to take hold has ended fairly uneventfully. As if to illustrate the "normalcy" of the day, one of the top news items pertaining to the Boring Portfolio was that Borders Group (NYSE: BGP) has proclaimed August "Italian Book Month."

Perhaps to mark the occasion, Borders stock rose $7/8 to $30 1/16. Va bene.

Borders will report their fiscal second quarter results this coming Wednesday, in the morning. Based on guidance the company provided in its last quarterly conference call, analysts are looking for profits of $0.03 per share.

Full-year earnings are currently projected to come in around $1.22, which puts the stock trading at approximately 25 times this year's EPS. By comparison, shares of rival Barnes & Noble (NYSE: BKS) trade at nearly 35 times forward earnings, even though the two companies are projected to grow at virtually identical rates over the next few years -- at around 25% annually.

Cisco Systems (Nasdaq: CSCO) contributed its own bit of interest to the week just ended by reporting its quarterly results Tuesday evening.

By now, nearly everyone who has any interest in The Kid is aware of the good news. Cisco beat the Street's consensus earnings forecast, and posted solid top-line revenue growth, as well. Gross margins held steady sequentially. Strength in domestic and European markets offset weakness in Asia.

Most folks are aware of the concerns of Cisco management, as well. The company expects the Asian situation to get worse before it gets better and is expecting that region not to contribute positively to growth for at least another year. Weakness is Asia, together with the downturn in oil prices, could affect orders for Cisco products in Latin America, as well.

Finally, as the company has noted for a number of quarters now, gross margins are expected to decline over time -- although that will be offset by a projected lower tax rate going forward.

What was perhaps less publicized was the discussion of Cisco's split. No, not the stock split. That's received more than ample attention.

I'm talking about the split of Cisco's business. In the follow-up conference call, CEO John Chambers revealed that this former "routers only" company now derives around 40% of its bookings from its switch business, about an equal proportion form the router biz, and the remaining 20% from new and emerging revenue streams, such as service and education, financing, and new products aimed at emerging markets.

Moreover, Chambers said that the breadth of opportunities that lies ahead is more exciting than its ever been, and that's likely to alter the business mix even more in the years ahead.

And I, for one, intend to be invested in Cisco for all of those years.

Do have a great weekend, folks. See you back here Monday -- with me reporting in from Seattle.

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

08/07/98 Close

Stock  Change    Bid 
 ANDW  -  1/8   16.13 
 CGO   +  3/8   34.94 
 BGP   +  7/16  30.06 
 CSL   +1 7/8   43.50 
 CSCO  -2 7/16  96.88 
 FCH   +  3/4   26.13 
 PNR   -  3/8   37.50 
 TBY   +  3/16  7.44 
                   Day   Month    Year  History 
         BORING   +0.66%  -2.91%  -2.72%  22.40% 
         S&P:     -0.02%  -2.79%  12.26%  75.26% 
         NASDAQ:  +0.94%  -1.37%  17.60%  77.41% 
     Rec'd   #  Security     In At       Now    Change 
   6/26/96  150 Cisco Syst    35.93     96.88   169.60% 
   2/28/96  400 Borders Gr    11.26     30.06   167.07% 
   8/13/96  200 Carlisle C    26.32     43.50    65.24% 
    3/5/97  150 Atlas Air     23.06     34.94    51.52% 
   4/14/98  100 Pentair       43.74     37.50   -14.27% 
   5/20/98  400 TCBY Enter    10.05      7.44   -25.96% 
   11/6/97  200 FelCor Sui    37.59     26.13   -30.50% 
   1/21/98  200 Andrew Cor    26.09     16.13   -38.19% 
     Rec'd   #  Security     In At     Value    Change 
   6/26/96  150 Cisco Syst  5389.99  14531.25  $9141.26 
   2/28/96  400 Borders Gr  4502.49  12025.00  $7522.51 
   8/13/96  200 Carlisle C  5264.99   8700.00  $3435.01 
    3/5/97  150 Atlas Air   3458.74   5240.63  $1781.89 
   4/14/98  100 Pentair     4374.25   3750.00  -$624.25 
   5/20/98  400 TCBY Enter  4018.00   2975.00 -$1043.00 
   1/21/98  200 Andrew Cor  5218.00   3225.00 -$1993.00 
   11/6/97  200 FelCor Sui  7518.00   5225.00 -$2293.00 
                              CASH   $5528.69 
                             TOTAL  $61200.57