Boring Portfolio

Borders Preview
... as stocks slide on "Asian worries"
by Greg Markus

SEATTLE, Wash. (Aug. 11, 1998) -- U.S. stocks followed international markets sharply lower Tuesday on re-re-re-renewed concerns about weak Asian economies.

I don't understand it.

Don't get me wrong. I share the concerns, completely. What I don't understand is how those concerns subside only to flare up again a week -- or even a few days -- later.

After all, the economic, uh, challenges (I believe that's the euphemism of choice) in Asia run deep, and the odds of the situation there improving materially in the short-run are exceedingly slim.

We Americans -- many of whom would be hard pressed to locate, say, Indonesia on a map of the world -- tend to pay attention to international economic news only when it smacks us in the face -- or, more likely, the wallet. Even then, the information rarely manages to make it into our long-term memory, dissipating into the ether as we succumb to an acute case of MEGO (as in "My Eyes Glaze Over") whenever the discussion turns to matters beyond our borders.

We may be better advised to heed what Cisco Systems (Nasdaq: CSCO) president and CEO John Chambers told listeners during the company's recent port-earnings conference call: the economic situation in Asia is likely to get worse before it gets better, and companies that do business there should not count on sales in that region to contribute much if anything to growth in the coming year.

Is it possible for investors to turn the Asian ailment to their advantage?


One thought is to consider investing in attractively valued stocks of fundamentally solid companies that have limited exposure to the Far East. In the Boring Portfolio, Carlisle Companies (NYSE: CSL) and FelCor Lodging Trust (NYSE: FCH) are two such examples.

Another idea is to consider companies that are able to do business in Asia profitably because they maintain a competitive advantage over their counterparts there and offer products that sell well even in economic downturns. Borders Group (NYSE: BGP) may be worth considering in that regard.

The Wall Street Journal reported last week that the Borders superstore in Singapore has been a "raging success" amidst the economic slump there.

Borders is succeeding on the densely populated, English-speaking island because it offers customers an inviting atmosphere in which to browse, meet friends over coffee, and purchase comparatively small-ticket books, magazines, and related items.

The Borders approach, so familiar to Americans, stands in sharp relief to the practices of other leading booksellers in Singapore, who have seen their sales plummet since Borders landed. In the other shops, magazines and even many books are shrink-wrapped to prevent browsing, seating is nowhere to be found, and selection is limited.

Goh Yeow Tin, general manager of Times the Bookshop in Singapore, said in the article that his company has no intention of changing its approach, despite Borders' success.

Serious buyers should be "freed from the hassles of pushing around nonserious buyers," said Mr. Goh.

Also in the article, Vin Altruda, Borders' president of international stores, is quoted as saying that the Singapore superstore is expected to become profitable by October, its first anniversary, and that the store's sales are comparable to those of Borders in such cities as Miami and Chicago.

For that, Borders investors thank smart managers such as Mr. Altruda... and we are also thankful for managers such as Mr. Goh.

By the way, Borders Group will report its fiscal second-quarter earnings results tomorrow (Wednesday) morning, with a conference call to follow immediately thereafter. We'll be on the call.

Based on guidance the company provided in its last conference call, analysts are looking for Borders to earn $0.03 per share for the quarter, on its way to EPS of $1.22 for the full year.

Analysts -- and all Borders investors, for that matter -- will also be looking for an update on the company's plans for international expansion and for Web-based commerce.

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

08/11/98 Close

Stock  Change    Bid 
 ANDW  -  3/8   15.63 
 CGO   -  3/4   34.13 
 BGP   +  1/4   30.25 
 CSL   -  5/8   42.81 
 CSCO  -1 3/16  98.00 
 FCH   -1 3/16  24.88 
 PNR   +  3/16  36.13 
 TBY   -  9/16  6.88 
                   Day   Month    Year  History 
         BORING   -1.10%  -3.81%  -3.63%  21.26% 
         S&P:     -1.31%  -4.61%  10.16%  71.97% 
         NASDAQ:  -2.53%  -4.26%  14.16%  72.22% 
     Rec'd   #  Security     In At       Now    Change 
   6/26/96  150 Cisco Syst    35.93     98.00   172.73% 
   2/28/96  400 Borders Gr    11.26     30.25   168.74% 
   8/13/96  200 Carlisle C    26.32     42.81    62.63% 
    3/5/97  150 Atlas Air     23.06     34.13    47.99% 
   4/14/98  100 Pentair       43.74     36.13   -17.41% 
   5/20/98  400 TCBY Enter    10.05      6.88   -31.56% 
   11/6/97  200 FelCor Sui    37.59     24.88   -33.83% 
   1/21/98  200 Andrew Cor    26.09     15.63   -40.11% 
     Rec'd   #  Security     In At     Value    Change 
   6/26/96  150 Cisco Syst  5389.99  14700.00  $9310.01 
   2/28/96  400 Borders Gr  4502.49  12100.00  $7597.51 
   8/13/96  200 Carlisle C  5264.99   8562.50  $3297.51 
    3/5/97  150 Atlas Air   3458.74   5118.75  $1660.01 
   4/14/98  100 Pentair     4374.25   3612.50  -$761.75 
   5/20/98  400 TCBY Enter  4018.00   2750.00 -$1268.00 
   1/21/98  200 Andrew Cor  5218.00   3125.00 -$2093.00 
   11/6/97  200 FelCor Sui  7518.00   4975.00 -$2543.00 
                              CASH   $5686.93 
                             TOTAL  $60630.68