Boring Portfolio

No Fun At All...
but is opportunity knocking?
by Mark Weaver (MWEAV)

SPRINGFIELD, IL (Aug. 13, 1998) -- Well, if the Asian situation isn't bad enough along comes Russia with murmurs about devaluation of the ruble and you have another down day on the market. The S&P 500 dropped 0.86%, the Nasdaq was clipped 1.26%, and the Borefolio took it on the chin hitting a 2.25% airpocket.

Leading the Borefolio in the wrong direction was Borders Group (NYSE: BGP). The stock fell $2 9/16 on over three times its usual daily volume. Although the company matched earnings forecasts yesterday, the stock has fallen around 14% since that announcement. In last night's Bore report, Greg speculated that this move represents disappointment in the progress of Border's online offering, If that is truly the cause of the downturn, this could represent a case of over-reaction by the market. As Greg said last night, we aren't selling. The report of the quarterly Conference Call is up and ready for your inspection.

Also continuing its disappointing performance is FelCor Lodging Trust (NYSE: FCH) dropping $1 1/16. Coincidentally, I received an e*mail this morning from Tom Corcoran (the "Cor" in FelCor and CEO of the company) in response to some questions I had about the hotel REIT business generally and FelCor in particular. Here are some of the things Mr. Corcoran had to say:

-He is frustrated by the market's assessment of FelCor's stock. At the same time, he recognizes that the market is not always rational.

-FelCor's stock is trading at a 10% discount to book value on a per room basis and a 35% discount to replacement value. (That was before today's move.)

-He feels the paired-share REITS Starwood (NYSE: HOT) and Patriot American (NYSE: PAH) have created a lot of confusion in the hotel REIT arena.

-FelCor is still planning a special one-time dividend of $0.40-$0.50 prior to the end of the year.

-Business is good and FFO growth is expected to be strong for the next two to three years.

-Mr. Corcoran doesn't feel there are significant over-building concerns in the industry. He points out that hotels have much less debt than they have had in the past. He doesn't think the market has factored in the changes in the economic environment and advances in information technology into the price of the stock. The market is looking at the industry with a view to past, and not currently relevant, problems.

The bottom line is that if you want a piece of a growing company with a current yield of 8.8% and a special dividend on the way... take a look at FelCor. At some point the stock price will match the valuation and at that time an investor will be well rewarded. As of now, the Borefolio sits with a 36% loss in this security. This has been no fun at all.

Speaking of no fun, how about the market these days? It hasn't been a lot of fun, but it is times like these that provide investors opportunities they only hoped for a few weeks ago. Did you ever find yourself saying, "if only this stock were 20% lower I would consider buying it"? Well, guess what? The time may be here or may be coming soon. The problem is, a stock never seems to look as good on the way down, does it? When opportunity knocks are you prepared to answer the door?

So often in the course of evaluating a stock I come to the conclusion that it is a great company, but the stock is too expensive. Do I let all of that work go to waste? No way! I have set up a portfolio of potential buy candidates using the "My Portfolio" feature here on AOL. On the Web, you can use the Fool's Portfolio feature that is in beta. When I set my portfolio up I include the price that I thought would represent a good buying price for the security. Each day I check and occasionally a stock will go below the magic number. At that time, I review the situation for substantive changes and if there are none I have a chance to buy the stock at a potentially bargain price. It is the equivalent of waiting for a sale to buy that new lawnmower.

These turbulent markets are creating opportunity. Make sure that you set up a system to take advantage of some irrational stock moves. If you've done your homework you might pick up a portfolio on the cheap.

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

08/13/98 Close

Stock  Change    Bid 
 ANDW  +  1/8   16.00 
 CGO   -  7/16  34.56 
 BGP   -2 9/16  26.25 
 CSL   +  1/8   43.94 
 CSCO  -1 7/8   96.69 
 FCH   -1 1/16  23.94 
 PNR   -  5/16  37.00 
 TBY   +  1/2   7.75 
                   Day   Month    Year  History 
         BORING   -2.25%  -5.69%  -5.51%  18.90% 
         S&P:     -0.86%  -4.08%  10.77%  72.92% 
         NASDAQ:  -1.26%  -3.73%  14.78%  73.16% 
     Rec'd   #  Security     In At       Now    Change 
   6/26/96  150 Cisco Syst    35.93     96.69   169.08% 
   2/28/96  400 Borders Gr    11.26     26.25   133.20% 
   8/13/96  200 Carlisle C    26.32     43.94    66.90% 
    3/5/97  150 Atlas Air     23.06     34.56    49.89% 
   4/14/98  100 Pentair       43.74     37.00   -15.41% 
   5/20/98  400 TCBY Enter    10.05      7.75   -22.85% 
   11/6/97  200 FelCor Sui    37.59     23.94   -36.32% 
   1/21/98  200 Andrew Cor    26.09     16.00   -38.67% 
     Rec'd   #  Security     In At     Value    Change 
   6/26/96  150 Cisco Syst  5389.99  14503.13  $9113.14 
   2/28/96  400 Borders Gr  4502.49  10500.00  $5997.51 
   8/13/96  200 Carlisle C  5264.99   8787.50  $3522.51 
    3/5/97  150 Atlas Air   3458.74   5184.38  $1725.64 
   4/14/98  100 Pentair     4374.25   3700.00  -$674.25 
   5/20/98  400 TCBY Enter  4018.00   3100.00  -$918.00 
   1/21/98  200 Andrew Cor  5218.00   3200.00 -$2018.00 
   11/6/97  200 FelCor Sui  7518.00   4787.50 -$2730.50 
                              CASH   $5686.93 
                             TOTAL  $59449.43