Boring Portfolio Report
Thursday, March 14, 1996

(FOOL GLOBAL WIRE)
by Greg Markus (MF Boring)

(ANN ARBOR, Mar 14) -- That crashing sound you heard was the Borefolio, dropping hard today as our pair of high-tech holdings and one of the Boring basics succumbed to multi-point losses.

The big news came from Willow Grove, PA, as Kulicke & Soffa alerted the world this morning that "uncertainty in Taiwan and low semiconductor growth estimates" led them to trim its earnings outlook for the balance of the year. K&S is now projecting the current quarter to be basically flat with last year's 2Q EPS of 44 cents; and earnings for 3Q and 4Q could well be "significantly below" last year's corresponding quarters.

Analysts are still doing the math, but what I've heard are projections of $2.00 or so for this fiscal year, as compared with FY95's $2.22. One analysts reportedly foresees $3.00 for FY97, but the confidence band around any such estimate must be so large as to make it of marginal utility.

I spoke with Jim Chiafery of K&S twice today, to get a fuller understanding of what prompted the press release. I also let the company know that some folks (including myself) were suspicious about the weakness in the stock *yesterday*--before the news release and on a day on which many chip-related stocks rose. Chiafery insisted that there were no leaks, and I believe that. I have come to understand that a Prudential analyst independently communicated within the past day or so that he might well be revising his EPS estimates for KLIC based on the current unease in the semiconductor industry.

As those of you who have followed my comments in these nightly updates know, I prefer not to sell stocks based on rumors, technical "sell signals," phases of the moon, or whatnot. On the other hand, if the basic story that motivated the original purchase changes materially, I will sell. So I'll be selling the Borefolio KLIC shares tomorrow.

Please understand. This decision has nothing to do with my opinion of the company. Kulicke & Soffa is the leader in its business, without any doubt. The factors impinging upon the company right now are largely beyond its control. When those conditions begin to improve, as they will eventually, I may well repurchase KLIC--and quite possibly at a higher price than I'll sell at tomorrow. I have a fiduciary responsibility in managing this portfolio, however, and I place upon myself an obligation to invest in the very best ideas I have that will increase to value of the portfolio. KLIC shares are not among those "best ideas" right now.

That said, I do not wish at this point to reduce my exposure to the semiconductor equipment industry to zero. So I will continue to hold the LRCX shares.

I will be eliminating another holding from the Borefolio tomorrow, and that is Potash Corp (PCS). The reasoning behind this sale is more complicated than for KLIC. No single piece of news motivates my decision, but rather a confluence of factors.

One reason is that analysts' EPS estimates over the coming year or so are moving downwards for POT. That by itself will not ordinarily motivate me to sell, but the revisions are nontrivial and persisting recently. They are based on uncertainty about PCS's exports to China in the near term.

When I learn that analysts are voicing concerns about a company's earnings capacity, I call the company to get clarification--which is what I did with Potash, on multiple occasions. I have to say that the PCS investor relations office was singularly unhelpful on all of those occasions. That's their prerogative, of course. It is inconsistent with the mission of the Motley Fool ethos that we--you and I--are creating together, however.

The final factor in my decision is that I get nervous when I learn that company insiders are selling shares. Now we know there are lots of reasons for insiders to sell--especially in high-tech start-ups in which stock options constitute a significant part of management's income. But PCS is about as far removed from high-tech as Saskatoon is from Silicon Valley. In any event, the Chairman of the Board sold 37,500 shares at $78.50 last month, leaving him with just over 1,000 shares. Two VPs, the Treasurer, and a Director joined him. Now even that by itself might not prompt me to sell; but in conjunction with the other bad vibes, it tipped the scale.

So POT gets panned tomorrow, too.

Oh, yes. Borders rose 7/8 today. And Texas Industries picked up 5/8 in anticipation of a nice earnings report tomorrow. Sigh.

Today's Moves

BGP   +   7/8
GNT   -   1/4
KLIC  -3
LRCX  -2
POT   -2  5/8
PMSI  -   1/8
TXI   +   5/8