Boring Portfolio Report
Monday, July 1, 1996

by Greg Markus (MF Boring)

ANN ARBOR, MI (July 1) -- The second half of 1996 got off to a rip-roaring start on Monday as the DJIA popped 75 points, the S&P 500 index rose 0.78%, and the NASDAQ index, purportedly burdened by all those so-called "frothy" tech stocks, zoomed 1.05% as institutionally-based money managers stepped up to load their carts with terrific bargains following late June's end-of-quarter antics.

The, uh, "money manager" of the Boring Portfolio engaged in no shopping today (not counting a fresh tube of bathtub caulk), although I intend to add a new stock soon. The Boring basket began the third quarter on the right foot, nonetheless, advancing 1.29%

The Borefolio's most recent acquisition, Cisco Systems, was featured today on the Salomon "Favored 40" large-cap list, as well as on Smith Barney's "Ten + Exceptional Names" list of "particularly attractive investments" for the coming year.

If that weren't enough good press for one day, the monthly "Fidelity Independent Adviser" newsletter reported that "Bob Stansky is setting a new course for Magellan, reshaping the $55 billion portfolio by buying blue chip companies with outstanding growth characteristics," including (what else?) Cisco, one of the largest holdings in Fido's Growth Fund, which Stansky left recently to take the helm of Magellan from Jeffrey Vinik.

All that great news, plus the favorable wind of the NASDAQ's surge, propelled Cisco to a new high on Monday, closing at a bid of $58 3/8.

Speaking of Cisco, as I was sitting at the Buhr Park pool at 7:30 AM on Saturday, waiting for the 13-14 year-old girls 50-yard butterfly event to get underway, I finished reading Mary Meeker and Chris DuPuy's "The Internet Report" -- available at Borders (up one-half point, to $32 3/4) and other, lesser bookstores everywhere. In that book, I learned yet another thing that endears Cisco to me: to wit, it's mission statement.

You know mission statements -- those mush-mouthed, catch-phrased, subordinately-claused, cotton-candy fluffs intended to convey Great Significance but that instead induce acute MEGO (as in "My Eyes Glaze Over")?

Well, Cisco's mission statement is a great one, right up there with Iomega's ("We help people manage their stuff."). Cisco's is a two-parter:

1) Sell networks.
2) Do anything else that promotes #1.

Man, that's one company I'm delighted to own a chunk of.

The other Borefolio "tech" stock did pretty well on Monday, too. I refer, of course, to The Shaw Group, the prince of pipe-bending technology.

SHAW rose two-bits to a bid of $18 7/8 on Monday. With that move, the stock is officially (if indetectably) in the black once again for the Borefolio, including the broker's commish.

This morning, SHAW reported record sales of $63.78 million for their fiscal 3Q ending May 31, 1996. That was more than double sales of $31.83 million in the same quarter a year ago and was up 29% sequentially over 2Q:96. Net income of $2.445 million represented an increase of 54% over a year ago, and a 34% increase sequentially. Cool.

Shaw Group's 3Q:96 EPS of $0.26 was 39% above the year-ago $0.19 and was up 24% sequentially over 2Q's $0.21. The reported EPS compared with analysts' estimates of $0.23 to $0.24. Gross margin of 20.1% was off slightly from last year's 21.3%, owing to last year's higher-margin work at the Venezuelan subsidiary, but represented an increase over 2Q:96 margin of 17.6%.

The recent acquisition of Alloy Piping contributed approximately $13 million to earnings in the quarter just ended, even though Alloy was part of SHAW for only portion of the quarter. Looking forward, Alloy's place in Shaw Group's vertical integration will mean that an increasing amount of work that formerly went outside of SHAW can now be completed within the company.

International sales were $21.5 million for 3Q:96, as compared with $12.9 million for the year-ago quarter -- a 67% increase. Of that $21.5 million in international sales, approximately $9.5 million was in the Far East/Pacific Rim, $7.1 million in the Middle East, and $4 million in Europe.

As of May 31, Shaw Group's backlog stood at a record $151 million, as compared with $115 million in 2Q:96. Approximately 62% of that backlog is in international projects (mostly power plants), which tend to have higher margins than domestic projects do. Overall, the backlog breakdown is 63% power plants (none are nuclear power), 27% chemical plants, and 10% refineries. Approximately $30 million in new projects were won in the quarter.

As reported in the company's conference call this morning, working capital stands at $45 million, short-term debt at $43 million, long-term debt is $28 million, and shareholder equity is $70.3 million. Debt/capitalization ratio is 50%. The company has an $80 million revolving credit agreement that it uses to purchase materials and other factors, which it then bills to customers.

As exciting (zzz-z-z) and important as the numbers are, what I personally found most interesting was the news that Shaw Group has on order the world's only portable large capacity pipe-bender and has just received from the Netherlands a new PB-1200 pipe-bending machine that can handle pipe with diameters as large as 48 inches and wall thicknesses as fat as 4 inches.

Picture that in your mind: a pipe big enough to ride a bike through and with walls as thick as a big-city phone book. Now picture *bending* that sucker. It takes a state-of-the-art, made-in-Holland, 125-ton, PB-1200 pipe-bender to accomplish that: carefully heat a section of pipe, bend it precisely to shape, and cool it just right. Fascinating.

The advantage of the PB-1200 (jeez, I sound like a vacuum-cleaner salesman) is that bending pipe to specs saves on lots of welding and pipe fittings -- which means saving lots of time and money. This kind of technology is essential for fabricating high-pressure, critical piping for power plants and such.

As for the "portable" pipe-bender, it will weigh a mere 100 tons: skid-mounted so that it can be transported to any site on the globe.

Now *that* is something I'd love to see. Can you imagine hauling a 200,000 pound pipe-bender into the middle of China or Saudi Arabia? Maybe they could get Werner Herzog to make a movie about it: "Fitzcarraldo, Part II." (If the movie reference doesn't ring a bell, head over to Blockbuster and check out the original. It's a great flick, a true story of a wild Irishman who dragged a riverboat overland to bring opera to a godforsaken corner of the South American rain forest.)

Speaking of rain forests, did I mention that Green Tree Financial grew $1 3/4 today? A little Miracle-Gro courtesy of Alan Greenspan, I suppose.

Gottarunnow. Bye.

-- Greg Markus (MF Boring)

(c) Copyright 1996, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

Transmitted: 7/1/96