Boring Portfolio Report
Tuesday, July 30, 1996

by Greg Markus (MF Boring)

ANN ARBOR, MI (July 30) -- Yesterday, the DJIA lost 38 points in the late afternoon on the slowest trading day all year. Today, the Dow gained 47 points in the late afternoon on not quite that languid a session, but almost. The S&P 500 Index increased seven-tenths of a percent in value, while the NASDAQ and the Boring Portfolio each rose about a half a percentage point.

There's just one more day left in July for the Borefolio to erase its 1.7% decline for the month. Hey, it's possible. By comparison, the S&P 500 is off more than 5% in July, and the suffering NASDAQ has fallen nearly twice that far.

Shaw Group and Texas Industries, the two construction-oriented stocks in the Boring Portfolio, rose a bit on Tuesday. Prime Medical Systems picked up $ 5/8 on the bid side, as news of its upside earnings surprise seeped through the market. The Borefolio's Spiders rose along with the S&P. Borders Group slipped a fraction, while Green Tree was "unch" for the day. No news on any of those issues.

The Borefolio's big loser on Tuesday was Oxford Health Plans, which fell along with the entire healthcare group as yet another HMO warned of an earnings shortfall. Today (or last night, actually) it was Healthsource's turn.

Healthsource said it expects 2Q earnings to come in "substantially" below analysts' estimates due to "the competitive pricing environment, higher than expected health care costs and rapid membership growth." The company said it plans to increase premium prices as part of its strategy to improve earnings.

I scarcely need remind Borefolio followers that, in contrast to Healthsource and a number of other HMOs that offered lowball premiums as a way to temporarily boost enrollment, Oxford refused to participate in the race to the bottom and instead offered customers a product of superior quality at a fair price.

The consequence has been that while one HMO after another has warned recently about earnings shortfalls, Oxford executives have consistently maintained their "complete comfort" with analysts' consensus projections of $0.27 for the quarter and $1.17 for the fiscal year. That latter figure, by the way, is 65% above FY95's $0.71, fully diluted. Oxford is slated to report 2Q earnings on August 6 -- one week from today.

Lastly, Cisco Systems added $1 1/8 (bid) on volume of more than 7 million shares. The only thing I can find that might account for the renewed interest in Cisco is a statement that Eric Benhemou, Chairman and CEO of competitor 3Com, offered at his company's annual gathering of financial analysts.

Benhamou said he expects the networking equipment industry's annual growth rate to remain in the 30-50% range worldwide, with growth in the Americas at 25-45%, European growth at 35-55% and 60-80% in Asia Pacific.

Those kind of numbers suggest that Cisco, the industry leader by far, ought to be able to achieve the 35-40% earnings growth that analysts are projecting. Meantime, CSCO is trading at around 26-times the $2.00 per share or so that analysts are projecting CSCO to earn in the coming 12 months.

Transmitted: 7/30/96