Boring Portfolio Report
Thursday, August 1, 1996

by Greg Markus (MF Boring)

ANN ARBOR, MI (August 1) -- The Borefolio lagged behind the major indices a bit on Thursday but ended the session with a decent gain, nonetheless: up nearly $700, or 1.32%. By way of comparison, the S&P 500 advanced 1.57% in value, while the NASDAQ soared 18 points, or 1.69%.

An array of economic statistics were released on Thursday, some of which (the GDP report, construction activity, and new unemployment claims) were sufficiently robust to have sent the market sliding on fears of galloping inflation any other day. Traders were apparently in a buying mood today, though, so they focused on the one statistic (a friendly number from the National Association of Purchasing Managers) that fit their predisposition and discounted the rest. So it goes.

Of course, if you don't like that interpretation of today's market activity, feel free to construct your own. It makes a nice parlor game to play in commercial breaks during the Olympics.

Friday morning brings the 800-pound Gorilla of macrostats: the July jobs report. This is the fella that has sent the market diving a couple of times already this year. So fasten your seat belt and keep your hands and arms inside the vehicle until it comes to a complete stop.

Among individual Borefolio holdings, six issues were up, one (PMSI) was down, and one (TXI) was unchanged.

On the big board, Green Tree continued its recent spurt of growth, adding $3/8 as the yield on the long bond eased to 6.84%, the lowest value in more than two months. Borders gained $3/8, as well.

On the NASDAQ side, Cisco showed continued strength, while Oxford Health Plans regained a bit of lost ground. The AMEX-based Spiders crawled into the plus column for the Borefolio today, too.

That leaves two holdings to discuss: the weakest Borefolio stock recently (PMSI) and the strongest (SHAW). Prime Medical made an effort to continue yesterday's advance, but ended the day slipping back on low volume. I've heard no one claim that the stock is anything other than deeply oversold. The problem, though, is that the full financial figures to accompany Monday's strong quarterly earnings report have not yet been released; and until they are, analysts (and I) have to mark time until we have some data to digest. So we wait ... patiently. Check back early next week, the company told me today.

The story on Shaw Group is, of course, the mirror image of PMSI's. SHAW shares have appreciated 50% in value since its July 1 earnings report. And even discounting for the screwy way that volume gets tallied on the NASDAQ (see Forbes, July 29 issue), trading in SHAW has been unprecedentedly robust for a few weeks now. It appears that SHAW has crossed the screen of at least one manager of a decent-sized fund.

Today, for example, nearly 400,000 SHAW shares crossed the NASDAQ wires, while the stock briefly got as high as $29 1/4, before ending the session at a bid of $28 1/4.

Terrific, yes? You bet. But the good news also means that SHAW has pretty much attained the target I had pegged as its year-end fair value. At its current price, SHAW is trading at right around 20-times estimated EPS for FY97 (which doesn't even begin until next month).

Also, although the company has no specific plans for one, I think that a secondary stock offering is fairly likely sometime this year. Although a reasonably-sized offering could well be in the long-run interests of shareholders, such events can weaken the share price at least temporarily -- especially if the offering is overly-ambitious.

On the other hand, it could be argued that SHAW can handle a multiple above 20, especially since EPS is projected to grow by more than 50% over the coming year. Shaw's earnings projections have been ratcheting upward recently, as well, and there's a reasonable chance they could continue to do so.

In light of the foregoing, and based entirely on the run-up in the stock price and not at all on any revision in my view of the business or its prospects, I've decided to SELL A PORTION of the Borefolio's SHAW holdings. I will RETAIN A STAKE to reflect my continuing respect for the company's prospects over the longer term.

So, sometime during the next five trading days, I will sell 200 SHAW, while retaining 100 SHAW in the Borefolio.

Now we back to the decathlon.

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Transmitted: 8/1/96