Boring Portfolio Report
Tuesday, August 6, 1996

by Greg Markus (MF Boring)

ANN ARBOR, MI (August 6) -- If yesterday's market could be characterized as a victim of afternoon profit-taking, then Tuesday's market can be fairly described as benefiting from afternoon "profit-seeking."

Computerized buy programs helped move the Dow to the plus side after being in negative territory for much of the day. The NASDAQ composite index also closed higher by 8 points, or 0.74%. The S&P 500 index rose as well, but only by a third of a percentage point. On the Big Board, advancing stocks barely outnumbered decliners, 13 to 11.

Among Borefolio stocks, however, gainers outnumbered losers eight to zip. Cool. The net asset value of the Boring portfolio appreciated by 2.33% on the day. That moved its NAV gain since inception (on January 29) into double digit territory: +10.33%. Excellento pimento.

The big Borefolio news on Tuesday was Oxford Health Plans report of quarterly earnings and follow-up conference call with analysts. My summary of the report and teleconference is available in the Motley Fool's "Earnings Central" section, as well as in the Oxford Health folder here in the Boring Portfolio, for folks on AOL.

By way of summary, Oxford reported 2Q earnings of $0.28 per share. That constituted a 75% over the year-ago quarter and beat the Street's consensus forecast by a penny. Quarterly revenues were $725.3 million, also a 75% gain over a year ago.

Oxford's enrollment increased by more than 120,000 during the quarter, and approximately another 85,000 net new members have enrolled since June 30, bringing total membership to over 1,406,000 as of August 1, 1996. The company said they are projecting total membership to reach 1.500 to 1.525 million by the end of 1996.

As impressive as the top line growth is, the internal business operation is perhaps even more impressive. Oxford's medical-loss ratio for 2Q:96 was 80.3%, slightly better than expectations. SG&A expenses were 15.9% of operating revenue for the quarter, down from 18.2% a year ago. Net margins increased to 3.15% versus the year-ago 2.79%.

Please note that all of this occurred as one HMO after another issued warnings about rising costs and declining earnings, sending the entire industry into the dumpster.

Oxford's competitors cut prices and gambled that they could offset smaller margins with higher volume. Oxford maintained that its premium product at a somewhat higher price point would continue to attract customers while safeguarding decent margins. Guess who won.

Not only that, but as competitors are finally realizing they have to hike premiums to make any money, the cost differential between their plans and Oxford's is dropping from the former 10-15% range to around 5.5%. This could make Oxford's products more attractive than ever.

In terms of guidance, the company estimates 1996 revenues to come in around $3.0 to $3.1 billion. They forecast EPS to be in the range of $0.30 to $0.32 for the current quarter and $1.21 to $1.22 for the full year. Expect upgrades of analysts' earnings forecasts imminently.

On a personal note: this conference call was my first opportunity to listen to CEO and Chair Stephen Wiggins speak. I've been fortunate to spend time around some very smart folks in my lifetime, and as a result, I'm not easily impressed. I was *very* impressed by Wiggins. If Bill and Hillary (or Bob and Elizabeth?) ever feel the urge to take another bite at national healthcare policy, they could do a lot worse than ask Stephen Wiggins for a briefing.

Cisco Systems was also in the news (again) today. You remember how Cisco completed its $4 billion acquisition of switch-maker StrataCom less than a month ago? And how it announced its intention to acquire Telebit's MICA (digital modem) technology two weeks ago? Well, today Cisco revealed that it has signed a definitive agreement to acquire privately held Nashoba Networks, Inc.

In the deal, Nashoba shareholders will receive approximately $100 million in Cisco stock. Cisco will acquire Nashoba's token ring switching technologies, and 40 Nashoba employees will join Cisco's InterWorks operations in Chelmsford, MA (i.e., where Telebit is). You can learn more about Nashoba at its Website, http://www.nashoba.com .

Now I don't know a token ring from an onion bagel, but folks who follow this stuff tell me that token ring switching is one of the fastest-growing segments of the local area networking (LAN) market and is expected to more than double over the next year. According to the press release, "Token Ring switching allows customers to combine network router and switch products

to build campus and wide-area Token Ring networks connecting nearby buildings and far-flung multi-national organizations."

Bay Networks is the current leader in the token ring biz, while Madge (whose products Cisco has been marketing) is in second place, with Xylan also a player. Cisco had been relatively absent from this segment, but in typical Cisco fashion it has decided to buy its way in.

Reactions by industry analysts' have been highly favorable, and the market seems to like the news, as well. CSCO shares picked up $1 5/8 (on the bid side) today, putting them just under their all-time high.

Speaking of all-time highs, have you looked at Green Tree Financial recently? Or TXI?

Transmitted: 8/6/96