Boring Portfolio Report
Wednesday, August 7, 1996

by Greg Markus (MF Boring)

ANN ARBOR, MI (August 7) -- Just as occurred yesterday, computerized "buy" programs triggered in the late afternoon managed to pull the major market averages into positive territory on Wednesday. The DJIA rose 23 points to close above 5700. With today's gain, the Dow has fought back to within one percent of its all-time high.

The S&P 500 index tacked on 2 points, but it was the NASDAQ that took the prize among the major indices, rising more than 12 points. That works out to just under a 1% gain on the session. Traders snapped up downtrodden chip stocks in anticipation of a favorable chip book-to-bill ratio (the reporting of which has been postponed 'til Thursday, they tell me).

As handsome as the NASDAQ's performance was, it was no match for the Boring Portfolio's 1.62% gain. Seven Borefolio stocks advanced on Wednesday, while only one -- Shaw Group -- declined.

Prime Medical Services picked up $ 3/8 on the bid side today. PMSI's 10-Q has been filed and is available for downloading at the SEC's EDGAR site on the Web. As you may recall, on July 29 PMSI posted strong earnings of $0.17 per share for its second quarter, after adjusting for one-time charges associated with the company's acquisition of Lithotripters Inc. The full financials weren't available at that time, however, so we had to wait a week to view the whole story.

An impressive story it is, too. We knew from the initial press release that revenues for PMSI's 2Q nearly quadrupled versus the year-ago quarter. What the 10-Q reveals is that even when faced with the challenge of managing a company that essentially doubled overnight, PMSI actually *reduced* internal business (SG&A) costs: from 44% percent of revenues a year ago to 33% in the quarter ending in June. Operating margins correspondingly rose to 62% of revenues, up from 42% a year ago.

As for the balance sheet, current assets at the end of 2Q:96 stood at $31.8 million, nearly triple what they were at the beginning of the year. With current liabilities of $18.56 million, the company's "quick ratio" stood at a reasonably comfortable 1.71.

The acquisition of Lithotripters, Inc. -- and the postponement of a planned secondary offering -- caused long-term debt to swell to $78.6 million. Relative to a current capitalization of approximately $268 million, though, that obligation would appear to create no undue burden, although the company's acquisition strategy is probably on hold until equity is raised.

Last but not least, the company remains cash-flow positive through six months of the year, with a net cash inflow of $4.5 million to add to the $4.7 million it started the year with.

Shares of the Borefolio's other healthcare stock, Oxford Health Plans, jumped three bucks on volume of 3.9 million shares, fueled by yesterday's upside earnings surprise. As Pirsig said in _Zen and the Art of Motorcycle Maintenance_, quality matters.

Speaking of quality, Cisco Systems managed a fractional gain following yesterday's news that it would acquire privately held Nashoba Networks, Inc., thereby gaining that company's token ring technology and products.

Actually, quality abounds in the Borefolio. Green Tree Financial is undeniably the leader in its business. GNT posted a record high today of $37, gaining $ 3/8. TXI also advanced $ 3/8 and is closing in on its own all-time high. Borders Group surged $1 7/8 in advance of its quarterly earning report, due next week. Quality.

There's no shortage of quality at Shaw Group, either, despite the six-bit sag in its shares. Smith-Barney's Tobias Levkovicz reduced his rating on SHAW today to "outperform" from "buy," purely on the basis of the stock's current price. He sees no change in the business's outstanding prospects.

Transmitted: 8/8/96