Boring Portfolio Report
ANN ARBOR, Mich. (Sept. 17) -- The market loosened its belt today and took
time to digest its recent gains. The Dow finished Tuesday within a fraction
of a point of where it began, at 5889. The S&P 500 slipped a point (-0.15%).
NYSE trading volume was a decent 443 million shares.
Over on the Nasdaq, computer-related stocks in general and chip stocks in
particular rose on news from Intel that the company expects to exceed analysts'
expectations for the company's third quarter. The Nasdaq composite index
gained 9 points (+0.78%) to close above the 1200 mark, at 1203.
The Boring Portfolio did not fare nearly so well. It lost 0.69% in value,
as Oxford Health Plans gave back $1 3/8 of its recent gains and Texas Industries
sank faster than a concrete block in Lake Ray Hubbard. TXI ended the day
down $2 7/8 on ten-times is average daily trading volume.
We've come to expect (if not exactly enjoy) Oxford's volatility. But TXI
is another matter entirely. TXI was among the initial Borefolio purchases
when we opened our little enterprise for edification and enjoyment back in
late January. Since then, the stock has quietly contributed both stability
and growth to the Borefolio, having gained about 15% over the year to date
with relatively little in the way of big moves one way or the other.
Yesterday, TXI fell $1 1/2. Today, the stock gapped down at the market open
and fell as low as $56 5/8 -- or 12% below where it was on Friday -- before
recovering a bit in the afternoon. So, like, what's the deal?
I've been in touch with TXI's investor relations office a few times in the
past few weeks, partly because the company will be announcing its Q1 results
soon (Thursday, to be exact). Today, I spoke again with the company, twice.
With the earnings report pending, the company is restricted in what it can
disclose, but based on what TXI was able to tell me and other information
I've gathered on my own, here's what I know.
First, back in late August, S&P cut its rating on the company from 4-stars
("buy/hold") to 3-stars ("hold), based partly on the appreciation in share
price and partly on the analysts' expectations for moderating earnings. Despite
the ratings downgrade, the analyst projected EPS for FY97 to come in around
$7.50. That forecast is more or less in line with what other analysts are
projecting. Based on the multiple that TXI has carried over the past few
years, this would imply a target price in the low to mid $70-range by late
1996 or early 1997.
More recently, Nucor Steel (a minimill that competes with TXI's 84%-owned
Chaparral Steel) announced price cuts on construction beams that, according
to TXI, has resulted in a $5/ton reduction in Chaparral's selling prices.
As of the most recent quarterly report, Chaparral was making an average gross
profit of $92/ton on its sales. So assuming all of that $5/ton cut dropped
straight to the bottom line (and I don't know that it would), that would
work out to around a 5.4% reduction in gross profits for Chaparral, for however
long the price cut stuck.
Last year, Chaparral made earnings of $1.43/share. TXI owns 84% of that.
So given that one quarter of FY97 has already been booked, when I crank through
the numbers it's hard to see this costing TXI more than a nickel or so in
FY97, max. Based on a projected $7.50 EPS, this news might justify trimming
perhaps a point off the stock, but no more. (Please note: These are entirely
my own calculations, not TXI's or anyone else's.)
That's the negatives as I know them. On the other side of the ledger, we
have a continuing strong construction environment in Texas and thereabouts
(especially on the nonresidential side), moderate interest rates, recent
capital improvements at Chaparral that will increase capacity by perhaps
10%, and TXI's new patented cement production technology that will increase
its yield on that side of the biz.
On top of that, a news item today notes that a NAFTA trade-dispute resolution
panel has upheld a U.S. anti-dumping duty on Mexican cement. The panel denied
a claim by Mexico's largest cement maker, Cemex, which sought to end the
61.85% duties. Those duties were imposed six years ago after Mexican cement
producers were found guilty of "dumping" exports in the U.S. at artificially
low prices. That ruling came as "no surprise" to TXI, according to company
spokesman Ken Allen.
Based on what I know, my decision is to do nothing. The quarterly earnings
report will be out on Thursday, the follow-up conference call will be held
the following day, and we'll all know a lot more then.
On another note, did you notice that shares of Prime Medical Services rose
another $ 3/8 today, and on twice its average daily trading volume? I guess
we don't need to ask if their presentation at the DLJ Emerging Growth Conference
went well.
Also, Carlisle Companies announced *another* acquisition today -- the third
one in less than a month. This time, Carlisle will be acquiring the Engineered
Plastics Division (EPD) of Johnson Controls, Inc. EPD has four manufacturing
facilities, two in Erie, Pennsylvania, and one each in Lapeer, Michigan,
and Tuscaloosa, Alabama. EPD's products include precision-molded engine
components and blow-molded bumper beams that are supplied to major automakers
in North America. Annualized sales of the division are approximately $130
million. Terms of the pending transaction were not disclosed.
EPD will be combined with Carlisle's Geauga company, also a supplier of
components to the automotive industry. According to Carlisle's CEO, Stephen
Munn, this latest acquisition "enhances and extends Carlisle's component
supplier strategy, which involves providing full design, engineering and
production services to Tier I companies supplying complete systems to the
automotive OEMs."
Shares of Carlisle closed up a quarter-point today. Cool.
Tuesday, September 17, 1996
BGP - 1/8 ...CSL + 1/4 ...CSCO ---...GNT - 3/8 ...OXHP -1 3/8 ...
PMSI + 3/8 ...SHAW - 1/4 ...SPY -11/64...TXI -2 7/8 ...
*Scroll down or expand screen for full portfolio accounting
Day Month Year History
BORING -0.69% 4.37% 12.61% 12.61%
S&P 500 -0.15% 4.75% 9.87% 9.87%
NASDAQ +0.78% 5.41% 15.60% 15.60%
Rec'd # Security In At Now Change
4/12/96 100 The Shaw Gr 18.84 31.50 67.18%
2/28/96 200 Borders Gro 22.51 36.50 62.13%
3/8/96 400 Prime Medic 10.07 13.50 34.08%
2/2/96 200 Green Tree 30.39 36.13 18.88%
6/26/96 100 Cisco Syste 53.90 59.63 10.62%
1/29/96 100 Texas Indus 54.50 59.50 9.17%
7/23/96 100 S&P Deposit 64.15 68.64 7.00%
8/13/96 100 Carlisle Co 52.65 53.13 0.90%
5/24/96 100 Oxford Heal 48.02 47.13 -1.87%
Rec'd # Security Cost Value Change
2/28/96 200 Borders Gro 4502.49 7300.00 $2797.51
3/8/96 400 Prime Medic 4027.49 5400.00 $1372.51
4/12/96 100 The Shaw Gr 1884.16 3150.00 $1265.84
2/2/96 200 Green Tree 6077.49 7225.00 $1147.51
6/26/96 100 Cisco Syste 5389.99 5962.50 $572.51
1/29/96 100 Texas Indus 5449.99 5950.00 $500.01
7/23/96 100 S&P Deposit 6414.99 6864.06 $449.07
8/13/96 100 Carlisle Co 5264.99 5312.50 $47.51
5/24/96 100 Oxford Heal 4802.49 4712.50 -$89.99
CASH $4428.44
TOTAL $56305.00