The Motley Fool: The Boring Portfolio

ANN ARBOR, Mich. (Sept. 18) -- It's hard to win this game. Half the time the market is jittery because it fears that the economy is growing too fast and inflation might kick in. The other half of the time, such as today, the concern is that the economy is weak and earnings growth could be muted.

The trigger today was a Commerce Department report that the U.S. economy was selling a lot less stuff abroad than it was importing. The trade deficit had ballooned by 43% in July, to $11.68 billion. In response, the Dow fell 11 points and the S&P 500 index lost 1.5 points (-0.22%). The Nasdaq managed a 2-point gain, to close at 1206 (+0.42%).

As for the Boring Portfolio, it advanced 0.42% in n.a.v. Big Borefolio winners today were Texas Industries, which decided to move its quarterly earnings report up a day to this morning, and Prime Medical Services, which has recovered substantially from recent weakness, buoyed by favorable coverage from Prudential and, more recently, Donaldson, Lufkin & Jenrette.

DLJ initiated coverage of PMSI on Sept 12 with an "outperform" rating. More important than the rating itself is (a) new coverage by another important Wall Street firm, (b) DLJ's assessment that the company is on track to earn $0.65 (fully-taxed) for FY97, which would represent a healthy 48% advance over FY96, and (c) DLJ's view that PMSI's favorable cash-flow situation should be able to support additional lithotripter acquisitions this year, even without the aborted secondary share offering.

Oh yes, also (d): PMSI could see broadening business opportunities in offering management services to urologists' offices, possible use of lithotripters on gallstones (as is now done in Europe) as well as kidney stones, and potential for new business in the newly-approved treatment of enlarged prostates with microwaves (the "Prostratron" -- gawd, what a name: sounds like some quack-o "orgone" machine).

PMSI participated in the DLJ Emerging Growth Conference this week, and something must have clicked. Not only did the stock advance $ 3/4 today, it did so on volume of 457,000 shares -- nearly quadruple PMSI's average volume.

Now on to TXI. As I noted yesterday, the stock has fallen off a cliff recently, presumably in reaction to a cut in steel prices by Nucor that obliged TXI's 85%-owned Chaparral Steel operation to respond in kind.

Last night, I cranked the numbers and suggested that the net impact could translate into perhaps a 5-cent swipe out of earnings in the $7.50 range. That was wrong. What I should have said was a 4 to 5 *percent* impact, or closer to 30-cents. Oops.

Happily (he said, face bright red), my "analysis" ended up in a place with which the company remains comfortable: a forecast of something like $7.50/share for FY97 (which ends in May). That would easily justify a share price in the mid $70s.

After yesterday's commotion, TXI decided it made sense to report their earnings today rather than on Thursday, as they had intended. No reason not to when you've got good news to report. The company made $1.74 in its first fiscal quarter that ended August 31. That's a fine 13.7% advance of last year's $1.53. Gross margins were up (13% versus 12.7%), net margins were up (8.1% versus 7.4% -- not bad for rocks and steel), and both the steel and cement/concrete/aggregates sides of the biz were humming along.

Value line was looking for $1.65, and a second analyst (as reported by S&P) had $1.59 as a forecast. Shares of TXI rocked $3 ahead on solid volume of more than 100,000 shares. The conference call with analysts won't take place until Friday, but some additional financial info should be available tomorrow. I'll follow up on that with you right here, tomorrow night.

TODAY'S NUMBERS

BGP -1...CSL - 1/8 ...CSCO + 1/4 ...GNT - 5/8 ...OXHP + 5/8 ...
PMSI + 3/4 ...SHAW -1...SPY - 5/32...TXI +3...

*Scroll down or expand screen for full portfolio accounting

                   Day   Month    Year  History
        BORING   +0.42%   4.80%  13.08%  13.08%
        S&P 500  -0.22%   4.52%   9.63%   9.63%
        NASDAQ   +0.20%   5.63%  15.83%  15.83%


    Rec'd  #   Security     In At       Now    Change

  4/12/96 100 The Shaw Gr    18.84     30.50    61.88%
  2/28/96 200 Borders Gro    22.51     35.50    57.69%
   3/8/96 400 Prime Medic    10.07     14.25    41.53%
   2/2/96 200 Green Tree     30.39     35.50    16.82%
  1/29/96 100 Texas Indus    54.50     62.50    14.68%
  6/26/96 100 Cisco Syste    53.90     59.88    11.09%
  7/23/96 100 S&P Deposit    64.15     68.48     6.76%
  8/13/96 100 Carlisle Co    52.65     53.00     0.66%
  5/24/96 100 Oxford Heal    48.02     47.75    -0.57%

    Rec'd  #   Security      Cost     Value    Change

  2/28/96 200 Borders Gro  4502.49   7100.00  $2597.51
   3/8/96 400 Prime Medic  4027.49   5700.00  $1672.51
  4/12/96 100 The Shaw Gr  1884.16   3050.00  $1165.84
   2/2/96 200 Green Tree   6077.49   7100.00  $1022.51
  1/29/96 100 Texas Indus  5449.99   6250.00   $800.01
  6/26/96 100 Cisco Syste  5389.99   5987.50   $597.51
  7/23/96 100 S&P Deposit  6414.99   6848.44   $433.45
  8/13/96 100 Carlisle Co  5264.99   5300.00    $35.01
  5/24/96 100 Oxford Heal  4802.49   4775.00   -$27.49

                             CASH   $4428.44
                            TOTAL  $56539.38