The Motley Fool: The Boring Portfolio

ANN ARBOR, Mich. (Sept. 19) -- The Dow lost 10 points today as traders' grew increasingly jittery about the Fed's upcoming meeting on Tuesday. As each new economic datum flows in, the gooroos try to outguess each other about whether or not the Fed will move to raise interest rates. Today the news was housing construction numbers, which were good -- that is to say, bad.

Good means "brisk economy," which means "inflation?" which means "higher rates?!" which means "stocks go lower!!"

Or not. We all have our "opinions" about whether or not the Fed will raise the discount rate. I have an opinion (It won't), and mine is worth about as much as all the other opinions, i.e., zilch.

What if I'm wrong? Big deal. Borders will still sell lots of books, Shaw Group will still bend miles of pipe, Prime Medical will still keep smashing kidney stones by the dozens, and so forth.

The S&P 500 managed a point and a half gain today (+0.22%), despite the weak Dow, and the Nasdaq tacked on its tenth straight advance, up 6.4 (+0.53%)

The Boring Portfolio lost a grand total of $10.94, despite seven stocks up and only two (our healthcare team of OXHP and PMSI) down. Ah, well.

Prime Medical's $ 5/8 slip comes after a string of upward moves on impressive volume. So I suppose some, er, profit-taking is to be expected. The most recent info from First Call gives PMSI a collective rating of 1.3 "strong buy" based on reports of six analysts who follow the stock. If PMSI is able to achieve the $0.75 EPS that most folks are expecting (and all indications are that everything is on track), that would easily support a target price of $0.75 X 25 = $18.75 by sometime around next June -- or nearly 40% north of where we are today.

To update the TXI saga, I received the full financials for the most recent quarter from the company today. I've not yet had time to go over them in much detail (the conference call is tomorrow morning), but I can report a few things.

On the Chaparral Steel side, gross margins were down a bit sequentially but above the year-ago quarter; and at 20.7%, that's a margin a lot of companies would love to have. Chaparral continued its practice of repurchasing shares, bringing the outstanding stock down by almost 300,000 shares from the preceding quarter. Melting capacity is expanding, also.

As for TXI's operations, cement, stone/sand/gravel, and ready-mix prices were all higher sequentially. Volume was lower due to soggy summer weather in Texas. Presumably, construction that was slowed during the preceding quarter could get made up in the present one, but that's speculation on my part (we'll know more tomorrow). Over all, business operations generated $22.3 million in cash during the quarter, up 19% over last year.

One stock that I've been neglecting lately is Green Tree Financial. Of course, it's been doing just fine without my tending to it. Analysts at Merrill Lynch and Lehman have just issued updated -- and glowing -- reports on GNT. The analysts point out two key points: (1) Green Tree has succeeded in expanding its business well-beyond its manufactured-home finance core; and (2) the revised bonus plan for Green Tree's CEO, which goes into effect in 1997, will add appreciably to EPS in that year and subsequently.

The Merrill analyst raised her forecast to $3.00 for next year, up from her previous $2.80. The (old) consensus of 12 analysts was $2.87 for FY97, which will now get moved up a few clicks. Even with a sub-market multiple of 15 (or roughly half GNT's projected growth rate), EPS in the three-buck range would easily move the stock into the mid-$40s by June.

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TODAY'S NUMBERS

BGP + 1/8 ...CSL + 5/8 ...CSCO + 1/8 ...GNT + 1/2 ...OXHP - 1/4 ...
PMSI - 5/8 ...SHAW + 1/4 ...SPY +17/64...TXI + 1/8 ...

*Scroll down or expand screen for full portfolio accounting

                   Day   Month    Year  History
        BORING   -0.02%   4.78%  13.06%  13.06%
        S&P 500  +0.22%   4.76%   9.87%   9.87%
        NASDAQ   +0.53%   6.18%  16.44%  16.44%


    Rec'd  #   Security     In At       Now    Change

  4/12/96 100 The Shaw Gr    18.84     30.75    63.20%
  2/28/96 200 Borders Gro    22.51     35.63    58.25%
   3/8/96 400 Prime Medic    10.07     13.63    35.32%
   2/2/96 200 Green Tree     30.39     36.00    18.47%
  1/29/96 100 Texas Indus    54.50     62.63    14.91%
  6/26/96 100 Cisco Syste    53.90     60.00    11.32%
  7/23/96 100 S&P Deposit    64.15     68.75     7.17%
  8/13/96 100 Carlisle Co    52.65     53.63     1.85%
  5/24/96 100 Oxford Heal    48.02     47.50    -1.09%

    Rec'd  #   Security      Cost     Value    Change

  2/28/96 200 Borders Gro  4502.49   7125.00  $2622.51
   3/8/96 400 Prime Medic  4027.49   5450.00  $1422.51
  4/12/96 100 The Shaw Gr  1884.16   3075.00  $1190.84
   2/2/96 200 Green Tree   6077.49   7200.00  $1122.51
  1/29/96 100 Texas Indus  5449.99   6262.50   $812.51
  6/26/96 100 Cisco Syste  5389.99   6000.00   $610.01
  7/23/96 100 S&P Deposit  6414.99   6875.00   $460.01
  8/13/96 100 Carlisle Co  5264.99   5362.50    $97.51
  5/24/96 100 Oxford Heal  4802.49   4750.00   -$52.49

                             CASH   $4428.44
                            TOTAL  $56528.44