Boring Portfolio Report
ANN ARBOR, Mich. (Oct. 16) -- At last! A majority of Boring holdings finished
higher on Wednesday. Better yet, the Borefolio gained 0.37% in net asset
value -- *and* we beat the major market averages.
The Dow managed to end an up-down-up session with a 16 point gain, to set
its 29th new high of 1996. The S&P 500 index also set a new high, advancing
0.27%, but the Nasdaq lost 7 points (-0.57%) in heavy trading.
Continuing my series of reviews of Borefolio stocks, I'll be summing up my
take on Texas Industries in tonight's recap. TXI is the sole survivor of
the original Borefolio that was launched on January 29. The stock did well
for us until around late August. Since then, however, it has slipped virtually
all the way back to my original purchase price in the mid-$50s.
Should I sell TXI before the stock becomes a net loser for the Borefolio,
or should I hang in there? Right up front, I'll tell you that I've decided
to hold the stock -- and I'll offer you my line of reasoning in a moment.
First, though, let's get up to date on other Boring news -- and there's a
lot today.
Borders Group picked up $1/8 today. The company announced the grand opening
of the latest Borders, in Eau Claire, Wisconsin. Several in-store events
are planned to celebrate the opening, beginning Friday, October 18, and running
through the week-end. All you cheese-heads are invited.
Cisco announced the appointment of general managers to its Access Business
Unit and Small Internetworks Business Unit. Kevin Kennedy, 40, was named
VP and GM of the Access Business Unit, which develops and markets branch
office internetworking and dial access solutions. Kennedy joined Cisco in
1993 after 16 years at AT&T Bell Labs. Howard Charney, 48, was named
VP and GM of the newly formed Small Internetworks Business Unit, which focuses
on networking systems solutions for small and medium-sized businesses. Charney
was the founder and CEO of Grand Junction Networks, which Cisco acquired
last year. Cisco shares lost a half-buck today.
I received my copy of Cisco's 1996 annual report this morning, complete with
CD-ROM. The package is easily the most interesting and informative annual
report I've ever seen. If you're contemplating a purchase of some CSCO --
or simply want to learn more about what the company does, where it's been
and where it intends to go from here, I urge you to get a copy of this report.
I have no idea how many copies Cisco is willing to give away, but you can
call 'em at (408) 526-4000 or e-mail 'em at [email protected].
I added 100 shares of Solectron to the Borefolio yesterday, and the stock
wasted no time in moving into the plus column. SLR advanced $1 1/4 on news
that the company and its new subsidiary, Fine Pitch Technology, intend to
open a joint facility in the Boston area, "providing a full range of electronics
manufacturing services to original equipment manufacturers (OEM) in the Northeast
region of the United States."
The plan is to begin operations in Westborough, Mass. next month, offering
complex, printed circuit board prototype assembly, including engineering
changes and other pre-production services. By year's end, Solectron says
it will offer a full range of circuit board assembly services at the site.
Wired investors can learn lots more about Solectron in my "buy" report, elsewhere
in the Boring Portfolio area of The Motley Fool, as well as at the company's
Web-site: http://www.oakridge.com/Solectron.
Now let's dig into TXI. Recall that this company is a large Texas-based (duh)
producer of cement, concrete and aggregates (CAC) that are marketed regionally,
as well as a producer of high-quality carbon steel products through its
85%-ownership of Chaparral Steel, a state-of-the-art minimill that markets
its products nationally.
The economic turnaround in Texas and adjacent states as well as TXI's and
Chaparral's successful efforts at maximizing production efficiencies in their
operations helped TXI stock double between early 1995 and the middle of this
year.
More recently, though, the stock has fallen in reaction to a price cut for
one of Chaparral's key products, light-weight construction beams. Assuming
that the price cut held through the remainder of TXI's current FY (which
ends in August), its impact would be to reduce the company's earnings by
perhaps three or four percent. TXI's share price has fallen 15% or so in
the past few weeks, however. Once again, the market has over-adjusted to
news.
As it stands now, TXI's market capitalization is two-thirds of the $967.4
million in sales the company did in FY96. The trailing p/e on the stock has
fallen to 7.0 -- well below an average p/e of 10 for its peers. What's even
more perplexing is that all this has occurred while Chaparral's share price
has held steady!
Standard & Poor's recently reissued a "buy" on TXI, based on the fall-off
in price. The most recent First Call shows the consensus rating of three
analysts to be 1.3 -- between "strong buy" and "buy." Analysts' consensus
EPS estimate for FY97 is $7.55. True enough, that would constitute only a
7% gain over FY96's $7.05; the company's long-term CAGR is closer to 11 or
12, however. As of the FY96 earnings report, the company's book value was
$37 and the long-term debt/capitalization ratio stood at 27%.
The company recently announced a patented cement-production process (CemStar)
that adds approximately 10% capacity at almost no cost by using slag byproduct
from Chaparral's steel-making as an input to the cement kilns. TXI has already
licensed the process to another cement producer and is negotiating with others.
Chaparral is pioneering new light-weight steel beams, as well.
If all this were not enough, TXI announced last night that its board had
approved a share buyback. Although the board did not specify a specific target,
it's worth noting that when a similar announcement was made two years ago,
within 12 months the company had repurchased $55 million in stock. Chaparral
has bought back a total of 1.3 million shares in recent months, as well.
The way I see it, if you attach a modest multiple of 9 to the projected $7.55,
you've got a $68 stock by early next year, plus a small dividend. That's
a 22% gain from where the stock stands today -- not bad.
Transmitted: 10/16/96
Wednesday, October 16, 1996
BGP + 1/8 ...CSL + 1/2 ...CSCO - 1/2 ...GNT - 1/4
OXHP -1 1/4 ...PMSI + 5/8 ...SPY + 1/4 ...SLR +1 1/4
TXI - 3/8 ...
*Scroll down or expand screen for full portfolio accounting
Day Month Year History
BORING +0.37% -0.84% 15.43% 15.43%
S&P 500 +0.27% 2.49% 13.32% 13.32%
NASDAQ -0.57% 1.96% 20.18% 20.18%
Rec'd # Security In At Now Change
2/28/96 200 Borders Gro 22.51 34.50 53.25%
3/8/96 400 Prime Medic 10.07 13.63 35.32%
2/2/96 200 Green Tree 30.39 38.88 27.93%
6/26/96 100 Cisco Syste 53.90 65.38 21.29%
7/23/96 100 S&P Deposit 64.15 70.66 10.14%
8/13/96 100 Carlisle Co 52.65 57.00 8.26%
1/29/96 100 Texas Indus 54.50 55.38 1.61%
10/15/96 100 Solectron C 54.52 55.00 0.87%
5/24/96 100 Oxford Heal 48.02 46.75 -2.65%
Rec'd # Security Cost Value Change
2/28/96 200 Borders Gro 4502.49 6900.00 $2397.51
2/2/96 200 Green Tree 6077.49 7775.00 $1697.51
3/8/96 400 Prime Medic 4027.49 5450.00 $1422.51
6/26/96 100 Cisco Syste 5389.99 6537.50 $1147.51
7/23/96 100 S&P Deposit 6414.99 7065.63 $650.64
8/13/96 100 Carlisle Co 5264.99 5700.00 $435.01
1/29/96 100 Texas Indus 5449.99 5537.50 $87.51
1/29/96 100 Solectron C 5452.49 5500.00 $47.51
5/24/96 100 Oxford Heal 4802.49 4675.00 -$127.49
CASH $2573.46
TOTAL $57714.09