The Motley Fool: The Boring Portfolio

ANN ARBOR, Mich. (Oct. 18) -- What began as a lackluster week for the Boring Portfolio finished with a string of three positive sessions.

Friday's 0.19% advance in net asset value brought the Borefolio's weekly gain to +1.14% -- not quite up to the S&P 500's record-setting pace of +1.45% but not bad considering the options expiration-related softness of the Nasdaq, which lost about a half-percentage point for the week.

Friday's big Borefolio winner was Green Tree Financial, which added another $1 1/8 to its height -- and on double the stock's average trading volume.

Green Tree will report quarterly earnings on Tuesday (Oct. 22), and every indication is that they will be just dandy. Analysts are looking for $0.61/share in earnings, which would be a 20% increase over last year.

Internal growth could well be even higher than that. As you may recall, Green Tree's CEO has an incentive deal that could award him something in the neighborhood of $111 million this year. That works out to a jaw-dropping $0.81/share. With the impact of the bonus backed out for valuation purposes, some analysts (Michael Millman at Lehman Brothers, for one) estimate that EPS growth for 3Q:96 is closer to 22%.

I'm not going to quibble with the bonus. CEO Lawrence Coss has certainly done right by Green Tree's shareholders. In any event, the incentive deal ends this year, and the new arrangement will probably shave no more than a nickel a share or so from EPS in 1997.

Millman raised his near-term target price on GNT to $50, based upon what he thinks will prove to be a conservative estimate of $2.90/share for FY97 (basically in line with other analysts) and a market multiple.

I close out this week by offering another installment in our series of thumbnail sketches of Boring stocks. This time, it's Oxford Health Plans.

Oxford remains the only stock that has yet to break consistently into the black for the Borefolio. I acquired OXHP back in May, and except for a few days here and there, it's been underwater all summer and fall -- so far. Why haven't I dumped the stock and moved on?

The reason is because I continue to believe that, when the company posts its 3Q results on November 6, investors will finally grok that Oxford is fundamentally different from other HMOs.

Oxford's competitors have struggled all year to make money. Most followed a misguided strategy of cutting premiums in an effort to grow market share within an environment of rising medical costs. Oxford, in contrast, bet that many consumers would be willing to pay a little more for greater choice and better service.

So far, Oxford's been right. As a Dow Jones story about the healthcare sector reported tonight, "Oxford remains the sole outstanding performer among large HMOs."

According to the story, Robertson Stephens & Co. analyst Thomas Hodapp expects Oxford to report 72% revenue growth and EPS of $0.32 to $0.33 for 3Q. That's a penny or two above the mean estimate as reported in First Call.

For the year, analysts are forecasting $1.20, which would represent a 69% advance over 1996. For 1997, the current forecast is $1.70. Looking further out, the consensus projection is for EPS growth to compound at an annual rate of 40% or so for the next three to five years.

Pop a 40 multiple on that $1.70 and you're looking at the high $60s by next summer for the stock.

Did I mention that Oxford has zero debt and $800 million in cash and short-term assets?

I realize that HMOs have been getting something of a bad rep' recently -- sometimes amply deserved. As someone whose family has been enrolled in an HMO for years now (not Oxford -- it's not in my market, yet), I've seen both the downside and the upside of the arrangement. If you're willing (and able) to pay a bit more, though, an HMO can work out quite satisfactorily. That's why my family and I remain in one. In fact, the plan we have is very similar to the POS "Choice" plan that is Oxford's hottest selling product.

At the end of the day, it's clear to me -- and folks who know a lot more about the healthcare industry than I do -- that HMOs are only going to get bigger. And all indications are that Oxford will continue to be a leader -- perhaps even *the* leader -- in the biz.

That's a wrap. It's homecoming week-end here in Ann Arbor. The trees are at peak color. I hope your week-end will be as terrific as mine is shaping up to be.

TODAY'S NUMBERS

BGP + 7/8 ...CSL + 1/4 ...CSCO - 3/4 ...GNT +1 1/8 
OXHP -1 1/4 ...PMSI - 3/8 ...SPY +31/64...SLR + 1/8 ...TXI - 1/4 

*Scroll down or expand screen for full portfolio accounting

                   Day   Month    Year  History
        BORING   +0.19%   0.27%  16.72%  16.72%
        S&P 500  +0.54%   3.42%  14.35%  14.35%
        NASDAQ   +0.04%   1.27%  19.36%  19.36%


    Rec'd  #   Security     In At       Now    Change

  2/28/96 200 Borders Gro    22.51     36.00    59.91%
   2/2/96 200 Green Tree     30.39     41.25    35.75%
   3/8/96 400 Prime Medic    10.07     13.38    32.84%
  6/26/96 100 Cisco Syste    53.90     63.38    17.58%
  7/23/96 100 S&P Deposit    64.15     71.22    11.02%
  8/13/96 100 Carlisle Co    52.65     57.25     8.74%
  1/29/96 100 Texas Indus    54.50     57.13     4.82%
 10/15/96 100 Solectron C    54.52     54.75     0.41%
  5/24/96 100 Oxford Heal    48.02     46.13    -3.96%

    Rec'd  #   Security      Cost     Value    Change

  2/28/96 200 Borders Gro  4502.49   7200.00  $2697.51
   2/2/96 200 Green Tree   6077.49   8250.00  $2172.51
   3/8/96 400 Prime Medic  4027.49   5350.00  $1322.51
  6/26/96 100 Cisco Syste  5389.99   6337.50   $947.51
  7/23/96 100 S&P Deposit  6414.99   7121.88   $706.89
  8/13/96 100 Carlisle Co  5264.99   5725.00   $460.01
  1/29/96 100 Texas Indus  5449.99   5712.50   $262.51
  1/29/96 100 Solectron C  5452.49   5475.00    $22.51
  5/24/96 100 Oxford Heal  4802.49   4612.50  -$189.99

                             CASH   $2573.46
                            TOTAL  $58357.84