Boring Portfolio Report
ANN ARBOR, Mich. (Oct. 23) -- After sliding 60-plus points and dipping below
the 6000 mark for a while on Wednesday, the Dow managed to recover somewhat
to close at 6036, down 25. The S&P 500 actually managed to end the day
with a tiny gain. Volume was a brisk 440 million shares.
The snap-back was even more emphatic on the Nasdaq. After an intraday loss
in the mid-teens for the third straight session, the Naz regrouped and climbed
nearly 8 points (+0.65%) by day's end. Over 540 million shares changed accounts.
As for the Boring Portfolio, after suffering through two butt-ugly sessions
this week, it scored a decent 0.72% recovery on Wednesday, with gainers outpacing
losers 5 to 4.
Oxford Health Plans was today's big Borefolio winner. OXHP rose $4 5/8 (bid)
on heavy volume. That more than made up for yesterday's $3 1/8 loss.
On Tuesday, Cowan & Co. lowered their rating on OXHP to "neutral." This
morning, Ed Keaney at Volpe, Welty fired back by reiterating his "strong
buy" on the stock. In his report, Keaney said Oxford "would likely be a
beneficiary of hospital rate deregulation in New York" owing to its "size,
exposure to the Medicare segment and ability to direct patients to specific
facilities."
This ratings game stuff certainly makes it exciting to hold OXHP in one's
portfolio -- excitement that many of us would happily forego (at least I
would). What keeps the stock in the Borefolio is, of course, the quality
of the company and its management, and the (not coincidentally) outstanding
prospects for capital appreciation as Oxford continues to distance itself
from the rest of the pack of commodity HMOs.
As I noted yesterday, analysts' are expecting Oxford Health to report earnings
of $0.31 per share for its third quarter. That would constitute a 48% advance
over last year. For FY96, prospects are $1.20 -- or a 69% gain over 1995.
The company is on record as being "completely comfortable" with those numbers.
Cisco recovered strongly today, as well. Analysts are halfway through a two-day
retreat at Cisco HQ. Things appear to be going well, in light of the way
the stock reversed ground after slipping below $60 this morning to end the
day at a bid of $62 2/4, up $1 1/2 on volume on nearly 8 million shares.
I don't know if they'll be discussing it at the gathering in San Jose, but
representatives from 34 university campuses (including mine) met in Chicago
a few weeks ago and agreed to help create "Internet II." The new network
is intended to take some of the pressure off the existing system and offer
a wider pipe to accommodate the needs of advanced research projects.
Hey, it appears that this internetworking stuff is more than just a passing
fad.
Among Borefolio losers, Green Tree shed $ 3/4 today. Yesterday morning the
company reported 3Q earnings of $0.61 -- right in line with the consensus
number, but a bit under what some analysts had been hoping for.
My summary of Green Tree's 3Q earnings report and conference call with analysts
may be found in the "Earnings Central" section of The Motley Fool.
Considering Green Tree's accomplishments, it's difficult for me to understand
what more any shareholder could have reasonably desired. In the quarter just
ended:
* Total retail loan originations increased 38% to $2.173 billion, with solid
increases in all segments.
True enough, there are some areas of concern, but then there always are.
For one thing, provisions for losses on loans increased in percentage terms
over the year-ago quarter due to the changing mix of loans. Those provisions
were down slightly in percentage terms from 2Q:96, however. Also, the loan
delinquency rate is approximately 2.10%, which is above the 1.94% value reported
as of June 30. The company said that this remains within the bounds of their
financial models, however.
The costs of servicing the loan portfolio has increased slightly, as well,
in part because of the new business segments that Green Tree has initiated
recently. The company expects that as servicing operations become more
centralized and as they gain experience in the new segments, those costs
should come down.
Manufactured home loan volume grew at a somewhat slower rate than in recent
quarters. Green Tree's new businesses are more than making up for that, however
-- all according to plan. In particular, the home equity loan division, which
opened for business in February, did $238 million in business in 3Q, up a
breath-taking 60% sequentially over 2Q.
Michael Millman at Lehman reiterated his "strong buy" and $50 target on GNT
this morning. Millman likes the same things about Green Tree that I like
-- particularly the likely strong growth of the home equity loan business.
Millman adjusted his EPS numbers to take into account a likely increased
bonus for CEO Larry Coss in the fourth quarter as a consequence of the run-up
in the stock price. Millman sees that as shaving a nickel off 4Q (and,
consequently, FY96), assuming a $45 stock price by year's end.
On the other hand, Millman added a dime to his FY97 estimate, based in part
on the strong growth in the home equity loan segment. His new FY97 number
is $3.00. Plugging a market multiple on that (which GNT has regularly exceed
the past three years) puts the stock north of $50 by summer by my calculations.
Transmitted: 10/23/96
Wednesday, October 23, 1996
* Commercial loan originations were $804 million, nearly double last year's
3Q and an increase of 7.8% over 2Q:96.
* The company announced the acquisition of Finova's MDS operation, which
promises to add some new synergies to Green Tree's rapidly growing commercial
finance and private-label credit card businesses.
* In contrast to the cramped profit spreads that occurred in 2Q as interest
rates rose faster than Green Tree could securitize its portfolio, spreads
in 3Q improved to average well over 3%.
BGP - 1/4 ...CSL - 3/8 ...CSCO +1 1/2 ...GNT - 3/4
OXHP +4 5/8 ...PMSI + 1/8 ...SPY + 1/5 ...SLR - 7/8 ...TXI + 1/2
*Scroll down or expand screen for full portfolio accounting
Day Month Year History
BORING +0.72% -1.67% 14.46% 14.46%
S&P 500 +0.10% 2.90% 13.78% 13.78%
NASDAQ +0.65% 0.08% 17.96% 17.96%
Rec'd # Security In At Now Change
2/28/96 200 Borders Gro 22.51 33.00 46.59%
3/8/96 400 Prime Medic 10.07 13.38 32.84%
2/2/96 200 Green Tree 30.39 39.13 28.75%
6/26/96 100 Cisco Syste 53.90 62.75 16.42%
7/23/96 100 S&P Deposit 64.15 70.92 10.55%
1/29/96 100 Texas Indus 54.50 59.00 8.26%
8/13/96 100 Carlisle Co 52.65 56.25 6.84%
10/15/96 100 Solectron C 54.52 54.00 -0.96%
5/24/96 100 Oxford Heal 48.02 45.88 -4.48%
Rec'd # Security Cost Value Change
2/28/96 200 Borders Gro 4502.49 6600.00 $2097.51
2/2/96 200 Green Tree 6077.49 7825.00 $1747.51
3/8/96 400 Prime Medic 4027.49 5350.00 $1322.51
6/26/96 100 Cisco Syste 5389.99 6275.00 $885.01
7/23/96 100 S&P Deposit 6414.99 7091.94 $676.95
1/29/96 100 Texas Indus 5449.99 5900.00 $450.01
8/13/96 100 Carlisle Co 5264.99 5625.00 $360.01
1/29/96 100 Solectron C 5452.49 5400.00 -$52.49
5/24/96 100 Oxford Heal 4802.49 4587.50 -$214.99
CASH $2573.46
TOTAL $57227.90