Boring Portfolio Report
ANN ARBOR, Mich. (Nov. 6) -- There are few things that financial markets
enjoy more than stability and predictability, and Tuesday's elections did
little if anything to upset the status quo. In response, the Dow roared ahead
nearly 100 points (+1.58%), to establish another new record, at 6177.71.
Big-board volume was a massive 509 million shares.
The S&P 500 rocketed more than 10 points (+1.46%), to set its own new
mark (724.59), while the Nasdaq [insert your own dynamic verb here]ed 16
points (+1.34%) on mega-volume of 622 million shares traded.
The Boring Portfolio joined the party, pushing ahead 1.55%, despite the fact
that it is currently sitting about one-quarter in cash (the result of an
apparently less than successful effort on my part to reduce exposure to what
I had calculated was on overvalued market -- but more on that another day).
Borders, Carlisle, Solectron, and even (!) Prime Medical all had good days.
Cisco dropped $5/8 on the bid side following yesterday's quarterly earnings
report. Randy Befumo's summary of the last night's follow-up teleconference
may be accessed in the Cisco link
here in the Boring Portfolio.
Owing to Cisco's displeasure with California Prop. 211, management elaborated
very little on the press release, offering no forward guidance and dispensing
entirely with the usual Q&A period. Given the Proposition's defeat last
night, additional information may have been forthcoming from the company
today. We're checking on it.
I do notice that Cowan & Co. upped its FY97 estimate today by $0.08 to
$2.08, and increased its FY98 projection by $0.15, to $2.70.
I realize that some shareholders may be concerned that the stock failed to
rise (and indeed fell a bit) today. As for myself, I can only say that I
could not possibly care less and am indeed weighing the possibility of adding
to the Borefolio's holdings.
As I posted in the Cisco folder in The Motley Fool this morning, what you
have in Cisco is a company that dominates the fastest growing industry in
the world and yet still manages to grow faster than the industry itself.
Cisco is the 800-lb. gorilla that outruns the cheetahs. Amazing, utterly
amazing.
Speaking of premier companies in their industries, Oxford Health Plans stock
popped $4 5/8 today on the heels of this morning's report that the company's
third quarter earnings per share increased 65% on a revenue gain of 69% when
compared with last year's 3Q. Third quarter revenues reached $811.3 million.
Fully-diluted EPS of $0.33 easily topped analysts' consensus estimate of
$0.31. More impressive yet was the fact that Oxford's operating margins improved,
administrative costs dropped as a proportion of revenues, medical-loss ratio
declined slightly (to 80.2%), and total membership increased sequentially
during a time when virtually all healthcare providers were in a world of
hurt.
During the third quarter, Oxford's membership increased by 9.2%, to 1,442,200.
Growth was solid in all segments: Freedom Plan (Oxford's premium POS option),
HMO, Medicare, and (less so, intentionally) Medicaid. During October, another
58,000 net new members enrolled, bringing total membership to approximately
1,500,000 as of November 1, 1996.
Later tonight, I'll be filing a full report on Oxford's follow-up conference
call. For now, I'll simply say that the discussion reminded me once again
why I kept Oxford in the Boring Portfolio these past months despite the fact
that it has rarely dwelt north of my May purchase price of $48. Oxford is
unarguably the cream of the crop among HMOs and, eventually, quality prevails.
As I've noted here before, Oxford has been able to maintain (and now expand)
its profit margins because it simply refuses to charge lowball rates in a
reckless rush to capture market share. Instead, it focuses on providing
high-quality products at a slightly higher price point -- and continues to
gain market share all the while!
Indeed, now that Oxford's competitors have been compelled to raise their
rates to more reasonable levels, Oxford's competitive position in the marketplace
is further enhanced -- and will continue to be so in 1997.
A significant part of this morning's conference call was devoted to an exegesis
of recent changes in New York state regulations affecting hospitals and insurers.
Prior to the enactment of NYHCRA (NY Healthcare Reform Act), the state taxed
hospitals to cover costs of medical education and charity treatment, and
hospitals passed along those costs to insurers in the form of a "sales tax."
Under NYHCRA, the state taxes insurers directly rather than the hospitals.
On its face, this would appear to cut into the profits of Oxford Health and
other insurers and HMOs. And indeed it will, for some. In Oxford's case,
however, the company has largely completed negotiations with key hospitals
(mostly large teaching hospitals and medical centers) so that the hospitals
will pass their new savings directly along to Oxford.
In this regard, Oxford has two sources of leverage that many other HMOs lack:
first, with 1.5 million members it has a lot of clout; second, because Oxford
historically has utilized the larger (and slightly more expensive) medical
centers for its members rather than low cost community hospitals, it can
offer the hospitals a more compelling rationale for why the hospitals should
now cooperate with Oxford.
As CEO Stephen Wiggins noted, the company saw NYHCRA coming down the pike
two years ago and began planning for the change then. As a consequence, the
new regulatory environment in New York will in all likelihood create yet
another competitive advantage for Oxford.
Look at that. For the first time in ages, all the Borefolio stocks show profits.
Ain't democracy grand?
Transmitted: 11/6/96
Wednesday, November 6, 1996
Stock Change Bid
--------------------
BGP +1 1/8 34.63
CSL +1 3/4 55.75
CSCO - 5/8 61.13
GNT -1 1/8 39.75
OXHP +4 5/8 51.25
PMSI + 1/2 11.38
SLR +1 56.25
Day Month Year History
BORING +1.55% 2.06% 14.60% 14.60%
S&P 500 +1.46% 2.74% 16.57% 16.57%
NASDAQ +1.34% 1.96% 19.65% 19.65%
Rec'd # Security In At Now Change
2/28/96 200 Borders Gr 22.51 34.63 53.80%
2/2/96 200 Green Tree 30.39 39.75 30.81%
6/26/96 100 Cisco Syst 53.90 61.13 13.40%
3/8/96 400 Prime Medi 10.07 11.38 12.97%
5/24/96 100 Oxford Hea 48.02 51.25 6.72%
8/13/96 100 Carlisle C 52.65 55.75 5.89%
10/15/96 100 Solectron 54.52 56.25 3.16%
Rec'd # Security In At Value Change
2/28/96 200 Borders Gr 4502.49 6925.00 $2422.51
2/2/96 200 Green Tree 6077.49 7950.00 $1872.51
6/26/96 100 Cisco Syst 5389.99 6112.50 $722.51
3/8/96 400 Prime Medi 4027.49 4550.00 $522.51
5/24/96 100 Oxford Hea 4802.49 5125.00 $322.51
8/13/96 100 Carlisle C 5264.99 5575.00 $310.01
10/15/96 100 Solectron 5452.49 5625.00 $172.51
CASH $15435.93
TOTAL $57298.43
Transmitted: 11/6/96