Boring Portfolio Report
ANN ARBOR, Mich. (Dec. 3) -- The Boring Portfolio had six winning stocks
and only two losers on Tuesday. But two losers were enough to trim $75, or
0.13%, from the Borefolio's net asset value.
That's nothing compared to the reversal that occurred among big-cap stocks
today. Computer-assisted "sell" programs hit the market late in the afternoon,
turning what was shaping up to be yet another record-setting session into
a 79-point drop in the Dow and a 1.09% slide in the S&P 500.
The Nasdaq, which was up roughly the equivalent of 65 Dow points earlier
in the day, managed to close with but a fraction of a point to the upside.
That was enough to send the Naz over the 1300 level, however -- an all-time
high.
Trading volume on the big board was a blistering 516 million shares, while
over on the Nasdaq an awesome two-thirds of a billion shares passed through
the wires.
Tonight I'm gonna depart from the usual rundown on Boring stocks and jabber
about "the market" for a bit. If you have no interest in such things -- and,
frankly, most of the time I don't -- then have a good evening and I'll catch
you back here tomorrow.
... Still there? Okey-doke. Well, here goes.
I don't see how anyone can keep a straight face and claim that the Dow
heavyweights as a group -- and indeed the majority of large-cap stocks --
are trading at fair value right now.
Over the long haul, no problemo: some big, high quality behemoths belong
in everyone's basket, in my opinion. And the Foolish Four have certainly
done their bit at brightening the year for a lot of folks. But with my fellow
baby boomers throwing money into mutual funds in order to participate in
the, uh, "chance of a lifetime," and with the p/e on the S&P 500 moving
north of 20 and approaching double -- double!! -- some forecasts of EPS growth
of those 500 companies in the coming year ... well, you'll excuse me if I
sound a bit like one of those perma-bears that Barron's coaxes out of hibernation
on a weakly basis to snarl at the visitors and then shamble back into his
cave.
Just before the November elections, I sold the Borefolio's stake in the S&P
500 (via some S&P Depository Receipts, which trade on the Amex). My argument
then (as now) was that the market as a whole was over-valued, so I chose
the prudent route and moved about a quarter of the port's assets into cash.
As a consequence, I missed out partially on one of the zoomiest month-long
rides in market history. Since then, I added 100 shares of Oracle to the
Borefolio but still have over $10,000 stuffed in a money fund.
Which brings us to December 3.
Is today's market reversal a one day wonder? Or is it the beginning of an
effort by some institutions to "book" what for many is surely one of their
best years in ages?
As always, I have utterly no idea. I never have and never will claim any
insight into which way the market will veer from day to day -- or week to
week, or even month to month.
But I absolutely do evaluate "the market" -- or, more specifically, market
components such as the Dow Industrials or the S&P 500 -- just as I would
their constituent stocks. And if a market component is overvalued by my math,
then I look elsewhere for places to plunk my pesos ... until things get back
to more suitably Boring valuations or until I discover that the situation
is not as I had estimated it to be. So far, I'm still in the "overvalued"
camp vis a vis the Dow and the S&P.
That's not to say that some solid equity investments aren't still out there.
To the contrary, many mid- and (especially) small-cap stocks have not yet
participated fully in the market run-up, and I continue to search those bins
for solid values to complement the Boring gorillas.
Today, for example, stocks outside of the heavyweight and cruiserweight
categories did just fine, on the whole. Boring Borders, Carlisle, Prime Medical,
and the rest of the smaller guys moved up nicely.
But Cisco: less good. Off $3 1/8. Reason? None that I can see. Apparently,
in the late afternoon some fund manager decided that he or she simply had
more Cisco than desired ... and dropped a bunch on the table. Actually, not
that big a bunch. Cisco's trading volume of 6.4 million shares on Tuesday
was about 10% light as compared with a typical recent day. Also, the entire
internetworking group -- 3Com, Ascend, Cascade, and so on -- was, shall we
say, downloaded.
Is Cisco overvalued? Hardly. According to First Call, the consensus of no
fewer than 34 analysts is that Cisco will earn $2.08 per share for its FY
ending in July 1997. That would represent an amazing 50% increase over FY96.
Preliminary forecasts for FY98 are for something on the order of $2.74. Long-term
EPS growth is estimated to be around 35% going forward, with the *lowest*
estimate being a "mere" 28%.
Plop a 35 multiple on $2.08 and you've got a near-term price target of $72
3/4. How near-term? Well, Value Line and many analysts use a rule of thumb
of pricing stocks according to projected EPS two quarters ahead. By that
guideline, it'll be a race to see whether the Rose Bowl or $72 for CSCO will
come first. Thereafter, the stock should push along through 1997 at a rate
in line with it's long-term EPS growth rate, give or take.
Let's see now. We've got a decently priced 35%-plus grower, with zero debt,
billions in cash, and a lock on the fastest growing industry on the planet.
Umm-m-m, I think I'll keep it.
Tuesday, December 3, 1996
Stock Change Bid
--------------------
BGP + 3/8 36.63
CSL + 1/2 58.75
CSCO -3 1/8 65.38
GNT - 7/8 40.00
ORCL + 1/8 49.63
OXHP + 1/4 57.75
PMSI + 1/2 11.88
SLR + 1/2 59.13
Day Month Year History
BORING -0.13% -0.27% 19.42% 19.42%
S&P 500 -1.09% -1.15% 20.38% 20.38%
NASDAQ +0.04% 0.60% 24.92% 24.92%
Rec'd # Security In At Now Change
2/28/96 200 Borders Gr 22.51 36.63 62.69%
2/2/96 200 Green Tree 30.39 40.00 31.63%
6/26/96 100 Cisco Syst 53.90 65.38 21.29%
5/24/96 100 Oxford Hea 48.02 57.75 20.25%
3/8/96 400 Prime Medi 10.07 11.88 17.94%
8/13/96 100 Carlisle C 52.65 58.75 11.59%
10/15/96 100 Solectron 54.52 59.13 8.44%
11/21/96 100 Oracle Cor 48.65 49.63 2.00%
Rec'd # Security In At Value Change
2/28/96 200 Borders Gr 4502.49 7325.00 $2822.51
2/2/96 200 Green Tree 6077.49 8000.00 $1922.51
6/26/96 100 Cisco Syst 5389.99 6537.50 $1147.51
5/24/96 100 Oxford Hea 4802.49 5775.00 $972.51
3/8/96 400 Prime Medi 4027.49 4750.00 $722.51
8/13/96 100 Carlisle C 5264.99 5875.00 $610.01
10/15/96 100 Solectron 5452.49 5912.50 $460.01
11/21/96 100 Oracle Cor 4864.99 4962.50 $97.51
CASH $10570.94
TOTAL $59708.44
Transmitted: 12/3/96