Boring Portfolio Report
ANN ARBOR, Mich. (Dec. 11) -- The net value of the Boring Portfolio declined
more than 1% on Wednesday. Cisco Systems was the sole gainer among the
portfolio's eight stocks. Shares of Oracle Corp. fell $1 3/8 on heavy volume
ahead of the company's quarterly earnings report, expected Thursday after
the closing bell.
The Borefolio's losses were in line with the Dow, which dropped 71 points,
or 1.1%. Losses for the S&P 500 and, especially, the Nasdaq were less
severe. The S&P slipped 0.91%, while the Nasdaq recovered substantially
in the last hour of trading, to close down 0.26%.
So why is this man smiling? Two reasons, actually.
First, I'm of the view that the downward adjustment the Dow and the S&P
have taken in December is a healthy thing. I wouldn't buy a stock trading
at 17-times next year's projected earnings with expected short- and long-term
EPS percentage growth only in the single digits, and I don't think a market
with that kind of valuation (specifically, the S&P 500) is such a terrific
deal, either.
Please don't get me wrong. I am absolutely not to be numbered among the doom
and gloomers -- the "pull your money out of the market and buy gold" crowd.
The interest rate environment, inflation prospects, and projected growth
in certain sectors (computing and communications technologies, especially)
are all just dandy with me. I simply think a modest "attitude adjustment"
would not be uncalled for, and I'm pleased to see it occur in a reasonably
orderly fashion.
Second, December's market "adjustment" has, like most such events, tugged
high quality, reasonably valued issues lower right along with the bubble
stocks. Times such as these are ideal for buying the great stuff that other
folks are selling indiscriminately. We've got a bit of a pre-holiday sale
going on for some outstanding long-term investments, including some issues
that are in the Borefolio right now as well as some that are not ... yet.
To my eye, today's selling was sparked by unfounded rumor piled upon unfounded
rumor. A Wall Street reporter speculated about whether the Japanese might
pull out of the U.S. securities market. (They might ... or they might not.)
Then there was a rumor that IBM would issue a warning about their earnings
in the fourth quarter. (That was news to IBM.) And some traders claimed to
smell smoldering inflation in this morning's Producer Price Index statistics.
(Maybe they smell what they've been smoking. Core inflation of 0.1% is terrific
news.)
So the overall market decline was the right thing but perhaps for the wrong
reasons. If so, it is precisely in such momentary lapses in market efficiency
that bargains appear. And even if you're investing for the long haul (as
most folks should be), there's no harm in picking up a few bargains when
the good stuff goes on sale, yes?
Speaking of bargains, Green Tree Financial got trimmed along with most other
interest rate-sensitive stocks today. GNT closed lower by $ 3/8, well off
its mid-day lows. GNT is trading at a sub-market multiple of 17.9-times this
year's EPS. Unlike the market, however, analysts estimate that Green Tree
will grow EPS by 35% in the coming year. By the way, Green Tree is in the
midst of marketing its latest batch of asset-backed securities -- $800 million
worth of manufactured home loans.
Cisco shares moved up today, along with a very strong group of networking
stocks. This group is probably my favorite one of all: remarkable companies
making remarkable products that are in even more remarkable demand. I happened
to pick Cisco because that's they way the Borefolio does things (viz., keep
it simple and go with the proven leader). But there's the Fools' 3Com (whatta
run!), and Cascade Communications, and Ascend, and US Robotics, and a number
of others -- all just terrific. Moreover, this investing stuff is not like
betting on basketball games. If your portfolio (and your stomach) can handle
it -- why, heck, you can purchase a stake in two or more of these companies!
Finally, as I mentioned at the top of the page, Oracle is slated to report
its quarterly earnings tomorrow afternoon, after the market closes. According
to First Call (available to AOL folks as part of the $19.95/month all-you-can
eat price), analysts are expecting Oracle to report EPS of $0.28 for the
November quarter. That would constitute a 33% improvement over the comparable
period last year.
ORCL is currently trading at around 36-times projected EPS for its fiscal
year ending May 1997. That puts the stock at fair value at the moment --
unlike the broader market. Also much unlike the broader market, Oracle is
projected to grow earnings by 33% in its next fiscal year and perhaps 30%
annually over the longer term.
As is our custom, The Motley Fool will be covering the conference call. Most
likely, it will be yours truly. The call is scheduled for just before our
deadline tomorrow night, so I hope to be able to give you a quick recap here,
with a fuller report following soon thereafter.
Wednesday, December 11, 1996
Stock Change Bid
--------------------
BGP - 1/2 33.88
CSL -1 3/8 57.75
CSCO + 3/4 68.00
GNT - 3/8 39.00
ORCL -1 3/8 47.88
OXHP - 3/4 57.88
PMSI - 1/8 12.63
SLR -1 1/8 58.00
Day Month Year History
BORING -1.06% -1.08% 18.45% 18.45%
S&P 500 -0.91% -2.15% 19.16% 19.16%
NASDAQ -0.26% 1.28% 25.76% 25.76%
Rec'd # Security In At Now Change
2/28/96 200 Borders Gr 22.51 33.88 50.47%
2/2/96 200 Green Tree 30.39 39.00 28.34%
6/26/96 100 Cisco Syst 53.90 68.00 26.16%
3/8/96 400 Prime Medi 10.07 12.63 25.39%
5/24/96 100 Oxford Hea 48.02 57.88 20.51%
8/13/96 100 Carlisle C 52.65 57.75 9.69%
10/15/96 100 Solectron 54.52 58.00 6.37%
11/21/96 100 Oracle Cor 48.65 47.88 -1.59%
Rec'd # Security In At Value Change
2/28/96 200 Borders Gr 4502.49 6775.00 $2272.51
2/2/96 200 Green Tree 6077.49 7800.00 $1722.51
6/26/96 100 Cisco Syst 5389.99 6800.00 $1410.01
3/8/96 400 Prime Medi 4027.49 5050.00 $1022.51
5/24/96 100 Oxford Hea 4802.49 5787.50 $985.01
8/13/96 100 Carlisle C 5264.99 5775.00 $510.01
10/15/96 100 Solectron 5452.49 5800.00 $347.51
11/21/96 100 Oracle Cor 4864.99 4787.50 -$77.49
CASH $10651.57
TOTAL $59226.57
Transmitted: 12/11/96