Boring Portfolio Report
ANN ARBOR, Mich. (Dec. 18) -- The Dow rose 38 points to close at 6347 on
strong NYSE trading volume of a half-billion shares. The S&P 500 gained
5.5 (+0.75%). The Nasdaq surged 19 points, or 1.51%, bolstered by anecdotal
evidence that holiday computer sales are stronger than expected.
As for the Boring Portfolio, it gained just under one percent in net asset
value, helped by gains in five of its eight holdings.
The yield on the long bond crept up to 6.70% following some ambient sloppiness
in a Treasury auction that I won't pretend to fathom. Rising rates have socked
it to financial services stocks recently, including the Borefolio's Green
Tree Financial. If you've sensed a paucity of concern from me about these
events, you've got it right. Every shred of information I read about the
company indicates that the Tree is Green with money.
Today, for example, the company announced that it has reached an agreement
with Bryant Heating & Cooling Systems to provide a private label credit
card for use by Bryant's 7,000-plus dealers. The new program will launch
on January 1.
As I see it, this development fits neatly with Green Tree's strategy of moving
out from its base in manufactured home loans into home equity loans, home
improvement loans, private credit card arrangements with home improvement
centers and -- now -- heating and cooling suppliers. Wait, there's more!
Green Tree will also finance your piano, horse trailer, motorcycle, and (with
its new unit bought from Finova) your home office equipment.
Does this make money? Oh, my yes. Recall that Green Tree bundles together
its loans and regularly offers the asset-backed securities for investors
to buy. Green Tree makes money on (among other things) the spread between
the rate at which it makes the loan and the rate at which the securities
it offers are purchased. One analyst who knows the business very well, Michael
Millman at Lehman Brothers, estimates that the spread on home improvement
loan offerings is around 4.5% (up sequentially from 4.22% last quarter),
and on home equity loans it's closer to 5.5% (versus 4.86% last quarter).
Those home equity (HE) and home improvement loan (HI) operations are exploding
-- there's just no other word for it. HE volume in the current quarter is
$353 million. This business just began in February of this year. HI volume
will be down sequentially (folks don't do a lot of home improving in December),
but will still show something like $125 million in volume.
Overall, analysts are expecting Green Tree to earn $2.18 per share in 1996,
which would be a 20% improvement over last year. Looking ahead (which is
the way to look in the market), EPS growth is projected to be above 35% in
1997 (to around $3.00/share), owing partly to the continued expansion of
the new business operations and partly because a significant revision of
the bonus contract with CEO Larry Coss kicks in on January 1.
That revision is a big deal. As it is, Coss's year-end bonus would work out
to $0.20 per share in 1996, based on a year-end stock price of $45. (This
is factored into analysts' estimates, of course.) Every dollar below $45
on the closing price trims about a penny per share from the CEO's bonus (or,
looking at things from the other side of the table, adds a penny to the company's
per-share earnings).
Hmm-m-m. Should we be rooting the price down for the next couple of weeks?
Not me. Coss planted Green Tree in the earth and nurtured it into what it
is today.
As for the stock, putting even a market multiple on shares of this money
machine of a company puts GNT in the mid-$50s by mid-1997.
Oh, yes. Although Green Tree shares slipped an eighth-point, five other Boring
stocks rose nicely, including Solectron, which gained $2 3/8 as traders decided
that maybe the folks at this award-winning company know what they're doing
after all by expanding their computer assembly biz.
Wednesday, December 18, 1996
Stock Change Bid
--------------------
BGP + 5/8 34.63
CSL - 1/4 58.25
CSCO +1 1/4 64.00
GNT - 1/8 37.88
ORCL - 7/8 42.25
OXHP +1 3/8 58.75
PMSI + 1/8 11.75
SLR +2 3/8 57.00
Day Month Year History
BORING +0.94% -3.33% 15.75% 15.75%
S&P 500 +0.75% -3.37% 17.68% 17.68%
NASDAQ +1.51% -0.56% 23.48% 23.48%
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 37.88 24.64%
5/24/96 100 Oxford Hea 48.02 58.75 22.33%
6/26/96 100 Cisco Syst 53.90 64.00 18.74%
3/8/96 400 Prime Medi 10.07 11.75 16.70%
8/13/96 100 Carlisle C 52.65 58.25 10.64%
10/15/96 100 Solectron 54.52 57.00 4.54%
11/21/96 100 Oracle Cor 48.65 42.25 -13.16%
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 7575.00 $1497.51
5/24/96 100 Oxford Hea 4802.49 5875.00 $1072.51
6/26/96 100 Cisco Syst 5389.99 6400.00 $1010.01
3/8/96 400 Prime Medi 4027.49 4700.00 $672.51
8/13/96 100 Carlisle C 5264.99 5825.00 $560.01
10/15/96 100 Solectron 5452.49 5700.00 $247.51
11/21/96 100 Oracle Cor 4864.99 4225.00 -$639.99
CASH $10651.57
TOTAL $57876.57
Transmitted: 12/18/96