Boring Portfolio Report
ANN ARBOR, Mich. (Dec. 26) -- The Dow rose 24 points to close at 6547.
Big-board volume of 253 million shares put this day after Christmas among
the slowest trading sessions of the year. This was the seventh straight advance
for the Dow and leaves the index about a point shy of its all-time high.
The S&P 500 climbed 5 (+0.64%), while the Nasdaq rose 7 (+0.54%).
As for the Boring Portfolio, it more than doubled the S&P 500's gains
today, picking up $787.50, or 1.37%. That's not counting a day's worth of
interest on the $6,000 cash remaining after I purchased 100 shares of Tidewater
on Dec. 23 as a little stocking stuffer. Six Borefolio holdings rose today,
two were unchanged (Oxford Health and PMSI), and Tidewater ebbed $1/8.
Other than an item that referred indirectly to Oxford Health (a story about
continued haggling between healthcare insurers and New York hospitals as
a new rate-deregulation law is about to kick in, on Jan. 1), I spotted no
new news on Boring stocks for Thursday. So I thought I might continue the
run-down on valuations of Boring holdings that I got halfway through on Christmas
Eve.
I skipped through Cisco, Oracle, Green Tree, and Prime Medical in that recap,
making my brief for why they belong in the portfolio. That leaves, in order
of purchase date, Borders Group, Oxford, Carlisle, Solectron, and Tidewater.
My purchase of 200 BGP back in February was a classic Peter Lynch-style pick.
My office is within 200 yards of Borders store #001, and I easily spend more
time in that store than in any other, anywhere. I've visited perhaps a dozen
other Borders nationally, plus the odd Waldenbooks here and there. I like
Borders a lot. Liking a company and what it sells doesn't necessarily make
it a great investment, though. The stock must pass its own test.
BGP easily makes the grade. With earnings per share expected to hit $1.31
this year (i.e., ending Jan 1997) and $1.62 next year, EPS growth will come
in around 54% this year and, if all goes to plan, around 24% next year. Seven
analysts estimate long-term EPS growth to be in the 25-30% range. At a current
price of $35 3/4, BGP is trading at 22-times estimated earnings for the coming
year -- i.e., a bit of a discount to its long-term growth rate.
There are few things I like better than a good buy on a 25% annual grower
-- esp. when it's stock of a quality outfit like Borders. Now if only they
gave discounts on purchases to shareholders....
Oxford Health is widely regarded as being among the premier organizations
in the healthcare industry. It's also easily the fastest-growing company
in the HMO group. What a coincidence.
Oxford should come in with earnings of $1.22 per share for 1996 (a 72% gain
over 1995) and is expected by analysts to achieve $1.73 for 1997 -- which
would be a 42% annual gain. Long-term compound annual growth rate (CAGR)
is pegged at an average of 40% by 10 analysts who follow the company.
At a current price of $58, the stock is trading at 33.5 times projected 1997
EPS. That's a lofty p/e, true enough; but then earnings growth is likely
to be even loftier. I'm looking for OXHP to near $70 ($1.73 x 40) by summertime
-- when the livin' will be easy.
Carlisle Companies is boring to the core. It makes stuff like roofing materials,
golf cart wheels, airline food trays, and cheese-making equipment. Actually,
what Carlisle makes best is money. Per-share earnings will come in around
$3.54 for 1996. That'll be 26% over last year. For 1997, analysts are currently
looking for $4.11, or a 16% gain. Long-term EPS growth is estimated at around
15%.
Such raw earnings growth is not up in the stratosphere with the Oxfords or
Ciscos, but then it isn't intended to be. What CSL offers the Borefolio is:
* earnings growth in excess of the S&P 500 (roughly double the S&P
500, actually);
* diversification;
* a bit of a check on the portfolio's volatility (CSL's beta is well below
1.0, and Value Line rates the stock's "price stability" as 85 out of a possible
100; CSCO, by contrast, gets a 20);
* and a decent dividend -- currently around 1.7% per annum.
And the stock offers all this at a fair price: at $58 5/8, CSL is trading
at 14.3 times projected 1997 EPS. Hey, maybe Monty Python was right: "Blessed
are the cheese-makers" -- and the roofing membrane makers, and wheel makers.
Lastly, Tidewater. Boring as I am, I stood on the dock quite a while as the
red-hot energy stocks left port. Just a few days ago, I finally decided to
throw my lot in with Tidewater. The stock is one of the few in its group
that is still trading at a multiple below its projected EPS growth rate for
1997 and for the longer haul. Tidewater is also one of a vanishingly small
number of companies in its peer group that carries zero long-term debt. Heck,
there's even a 1.4% dividend.
TDW is expected to haul in EPS of $2.84 in calendar 1997. At $46 5/8, the
stock is trading at a forward multiple of 16.4. With annual EPS growth in
the 40% range near-term and in the 20% range long-term (and in the 25% range
the past five years), that looks like a good deal to me. I look for TDW to
roll up to the $57 mark ($2.84 x 20) on the beach 'round about the time it's
swimming weather once again.
Thursday, December 26, 1996
Stock Change Bid
--------------------
BGP + 1/2 35.75
CSL + 1/8 58.63
CSCO +1 5/8 66.50
GNT +1 1/8 39.13
ORCL + 7/8 44.00
OXHP --- 58.00
PMSI --- 11.25
SLR +2 1/8 55.38
TDW - 1/8 46.63
Day Month Year History
BORING +1.37% -2.48% 16.77% 16.77%
S&P 500 +0.64% -0.16% 21.59% 21.59%
NASDAQ +0.54% 0.15% 24.36% 24.36%
Rec'd # Security In At Now Change
2/28/96 200 Borders Gr 22.51 35.75 58.80%
2/2/96 200 Green Tree 30.39 39.13 28.75%
6/26/96 100 Cisco Syst 53.90 66.50 23.38%
5/24/96 100 Oxford Hea 48.02 58.00 20.77%
3/8/96 400 Prime Medi 10.07 11.25 11.73%
8/13/96 100 Carlisle C 52.65 58.63 11.35%
10/15/96 100 Solectron 54.52 55.38 1.56%
12/23/96 100Tidewater I 46.52 46.63 0.22%
11/21/96 100 Oracle Cor 48.65 44.00 -9.56%
Rec'd # Security In At Value Change
2/28/96 200 Borders Gr 4502.49 7150.00 $2647.51
2/2/96 200 Green Tree 6077.49 7825.00 $1747.51
6/26/96 100 Cisco Syst 5389.99 6650.00 $1260.01
5/24/96 100 Oxford Hea 4802.49 5800.00 $997.51
8/13/96 100 Carlisle C 5264.99 5862.50 $597.51
3/8/96 400 Prime Medi 4027.49 4500.00 $472.51
10/15/96 100 Solectron 5452.49 5537.50 $85.01
12/23/96 100Tidewater I 4652.49 4662.50 $10.01
11/21/96 100 Oracle Cor 4864.99 4400.00 -$464.99
CASH $5999.08
TOTAL $58386.58
Transmitted: 12/26/96