The Boring Portfolio, 06/27/97: Boring Port Report

Boring Portfolio Report
Friday, June 27, 1997
by Greg Markus (TMF Boring)

ANN ARBOR, Mich. (June 27, 1997) -- The S&P 500 rose 0.41% in relatively light trading Friday, while the Nasdaq picked up 2 points (0.12%) despite losses in the big four of INTEL <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INTC)") else Response.Write("(Nasdaq: INTC)") end if %>, MICROSOFT <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MSFT)") else Response.Write("(Nasdaq: MSFT)") end if %>, CISCO SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CSCO)") else Response.Write("(Nasdaq: CSCO)") end if %>, and ORACLE <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ORCL)") else Response.Write("(Nasdaq: ORCL)") end if %>.

Alas, the Boring Portfolio dropped 0.47%. Six holdings fell (including the last two cited above), only two rose, and ATLAS AIR <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ATLS)") else Response.Write("(Nasdaq: ATLS)") end if %> cruised steadily at an altitude of $32 1/4.

Benchmark market averages were all off for the week, as was the Borefolio. Its weekly loss was 2.48%, or $1,619. That took a good-sized bite out of the $1,750 the Borefolio gained the previous week.

Back to Atlas Air. KLM ROYAL DUTCH AIRLINES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: KLM)") else Response.Write("(NYSE: KLM)") end if %> announced Thursday that it would use a freighter it leases from Atlas to operate cargo flights from Amsterdam to Bologna during the summer. Demand for such flights increases in Europe in the summer months because of bans on weekend truck traffic in Italy, Switzerland, and Austria. The bans are instituted to relieve traffic congestion as holiday travelers take to the roads.

Which reminds me of a bike trip I took one July... through Switzerland, over the St. Bernard Pass into Italy, and down into the Barolo wine country. Stunningly beautiful, food to die for -- which I almost felt I would at times while chugging through the Alps on routes sometimes used for the Tour de France. And fewer hassles with cars and trucks in 300 miles of biking than I sometimes get in the three mile round-trip from my house to office. Sigh.

Oh, yeah: Atlas Air. The company is slated to report results for the June quarter in four weeks. Analysts are looking for around $0.50 per share -- up only slightly from the year-ago quarter's $0.47. Excessive costs of maintaining five well-used aircraft the company leased from FEDERAL EXPRESS <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FDX)") else Response.Write("(NYSE: FDX)") end if %> have eaten into profits.

Those leases expire in January, though, and Atlas has recently announced it has signed an agreement to purchase ten new BOEING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BA)") else Response.Write("(NYSE: BA)") end if %> 727-400 freighters, with an option to purchase up to ten more. This gives Atlas ample leeway to return the FedEx planes if it so chooses, while still expanding its total fleet size.

As a result, analysts' consensus forecast of 1998 earnings has increased by a nickel, to $2.75 per share. That compares with a consensus forecast of $2.14 for this year.

Meanwhile down at sea level the effect of this week's OPEC meetings on oil prices, along with news of additional boat construction, roiled the waters for stocks of companies that serve offshore energy operations. The net effect of all the rockin' and rollin' on shares of TIDEWATER <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: TDW)") else Response.Write("(NYSE: TDW)") end if %> was zilch: the stock, which gained $5/16 on Friday, ended the week exactly where it began, at $43 3/8.

I spoke with the company today in an effort to get their take on the situation. Tidewater's CFO Ken Tamblyn said it was "frustrating" to see that every announcement of new vessel construction sends the stock into a tizzy.

Tamblyn pointed out that there has been virtually no new service vessel construction in the industry since 1982, and it is inevitable that new builds will occur. "Investors need to understand that, and quit running for the exits every time there's an announcement of a new build," he said.

It will be a minimum of one year before the first of these new vessels comes into the market, and as long as two years until some of the later ones are delivered, according to Tamblyn. In the meantime, almost anything can happen with regard to energy prices, attrition of aging service vessels, or offshore drilling activity, he said.

As if to illustrate that point, within hours of when news broke on Thursday that privately-held Edison Chouest had ordered construction of seven new offshore service vessels, Keppel Shipyard announced that it would be converting a vessel into a drillship for FALCON DRILLING <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: FLC)") else Response.Write("(NYSE: FLC)") end if %> at a cost of $43 million.

With but a few days left in the June quarter, the consensus forecast of 11 analysts surveyed by First Call is that Tidewater will achieve quarterly earnings of $0.75 per share -- or nearly double last year's EPS of $0.39. The company is expected to release its quarterly report sometime in the third week of July.

For the fiscal year ending March 1998, the current consensus projection is that Tidewater will earn $3.34 per share. That would constitute a cool 41% advance over last year's $2.37. Tidewater stock is thus trading at 13-times this fiscal year's projected EPS -- hardly an extravagant multiple. On top of that, the stock pays a modest dividend, which currently works out to around 1.4% annually.

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(c) Copyright 1997, The Motley Fool. All rights reserved. This material is for personal use only. Republication and redissemination, including posting to news groups, is expressly prohibited without the prior written consent of The Motley Fool.

TODAY'S NUMBERS

Stock  Change    Bid
ATLS  ---      32.25
BGP   -  1/2   23.50
CSL   -  1/4   35.38
CSCO  -1 1/8   66.44
GNT   -  1/2   34.63
ORCL  -  1/4   50.31
OXHP  - 15/16  72.94
PMSI  +  1/8   11.00
TDW   +  5/16  43.38

                   Day   Month    Year  History
        BORING   -0.78%   4.46%  10.77%  27.46%
        S&P:     +0.41%   4.60%  19.79%  42.74%
        NASDAQ:  +0.12%   2.70%  11.40%  38.16%

    Rec'd   #  Security     In At       Now    Change
  2/28/96  400 Borders Gr    11.26     23.50   108.77%
  5/24/96  100 Oxford Hea    48.02     72.94    51.87%
   3/5/97  150 Atlas Air     23.06     32.25    39.86%
  8/13/96  200 Carlisle C    26.32     35.38    34.38%
  6/26/96  100 Cisco Syst    53.90     66.44    23.26%
   2/2/96  200 Green Tree    30.39     34.63    13.95%
   3/8/96  400 Prime Medi    10.07     11.00     9.25%
 11/21/96  100 Oracle Cor    48.65     50.31     3.42%
 12/23/96  100 Tidewater     46.52     43.38    -6.77%

    Rec'd   #  Security     In At     Value    Change
  2/28/96  400 Borders Gr  4502.49   9400.00  $4897.51
  5/24/96  100 Oxford Hea  4802.49   7293.75  $2491.26
  8/13/96  200 Carlisle C  5264.99   7075.00  $1810.01
   3/5/97  150 Atlas Air   3458.74   4837.50  $1378.76
  6/26/96  100 Cisco Syst  5389.99   6643.75  $1253.76
   2/2/96  200 Green Tree  6077.49   6925.00   $847.51
   3/8/96  400 Prime Medi  4027.49   4400.00   $372.51
 11/21/96  100 Oracle Cor  4864.99   5031.25   $166.26
 12/23/96  100 Tidewater   4652.49   4337.50  -$314.99

                             CASH   $7788.54
                            TOTAL  $63732.29