The Motley Fool: The Boring Portfolio

ANN ARBOR, Mich. (Feb.10, 1998) -- The Dow crossed the 8300 mark Tuesday to set a new high during the day but then retreated slightly to close just under the old record, established back on August 7. Altogether, the Dow gained 115 points, or 1.41%. The Nasdaq followed with a 1.10% gain, while the S&P 500 picked up 0.82%.

The Boring Portfolio advanced 1.01%. The Borefolio's sole loser was Atlas Air <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CGO)") else Response.Write("(NYSE: CGO)") end if %>, which descended fractionally ahead of the company's quarterly earnings report, scheduled for Wednesday morning.

Shares of Carlisle Companies <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CSL)") else Response.Write("(NYSE: CSL)") end if %> continues to climb following that company's quarterly report last week. CSL rose $1 13/16 Tuesday to establish an all-time closing high of $49 1/2.

Not really. The stock is trading at 18.8-times projected 1998 earnings of $2.63 and only 16.2-times projected earnings for next year. For that price, you get reliable sales and earnings growth at or above 15%, a return on equity of 22%, plus a small dividend (currently around 1.2%). Moreover, you get this with below-average volatility (beta = 0.86) and almost no exposure to financially troubled Asian markets.

And let me know about it, too, please. Mark Weaver and I continue our search for sensible ways to invest the Borefolio's $13,000 in cash. We're particularly interested in filling the portfolio's vacancies in the healthcare and financial services industries that were created when Green Tree Financial <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GNT)") else Response.Write("(NYSE: GNT)") end if %> and Prime Medical Services <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PMSI)") else Response.Write("(Nasdaq: PMSI)") end if %> were sold. We're open to any and all suggestions, however.

As mentioned in Monday's Boring recap, among the companies we're currently studying are: Avery Dennison <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AVY)") else Response.Write("(NYSE: AVY)") end if %>, Danaher <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DHR)") else Response.Write("(NYSE: DHR)") end if %>, Newell <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: NWL)") else Response.Write("(NYSE: NWL)") end if %>, Cintas <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTAS)") else Response.Write("(Nasdaq: CTAS)") end if %>.

I briefly described Danaher and Cintas in the Jan. 23 Boring recap. Danaher is a diversified industrial company that turns out Craftsman tools for Sears, Jake Brakes for heavy-duty trucks, and an array of environmental controls and sensors. Cintas designs, makes, and distributes uniforms through rental and sales divisions.

Mark Weaver outlined Avery-Dennison's business on Jan. 28. This Pasadena, Calif.-based company makes stuff that sticks to other stuff -- everything from office labels to the stickum for those new self-adhesive postage stamps.

And back on Dec. 29, I described Newell Co., a wonderfully Boring company that most folks probably have never heard of, even though they probably own or use something that Newell made. Newell's product line includes: Levolor, Del Mar and Riviera blinds; pens, pencils and markers with brands like Sanford, Eberhard Faber, Berol, Sharpie, Uni-ball, and Mongol; and Stuart Hall school supplies. Also, Rolodexes, Ace combs, Goody hair accessories, Anchor Hocking glassware, Lee Rowan and System Works storage and shelving systems, Mirro and Wearever cookware, Amerock cabinet hardware, BernzOmatic torches... well, you get the idea.

Newell also owns 6.4 million shares of Black & Decker <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDK)") else Response.Write("(NYSE: BDK)") end if %> common stock and has a 49% ownership interest in American Tool Companies Inc., maker of Vise-Grip locking pliers and Irwin tools.

These are all excellent companies. with fine management. All sport impressive operating margins (ranging from around 14% for Avery to 22% for Newell and Cintas) and return on equity stats (in the upper teens to low twenties). All provide a modest dividend. All offer plausible prospects for S&P-beating profit growth for the long haul -- in the mid to upper-teens through at least this year and next.

And none is cheap. These stocks -- and others of their caliber -- trade at multiples-to-EPS (calendar 1998) ranging from 20.9x (for Newell) to 35.1x (for Avery Dennison). These are multiples at or beyond -- in some cases, well beyond -- the historical bounds for each stock.

I could add perhaps a dozen other prime mid-cap candidates that sit atop our "watch" list and possess similar characteristics: Dionex <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DNEX)") else Response.Write("(Nasdaq: DNEX)") end if %>, Automatic Data Processing <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AUD)") else Response.Write("(NYSE: AUD)") end if %>, Becton-Dickinson <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BDX)") else Response.Write("(NYSE: BDX)") end if %>....

TODAY'S NUMBERS

Stock  Change    Bid 
 ANDW  +  7/16  28.94 
 CGO   -  3/16  24.31 
 BGP   +  1/4   32.50 
 CSL   +1 13/16 49.50 
 CSCO  +  11/16 64.63 
 FCH     ---    37.44

                   Day   Month    Year  History 
         BORING   +1.01%   3.20%  -0.34%  25.40% 
         S&P:     +0.82%   3.95%   5.01%  63.93% 
         NASDAQ:  +1.10%   5.54%   8.83%  64.18% 
  
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     32.50   188.73% 
   8/13/96  200 Carlisle C    26.32     49.50    88.03% 
   6/26/96  150 Cisco Syst    35.93     64.63    79.85% 
   1/21/98  200 Andrew Cor    26.09     28.94    10.91% 
    3/5/97  150 Atlas Air     23.06     24.31     5.44% 
   11/6/97  200 FelCor Sui    37.59     37.44    -0.41% 
  
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  13000.00  $8497.51 
   8/13/96  200 Carlisle C  5264.99   9900.00  $4635.01 
   6/26/96  150 Cisco Syst  5389.99   9693.75  $4303.76 
   1/21/98  200 Andrew Cor  5218.00   5787.50   $569.50 
    3/5/97  150 Atlas Air   3458.74   3646.88   $188.14 
  
   11/6/97  200 FelCor Sui  7518.00   7487.50   -$30.50 
  
                              CASH  $13182.97 
                             TOTAL  $62698.60