May Update

For the month of May the Model Portfolio’s return was 2.9% versus S&P 500’s total return of 3.5%.

It was a quiet month for the Model Portfolio. We used a persistent drag on USG shares (NYSE: USG) to add to our position. Meanwhile, the market continued to rumble with Dow setting record after record.

Cisco (Nasdaq: CSCO), Electronic Arts (Nasdaq: ERTS) and Tyco (NYSE: TYC) all reported earnings in early May. Cisco’s earnings were stellar but the Street was unimpressed with the company’s guidance. It seems 15% to 16% top-line revenue growth and gross margins north of 60% are not good enough. The stock has dipped back to the mid 20s and has stayed there. We would use further weakness to add to our position. If you want to get a sense of what a networked world will mean for companies like Cisco, you should pick up a copy of Forbes’ 90^th anniversary issue on Networks.

Mr. Market was not too kind to Electronic Arts either. The company’s forecast for its upcoming fiscal year fell short of analysts’ expectations. The transition to the new gaming consoles has not been as swift as anticipated, not to mention the fact that the company has decided to delay Spore, the much anticipated game by the creator of The Sims. But all this should be short term in nature. To be sure, the company has to execute better going forward. Still, with no debt on it balance sheet and a business which is throwing off plenty of cash, there is time to right the ship.

Finally, there is Tyco. Not much surprise in the company’s earnings announcement and the break up into 3 separate entities remains on track. The shares of the 3 companies are expected to trade on a When Issued basis on June 14^th. The spin-off will be completed on June 29^th. Stay tuned.