Dear Mr. Berko:
My daughter’s freshman high school class is studying the stock market, and each student was asked to pick three stocks they think will do well between January of this year and May, when school is out. She has selected Krispy Kreme Doughnuts, American Capital Ltd., and Pfizer. The teacher will list each of the stocks on a large chart (there are 22 students in the class) and every week, the student must enter the price and price change of the stock. I asked my daughter why she picked those three, and she said that “they just sounded good to me” and that I “use Viagra, which is made by Pfizer.” What do you think of her picks, or should I help her select some others?
T.R., Cincinnati
Dear T.R.:
I can understand her choice of Krispy Kreme Doughnuts (KKD-$6.75). I like the pick. But where in blazes did she find American Capital Ltd. (ACAS-$8), a company that, according to the latest research polls, is only known by 127 American investors and three members of the Politburo? I also like Pfizer (PFE-$17.50), and I hope her teacher doesn’t require the students to show and tell.
KKD, as most know, makes the sweetest doughnuts this side of Mars. Once a Wall Street darling, it came public at $25 in April 2000, running to $108 in November, then splitting 2 for 1 and three months later zooming to $75, splitting 2 for 1 again in June 2001. And it wasn’t too long afterward that the “fit began to hit the shan.”
The CEO got money fever and began buying G7s and passing out Rolexes, cost controls had no controls, management was selling franchises to rejected Burger King employees, established franchisees revolted and the U.S. surgeon general began a campaign to lambaste anything that contained trans fats and sugars.
A few years later, KKD was $10 per share. And a few years later, KKD was $1 per share. And this homey, laid-back, sleepy, “Hicksville” North Carolina company was millimeters from bankruptcy.
Wow, have things changed. The old CEO was tarred and feathered and now runs two Orange Julius stands. The new guy grabbed the bull by the tail, looked it in the eye and now KKD has stores in Korea, China, Indonesia, Australia, Turkey, Malaysia, Lebanon, the UK, Qatar, Kuwait, Japan, Bahrain and Saudi Arabia. And when Kim Jong-il, the leader of North Korea, passes leadership to his son Dum Kong-il, KKD plans to open two units in Pyongyang. KKD is a rank speculation, but many on the Street think it could be a sweet turnaround.
Just a few years ago, American Capital was trading in the $40s, paid a $4.12 dividend and was invested in an exciting portfolio of private companies – many of which were destined for IPOs. This business development company was sitting high above the world. Then the bubble burst, the dividend collapsed, the new issue market ceased to exist, the U.S. fell into a recession and in March 2009 and ACAS traded at 75 cents per share. Now ACAS is on a tear with a classy portfolio of mining, LNG tankers, oil, natural gas, pipeline, information tech, OEM, solar, nuclear power, electrical and gas distribution companies. I think this could be a dynamite stock. I like it.
Pfizer (PFE-$18.25), founded during the l849 California Gold Rush, has $70 billion in revenues, 114,000 employees, made $7 billion last year and should earn $14 billion on a 12 percent increase in revenues by 2015. PFE has drugs for every known disease and is developing new drugs for diseases that won’t exist for years. The Street thinks the new CEO can take PFE to $33 in the coming four years or $75 if its R&D can perfect a “libido” pill for women.
Meanwhile, the dividend yields a comfy 4.4 percent and may be increased again this year.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.
© 2011 Creators Syndicate Inc.
