TAKING STOCK: Furniture and phones

Dear Mr. Berko: Now that home construction and sales are growing again, I think furniture sales should improve dramatically. So the stock of a company called Furniture Brands International looks like a very good investment because home foreclosures and short sales are way down. I would like to buy 2,000 shares at $1.25. I also was looking at telephone stock a couple of days ago that trades on the New York Stock Exchange and saw Portugal Telecom at $4.30. It yields 16 percent. I would like to buy 500 shares. Please tell me what you think of those two stocks. WP, Moline, Ill. Dear WP: Lots of folks find it hard to believe that the only reason a stock trades at $1 or $4 is the collective opinion of all the investors is that it's only worth $1 or $4. For decades, Furniture Brands (FBN-$1.09) was a consistently profitable company that designed, manufactured and retailed quality-brand furniture. Only 10 years ago, FBN was a $40 stock that earned $2.05 a share and posted revenues of $2.4 billion. Today revenues have plummeted to $1.1 billion, and FBN has lost money every year since 2007, when the housing market peaked. And even though FBN owns the popular brand names Broyhill, Thomasville, Drexel Heritage, Lane, Henredon, Maitland-Smith and Pearson, many observers doubt sales will improve enough this year or next to earn a profit or improve its share price. Of course, FBN's recovery depends on the housing market, which, according to financial media, is either in a strong recovery mode or floundering, depending on which week a young business reporter writes the article. Yes, foreclosures and short sales have declined, but they've done so for three reasons: 1) This is an election year, and Washington wants voters to see a housing market that looks as if it's recovering. 2) We are running out of new and used homes to foreclose on or to force into short sales. So a large swath of swamp has been pre-drained because 3) Huge private real estate partnerships backed by tens of billions of dollars of directed federal financing (crony capitalism) have purchased thousands of foreclosures and short sales. These homes are bought in bulk, several hundred at a time. They are bought well below appraised value from affected banks (taking them off the market), and these buyers become new landlords and collect rent. Considering the timid economic outlook, lackluster employment, a disappearing middle class, lower disposable incomes, a declining gross domestic product and consumer negativity, I doubt there is a real recovery in home values. FBN is an iffy speculation, certainly not a good investment. Portugal Telecom (PT-$4.50) is an $8.5 billion-revenue mobile phone company that - even with blood on the streets and banks failing in Lisbon - will be profitable this year and next. There was such confidence in PT last June that the company issued a four-year, $500 million, 6.25 percent bond at par that was oversubscribed. And though domestic revenues are declining, PT remains profitable, thanks to its strong mobile business in Brazil and Africa. PT expects to earn 38 cents per share this year, so the 71-cent dividend yielding 16 percent is an eye-popper. However, analysts suggest PT's bountiful cash flow is sufficient to maintain its dividend. PT has more than $4.20 in cash per share, and analysts expect earnings of 68 cents for 2013. PT has more than 97 million subscribers (Portugal has a population of 12 million), so a significant portion of revenues derives from Brazil, Macao, Namibia and Angola. Frankly, if PT, which has crashed from a high of $8.50 in the past 12 months, didn't have Portugal in its name, I believe that the stock could be trading between $6 and $7. Based upon the dividend, PT is an interesting speculation. ---------- 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. © 2012 Creators Syndicate Inc. Published: Fri, Sep 28, 2012