Dear Mr. Berko:
Our dear daughter is married to an engineer who recently went to work for a company called Rudolph Technologies in New Jersey. He recently advised us to buy $10,000 worth of the stock. We don't understand what our son-in-law does and we don't understand what his company does, but he is adamant that we buy this stock. He said he owns 1,670 shares. Unfortunately, we'd have to sell our 300 shares of Pfizer to buy Rudolph Technologies. Please tell us what you think we should do.
-CC, Vancouver, Wash.
Dear CC:
Rudolph Technologies (RTEC-$24) came public at $16 in 1999 and hasn't done diddly since. Your son-in-law's recommendation of the company is, in the words of Winston Churchill, a riddle wrapped in a mystery inside an enigma.
I have zero feeling for RTEC, which makes products so recondite and arcane that one might think it's tripping through Wonderland with Alice or joyriding in a sleigh with Santa's elves. On its website, RTEC states: "Rudolph Technologies, Inc. is a leader in the design, development, manufacture and support of defect inspection, lithography, process control metrology, and data analysis systems and software used by microelectronic device manufacturers worldwide." Well, hug me close, Big Mama, 'cause I have no bleeding idea what "process control metrology" is. And neither will most folks who read this column.
However, I can tell you that between 2007 and 2016, RTEC's dinky revenues grew by 4 percent annually, from $160 million to $236 million. During that 10-year time frame, RTEC's operating margins doubled, to 14.8 percent. However, RTEC's earnings wobbled all over the landscape like a drunken sailor playing hopscotch on ice. In 2007, RTEC had revenues of $160 million, earning 61 cents a share. This year, RTEC expects to report revenues of $240 million and earn 94 cents a share. RTEC has no debt, holds $138 million in cash and refuses to pay a dividend. There are only 31 million shares outstanding. Levered free cash flow is $49 million, while its book value is $9.89. And the shares have a low beta of 0.85, suggesting that they are less volatile than the market.
RTEC is a small-cap ($785 million), slow-growth technology company with 580 employees and an impressive institutional ownership. Zacks and Thomson Reuters rate RTEC as "outperform," but Credit Suisse and The Motley Fool rate the stock as "underperform." (I'm always amazed that widely respected research firms could have opposite opinions when each has access to identical data.) I can't find a compelling reason to own RTEC. Candidly, it'd be more interesting to watch iron rust and milk spoil than to watch this stock take up space, floating in a portfolio. But if you have the same respect for your son-in-law as you do your "dear daughter," then you might sell 100 shares of Pfizer and buy 150 shares of RTEC.
Pfizer (PFE-$33), among the world's largest and most reputable drug companies, enjoys the largest economy of scale of any competitor in the drug business, and has a crack sales team to boot. Still, it's going to be a slow slough till PFE returns to its former eminence. However, a 3.7 percent dividend that increases regularly, a fecund pipeline (over $7 billion a year in funding) that's the envy of the industry, a focus on smaller acquisitions and two new blockbuster drugs (Xeljanz and Ibrance) augur well for continued revenue, earnings and dividend growth, plus principal appreciation. And though the stock has been dead in the water for years, Wall Street (which owns nearly a billion shares) seems to believe it's time for this country's eminent drug company to perform. Frankly, I believe that everyone with a conservative growth and income account ought to own Pfizer, reinvest the dividends automatically and then forget about the stock for about a decade.
By the way, did you know that in 2015, big pharma spent $71 billion in drug research and development while the federal government, states and municipalities spent $58 billion on drug interdiction and prevention? Only one has been successful.
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Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko@yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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Published: Tue, Aug 15, 2017
