The Malcolm Berko Blog

Many investors who have been reading my column over the past 35 years have written and thanked me for the advice that they often find helpful in designing their portfolios. And many of you who read my column have been kind enough to compliment me on my sometimes timely information and unique insights to the murky world of investing. And some of you have offered to make contributions, in my name, to a charity of my choice. So I’d like to request that you make your contributions to my favorite charity which is S.T.A.N., Ltd.

S.T.A.N., Ltd. is an acronym for Save the Australian Nauga. Naugas as you may know are cute, furry, cuddly little animals about the size of a 3 month old cocker spaniel and just as warm and huggable. Naugas, until some 40 years ago, were as common in the Australian Outback as pigeons are today in New York City .

In the early 1950s a number of large furniture companies (Drexel, Lay-Z-Boy, Thomasville , etc.) recognized that the Nauga’s hide was less expensive and has qualities not available in the leathers of other animals. Its hide (trademark Naugahyde) does not require a long tedious tanning process, its more elastic, easier to shape, holds color better, has a longer wear-life and requires less maintenance than companion hides.. And certainly the millions of Americans who have Naugahyde covered chairs, couches, automobile seats, etc., will with alacrity, acknowledge these advantages.

So in 1952 a consortium of furniture companies from North Carolina and California hired crews of professional hunters to track the Nauga and transship the honey-colored hides from Australia to the States. And Naugahydes soon became a big business. I can even remember President Harry Truman extolling the virtues of his Naugahyde covered chair in the White House. And I can recall, in the early 1956, when General Motors took out full page adds in Life Magazine bragging that they were the “first motor car company to cover their automobile seats with luxurious hide of the Australian Nauga.” Of course those hides first appeared in the Cadillac Fleetwood. Studebaker, Hudson, Packard, Chrysler and Ford were soon to follow and the demand for Naugahydes began to increase by orders of magnitude.

As an aside, in 1982, Congress, through the intervention of an organization called Save the Whales, banned the importation of Naugahydes to the U.S. But demand did not slacken because the rage caught on in Japan , Germany and even France .

Anyhow, hunters, who were paid $2.00 for a male hide and $2.50 for a female hide (they are softer and easier to clean) soon decimated the Nauga population in Australia . Unfortunately the Australian Government, without regard for the Nauga’s reproductive capacity (females breed only once each 2.6 years) of those doe-eyed creatures, allowed the carnage to continue. And export demand continued to increase when the Russians discovered that the Nauga’s fur was nearly identical in quality to that of the Sable and even to the trained touch of a furrier, nearly impossible to differentiate. In fact, many Americans who have bought expensive Sable coats are probably wearing Nauga fur coats which are actually warmer then the Sable coat.

According to S.T.A..N., Ltd., domiciled in Melbourne , there are less than 6,000 Naugas remaining in the Outback. These loveable, soft, friendly creatures would seem to make ideal house pets. Unfortunately they are unable to survive in captivity and usually die after several months of domestication. Apparently, like the Lemmings of Norway and Finland , group bonding is essential to their health and survival. Attempts to breed these delightful creatures in environmental zoos have failed. According to Harvard zoologist, Dr. O. Leo Leahy, the Nauga has a recessive gene that triggers a self-destruct mechanism when confronted by an environment that is not their natural habitat. Only the aborigines of Australia have managed to domesticate the Nauga because they share and survive in a mutual environment.

So, I encourage you to send your kind contributions to S.T.A.N., Ltd., C/O the Australian Embassy, Washington , D.C. Upon receipt of your check the Embassy will send you a color photo, suitable for framing, of a Nauga family grazing in the Outback. I know that you will be richly rewarded by the knowledge that your tax-deductible contribution will S.T.A.N. 

The media may unwittingly be promoting enmity and conflict among Americans of different backgrounds. I’m referring to the repetitious use of ethic identities as Cuban-American, Muslim-American, African-American and the like. This practice encourages ethnic groups to flaunt their ancestry in preference to their country. The frequent reference to groups such as Polish or Mexican-American prompts its members to insist “I’m Polish first and American second” or “I’m Mexican first and American second.”

            It wasn’t too many years ago when we were just plain Americans. Today some of us feel we need to call ourselves “American-Americans” to distinguish ourselves from African, Haitian, German, Asian or Cuban heritage. The emphasis on ethnicity, heritage or ancestry to recognize their exclusivity as an adjective Balkanizes our culture and emphasizes our differences rather than our commonality. This redundant emphasis on group ethnicity builds dangerous and palpable layers of hostility between Americans of different ancestry. It pits Mexicans against Asians, Cubans against blacks and is disrespectful to those who wish to be called simply “an American.” The difference of heritage in one reason social tensions will always exist; because heritage implies differences, differences imply superiority and superiority leads to dominance. The media’s tautological use of heritage as an adjective caresses the veneer of social harmony with sandpaper. The repeated use of African-American or Cuban-American to identify oneself is perceived by many people as “it’s better to be an African or Cuban first and American second.”

            Many ethnic groups now wear their ancestry like epaulets, spawning rivalries between themselves and competing ethnicities while alienating mainstream America . And when a group’s identity becomes a refuge for its members, its social, political and economic goals become antagonistic, intractable and self-centered. Rather than a collective, common agenda that would benefit a majority of Americans, various groups with their self-centered ambitions compete against each other for America ’s limited resources.

            There are no winners in this covetous competition for ethic recognition and dominance. The losers are legion and their failures to control political, social and economic policy is reflected in their vigorous personal resentment and loud discord in the public arena. The metaphorical American “melting pot,” which was once a wonderful bouillabaisse, is now a caldron of indissoluble and irreconcilable differences.

            We are the only country in the world to encourage ethnic separatism as feel-good social policy and feel-good politics. Can you imagine a Haitian-Dutchman, an African-German or a Mexican-Englishman? Only in America do we acquiesce to an ethnic group’s instance on the use of ethnicity as an adjective. It’s irresponsible to flaunt ethnicity like a flag because it partitions millions of Americans into ethnic bunkers. Most of us have family who came to America from another country. They left their homelands for a better future in this country, and that you and I are here to discuss this proves that many of them succeeded. The failure to recognize that we are not hyphenated American but are Americans first is a dishonor to our country and millions of current and past citizens.

After frustrating decades of failed social experiments, many Americans have finally realized that being Politically Correct is a foofy illusion fostered by a delusional minority, and an effete left wing media, all of whom believe it’s possible to pick up a turd by its clean end. “Do not discriminate! Diversity is our friend! All men are created equal!” These and other politically correct, placable bromides are the mantric incantations of the Church, the Academes, the Nouveau Riche and Silly Flat-Earth Idiots (CANS) who rely on social causes to nourish their mental health. So they figuratively become messianic, soap-box agitators who believe in the goodness of man, that love conquers all, the Easter Bunny and the Great Pumpkin. And if you refuse to accept their bromidic theses, they will, with alacrity, brand you a bigot, a racist and heaven forbid an atheist! Well, what the hell, considering the number of people who have been killed and tortured in God’s name, many clear thinking Americans are eager to become born again atheists. However, it seems that these well meaning tub-thumpers conveniently ignore numerous examples from the most well read history book of all time – The Holy Bible. Frankly there’s not much holy about a book that is the most bloody chronicle in all the literature of the world..  The story of Abel, Cain and their daddy, Adam is the first example of discrimination. Consider the citizens of Sodom or Gomorrah whose behaviors god considered unacceptable…including all those cute, happy, blue-eyed babies and fair-skinned, pubescent children. Of course there’s the tale of the “Big Flood” wherein god took the life of every human except Noah and his family. Hells bells even Allah, Moses and each of the 265 Popes are guilty of overt discrimination, however those daft and dotty CANS will go to great lengths to explain that they possessed a divine right to do so. Still, the historical lessons here are (1) Man has always discriminated, (2) Diversity is not tolerated and (3) All men are not created equal. Many CANS consider this heresy and these who do, according to most psychologists, have problems with premature ejaculation. Some CANS know these historical lessons are true and refuse to acknowledge it. They’re hopeless romantic; and romantics spend a fortune on Viagra or Cialis. Other CANS tacitly admit the truth but fervently believe the truth can be overcome. They are balmy fools and neither Viagra nor Cialis will help them. Still other CANS publicly acclaim the truth but believe that man’s goodness will prevail. These people are neurotic, dangerous and spend lots of money on ladies of the night. And finally, some CANS admit the truth and work very quietly behind the scenes to deny it. They are psychotic, insidious and never get laid. These blithering idiots would rather that all of us be equal under slavery then unequal in a society of freedom. However most of us recognize that inequality is as dear to the American Heart as Liberty itself.

“Don’t Discriminate!” Poppycock! Discrimination is a natural human response and as much a part of our autonomic nervous system as a blink and a yawn. We practice discrimination in our preference of neighborhoods, clothing, art, language, hair style, music, job skills, etc. This is called (OD) or Object Discrimination. OD is an acceptable behavior and people practice it everyday. Though we may be roundly criticized for our choices, OD is not considered a negative behavior. But suppose that John discriminates against Lekisha because her accent is offensive. The modifying verb “against” colors the active verb “discriminate” as an unacceptable and negative behavior. Interesting? (1) WOULD you (a) Prefer to have a loveable, funny Christian friend or (b) A dull, Muslim friend without a sense of humor? (2) WOULD you choose a roommate who is (a) A law abiding, well read and from a middle class family or (b) A roommate who has unsavory friends, is on food stamps and lives in the ghetto? (3) If your business needed a receptionist WOULD you (a) Hire a lady who looks like Elizabeth Hurley, speaks with a delightful English accent and dresses conservatively or (b) Hire a Hispanic female who is 75 pounds over weight, speaks ghetto English and has visible piercings and body tattoos? Get my drift? Now, if you selected only members of the “b” group, do you think that members of the “a” group would feel discriminated against? However, if you selected only members of the “a” group it’s almost a certainty that “b” group members would scream discrimination. They would tell us that we are biased because of “b’s” differences in language, dress and appearance. Well darn, most of us (even the CANS) don’t want to “walk that walk,” “talk that talk” or “dress that dress.” So it’s logical to conclude that “a” is being discriminated against by “b” because “b,” who will not accept “a’s” differences but insists that “a” accept “b’s”differences. Major differences between people and their ethnic heritage is one of the reasons that antagonism will always exist; because differences imply superiority and superiority leads to predominance.  

People discriminate because they identify characteristics in others they perceive as negative and recognize that those characteristics give life to a discomfiting and non-productive environment. Well Jesus Christ on a Chris Craft, any normal, healthy, Native Born American (NBA) would feel threatened by other NBA’s whose characteristics are antagonistic to their milieu. If the characteristics of a specific NBA group are perceived as egregious then other NBA’s would naturally do their darndest to avoid the appearance of “guilt by association.” This is Social Discrimination (SD). It’s a flight response to avoid a potential threat and it is a natural behavior to avoid assimilation into a regressive culture. It’s self-preservation so unless you’re a wuss you are expected to discriminate because you have a duty to forebear that danger.

One of the most evident examples of this behavior derives from NBA blacks, an ethnic group that (according to Bell Curve, anecdotal evidence and empirical observation) figuratively stands lower on the intellectual and achievement scale than most whites. This reproach will be construed as racists by the CANS, and as an excuse for NBAs to discriminate against blacks. But that assumption is as wrong as Corrigan and two left shoes. The NBA black isn’t discriminated against because of his color; rather he’s discriminated against because of what his skin color is likely to tell us about him. Many observers believe that it is possible to make correct assumptions about some people if we know their heritage. For example: Asians have higher IQ’s than Caucasians, Jews are good business people, blacks are superb athletes, Germans are excellent scientists, Italians are great lovers, etc. etc. and etc. And its common knowledge that a significantly large number of NBA blacks have very evident characteristics that distinguish them from the NBA mainstream culture. Casual observation inarguably concludes that black crime rates, black homicide rates, educational level, language, dress code and social structures are behaviors clearly unacceptable to the majority of NBAs. The NBA black’s combative and provoking efforts to force their culture on the NBA mainstream is intolerably offensive and mocks the culture of most NBAs whose values form the tribunal of approval. Therefore they must discriminate to protect their values. However few things are more difficult for minority groups to accept than an annoying truth.

So let’s drop this palaver that “all men are created equal,” that “we must not discriminate” and that “diversity is your friend.” Those palliative bromides are promoted by all well meaning CANS who believe that equality is a right, but fail to realize that no power on Earth can turn it into fact. If you “follow the money,” you will note that pro-diversity is a Big Business promoted by whites, blacks and CANS who suck in billions of dollars a year selling consulting services, grant approvals, office space, legal and accounting services, computer equipment, organizational skills, printing and office supplies, etc. Anti-Discrimination is a multi-billion dollar business and a deeply entrenched interest (imagine how much Messrs Jackson, Sharpton, Reverend Wright and others make) stands to loose big money and important influence if discrimination ceased to exist. And these folks are tremendously successful because they tie most Native Born Americans into such politically correct knots that every governmental agency is afraid of being sued for discrimination by some smart-aleck, candy-assed, civil rights lawyer.   

FRANTIC WITH HASTE

RUNNING RED LIGHTS

NO TIME TO WASTE

TO CATCH MY FLIGHT

AND THEN CURSING THE LINE

AT  THE CHECK-IN STATION

THAT UNBEARABLE TIME

FOR FLIGHT CONFIRMATION

RACE TO THE GATE

TO BOARD MY FLIGHT

LEAVING AT EIGHT

O’CLOCK TONIGHT

TICKET IN HAND

PAPERS ASKEW

JUST MADE IT AND

THERE’S NO FLIGHT CREW

 4

Yep…. the doctor’s office called

to remind me of our date

confirmimg my appointment

“Mr. Berko, don’t be late.”

Rushed from home lickety split

fighting all lights and gridlock

making sure that I was there

at exactly two O’clock.

Parked my car… minutes to spare

and ran pell mell  through the gate

found the office… took a chair

“Oh SHIT… a two hour wait!”

1

Wanda wears a hat

when she giggles.

Wanda wears a hat

when she jiggles.

That’s that.

Don’t scoff.

Wanda must wear a hat

or her wiggle come off.

 2

When I’m sad or

lonely

walking will only

cheer me up.

So if I stroll down

pathways

causeways

highways

freeways and

parkways

I’ll soon

avenue

outlook on life.

3

During my youth

I was told an untruth that

when solving riddles

its best to play both sides

against the middles.

And now I’ve got patches

on deceit

from

straddling both sides

of defense

Dear Mr. Berko: We have a very good-quality portfolio of stocks and every once in a while my wife and I like to take a speculative plunge in cheap stocks selling less than $1 a share. We’ve never made any money speculating like this, but we can afford the risks and kind of enjoy the gamble.
Last week, while on an extremely difficult and very confusing business trip to Miami, we met this money manager who has his own firm in Miami. To shorten a very long story, this man made a very convincing presentation and would like us to invest $80,000 with him. All of the stocks in his managed portfolio sell under $1 today and he believes that most of the issues on his list can at least double or better in the coming 12 months.
My wife is 100 percent convinced and I must tell you that this man was professional, knowledgeable and sincere. He’s almost a new friend.
His “batting average,” as he calls it, is fantastic. In 1999, he was up 152 percent. In 2000, his portfolio was plus 261 percent and in 2001, his managed portfolio was up 202 percent. In 2002 and 2003, he was plus 179 percent and 136 percent, respectively.
The references he gave us verified those numbers and they were very enthusiastic about his performance.
My wife is chaffing at he bit to invest but I’m not as certain as she, which is why I’m writing this letter. Martha (my wife) says if you can recommend better low-priced stocks, then we will put $40,000 in your recommendations and $40,000 in his managed portfolio. Please advise us.
R.S.
Oklahoma City
Dear R.S.: Miami is a mecca for con artists, grifters, drug dealers and schlock brokers like your “knowledgeable and sincere” new friend. I’ll wager good money that his sincerity is 100 percent synthetic with a single, natural fiber.
Yes, that track record, in perhaps the worst-ever market environment, is phenomenal. However, a good con artist/schlock broker knows that a big lie is much easier to believe than a small lie, and you’re letter to me is living proof.
I promise you that this guy is so crooked he’d cheat on his prostate exam. I’m willing to wager money to mangoes that the references with whom you spoke are in this fellow’s employ. If you ring them once again, you will hear the same story, word for word and comma for comma.
I don’t know enough about penny stocks to recommend issues that can go into intergalactic orbit. Frankly, I don’t recognize a single name on that penny stock list, but the few I checked looked minutes away from bankruptcy.
I suspect someone at the Internet firm that you and Martha came down to visit - because they need start-up financing - introduced you to this fellow. When you and Martha had lunch with the firm’s someone, I suspect that this schlock brokster (who is certainly a friend of that someone) just happened to be at the same restaurant. How am I doing so far? Be mindful that I heard all this before.
Now, if you listen to me, I think you will avoid a $80,000 tax-loss this year or next. I’d like you to place that list of stocks in front of Martha. Ask her to close her eyes and with a pencil just mark any stock on that list.
Let’s assume that she marked Medi-Hut Co. Inc. (MHUT). Please note that MHUT is priced at 45 cents on your list and while it’s a legitimate company with employees and revenues, you can buy this stock all day for 8 cents a share.
OK, it’s your turn. Close your eyes and place a pencil mark on any stock on this list.
Let’s assume that you marked ZKid Network Co. (ZKID). ZKID is also a legitimate company with employees and is priced at 81 cents on your list. Well, you can buy shares of ZKID all day for 14 cents each.
In fact, every one of those small penny stocks on your list is probably marked up at least 500 percent. In essence, you’d be paying $80,000 for penny stocks that have a current market value of $16,000. This is a nice day’s work for your professional, knowledgeable and sincere new friend. It would also be a sad experience to memorialize your first visit to Miami. You’re in the process of “being had!”
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
© Copley News Service
Visit Copley News Service at www.copleynews.com.

Dear Mr. Berko: I’ve been following Wal-Mart since November 1999, when I almost bought the stock at $60 a share. Since then, I’ve seen its revenues nearly double from $177 billion to nearly $300 billion this year. I’ve watched its earnings practically double from $52 billion in 1999 to maybe more than $100 billion this year. I could have bought the stock in 1999, just before the split, in the $60s and I would have nearly doubled my money, according to the Value Line charts. But I didn’t.
Do you think I should buy the stock today? Do you think it could double again in the next five years? Do you think it will continue to grow as fast as it has? I don’t own any retail stocks, and almost all of my holdings are utilities, the pipeline stocks you recommended two years ago, some convertibles and closed-end bond funds.
Please give me your opinion. I have a $7,000 certificate of deposit that will soon come due, and I would like to put this money into retail stocks.
S.L., Elgin, Ill.
Dear S.L.: I think you are reading that Value Line chart incorrectly. All those squiggly lines are prices that are adjusted to reflect Wal-Mart’s (WMT-$52) 2-for-1 split. So when you looked at the Value Line chart for November 1999, WMT had already split 2-for-1 in May 1999. If you had bought 100 shares in November 1999 at $60, you would still have 100 shares today at $52, worth $5,200, and a paper loss of $800. Still, WMT’s revenue and income growth have been super, but its share performance have been less so, as you can see.
I have no doubt that WMT will continue to grow and grow. But with 4.3 billion shares outstanding and trading at 26 times earnings, I feel the shares are much too pricey. If you wish to own WMT, I recommend you place an open order to buy the stock at $43, which is about 18 times next year’s expected earnings of $2.36 a share. Failing that, you might consider the following two issues that may have significantly better appreciation potential than WMT.
Dollar Tree (DLTR-$27) owns 2,610 discount variety stores in 47 states retailing $3.2 billion of stuff priced at $1. DLTR’s stores look like yesterday’s five-and-dime stores, offering a wide assortment of general merchandise. Each store has four employees, and families with incomes under $30,000 account for 55 percent of DLTR’s revenues.
On the other hand, the typical Wal-Mart family has an annual income in excess of $44,000. DLTR’s net profit margins of 6.7 percent are twice that of WMT, and their location costs (second-tier strip malls) per $1 of revenues are one-third that of WMT. Revenues and earnings have increased twelvefold in the past 10 years, shares trade at 16 times earnings and future earnings prospects look bright. And 100 shares bought in 1994 at $30 for a total of $3,000 would be 506 shares today worth $13,156, which is certainly better performance than WMT stock.
Family Dollar Stores (FDO-$29) has more than 5,600 stores in 47 states and expects to generate $5.3 billion in revenues this year. These stores are located in small, rural areas and the merchandise is generally priced under $10. FDO, which trades at 18 times earnings, has no long-term debt, plenty of cash, excellent earnings projections and a classy net profit margin of 5.2 percent. Because 1994 revenues have increased more than fourfold, a 100-share purchase in 1994 at $12 for a total of $1,200 would be 300 shares today valued at $8,700. Certainly that is significantly better than WMT.
Neither FDO nor DLTR spends money on advertising, and both rely on closeout and overrun merchandise. Neither can match the world-class technology of Wal-Mart nor its clout with retailers. However, DLTR and FDO run a no-frills, penny-pinching business while offering the same popular brand products, such as Gillette, P&G and Colgate, as Wal-Mart. While Wal-Mart stores are located on the outskirts of cities, FDO and DLTR stores are downtown or adjacent to a low- or middle-class neighborhood.
It’s certainly easier to shop near home than fight traffic for eight miles to the edge of town and then eight miles back. While parking at a WMT store can be like negotiating a battleground, parking at a DLTR or FDO is a cinch. Heck, a lot of folks I know shop at DLTR and FDO and, on occasion, I’ll pop into a parking lot to spend $20 on sundries. It’s certainly more convenient, quicker and cheaper than Wal-Mart.
FDO expects to open some 500 stores and DLTR should open 400 stores this year. While the imposing Wal-Mart name appears intimidating, DLTR and FDO are profiting like Croesus on the customers WMT leaves behind.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
© Copley News Service
Visit Copley News Service at www.copleynews.com.

Dear Mr. Berko: Dow Jones has a group of stocks in its dividend index on which they maintain specific prices and keep daily tabs, sort of like the Dow Jones 30 Industrials. I think there are 50 stocks in this index, which according to my broker, has done better than the Standard’s & Poor’s in the past dozen years. Well, I’ve got $21,000 to invest for my individual retirement account.
Will you please look at that list and recommend five of those 100 stocks you think are the best in the list and perhaps I could buy 50 shares of each? My main goal is conservative long-term principal growth with good dividend growth.
R.R.
Joliet, Ill.
Dear R.R.: You are referring to the Dow Jones Select Dividend Index, which is composed of 50 individual stocks. Barclays Bank, in November, came out with iShares called the Dow Jones Select Dividend Index (DVY-$55) that trades on the American Stock Exchange. DVY’s performance should correspond to the Dow Jones Select Dividend Index, less fees and expenses. So you might consider investing some of your $21,000 into shares of DVY that has a current return of 3.57 percent.
However, among the 50 issues in the DVY, I feel the following five may have above-average long-term performance or may be among those with the best long-term performance potential. You can buy the DVY from your broker.
Universal Corp. (UVV-$49) pays $1.56 and yields 3.1 percent. This company buys, stores, processes and sells tobacco for cigarettes, pipes, cigars and chews. Tobacco represents 59 percent of revenues. UVV also distributes lumber and building supplies in Europe and sells commodities, which accounts for 41 percent of revenues. Dividends have been increased for 15 consecutive years.
MeadWestvaco Corp. (MWV-$28.80) pays 92 cents and that dividend yields 3.2 percent. MWV produces packaging, coated and specialty papers, specialty chemicals and office products. MWV also owns 130,000 acres of forestland in Brazil (more than 1,000 miles from the Amazon rain forest) plus 2.4 million acres of forestland in the United States. MWV lost money in the last three years but should earn a small profit this year and a good profit in 2005.
Lincoln National Corp. (LNC-$45) pays a dividend of $1.40, which yields 3 percent. LNC is a holding company that sells annuities, various forms of life insurance, mutual funds and managed account products. Wall Street analysts expect record earnings this year and record earnings in 2005. Meanwhile, LNC’s dividend has increased for 15 consecutive years and may increase this year as well as 2005.
Comerica Inc. (CMA-$54) with $55 billion in assets is the largest bank in Michigan and a multistate financial services provider. The $2.08 dividend yielding 3.8 percent has increased each year since 1988 and will probably increase next year. During the last 15 years, asset growth, loan growth and book value have increased impressively.
PPG Industries Inc. (PPG-$61) is an $87 billion global manufacturer of various glass products, fiberglass, coating, resins and industrial chemicals. Its current $1.80 dividend yields 3 percent and has increased each of the past 15 years. Record revenues and earnings and annually higher dividends are expected over the next few years.
While these are my favorite issues, they may not provide you with the performance of a more widely diversified selection of issues from the DVY. So I’d recommend that you also consider investing part of that money in a Unit Trust called The Dow Target Dividend Portfolio, which can also be purchased from your broker. This Unit Trust selects 20 issues they feel are the top performers in the DVY, which they believe will produce above an average total return from capital growth and dividend income. The strategies they use in selecting their 20 issues (if applied since 1992) would have generated a return, better than twice that of the S&P 500.
Another issue that you might consider along with those five stocks and the unit trust is a closed-end fund called The John Hancock Patriot Select Dividend Trust (DIV-$13.80). DIV’s $1.08 dividend (9 cents a month) yields 7.9 percent and it trades at a 1.4 percent discount to net asset value. DIV is 33 percent leveraged, has a portfolio turnover of just 17 percent and has $212 million in assets. Some of its top holdings are El Paso Tennessee Pipeline, Alabama Power, Bear Stearns, Energy East, KeySpan, DTE Energy, Lehman Brothers Holdings, HSBC and CH Energy Group.
So I’d suggest investing $5,000 in those five stocks, $5,000 in the unit trust $5,000 in DVY and $6,000 in DIV. And I wish you good long-term investing.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
© Copley News Service
Visit Copley News Service at www.copleynews.com.

Dear Mr. Berko: What is your opinion of Campbell Soup? They now seem to take up more shelf space in most supermarkets and I notice that their advertising is picking up. I think I’d like to buy 200 shares but figured I’d better get your opinion before I spend $5,000. I will be using the proceeds from a recent sale of Zimmer, which you recommended at $42 last year and sold 50 shares at $87. I think Zimmer will split and I will have 100 shares again. What do you think?
W.J.
Oklahoma City
Dear W.J.: In July of 2002, I bought 200 shares of Campbell Soup Co. (CPB-$26) at $21.
CPB has been in the downhill slumps since reaching an absurd high of $63 in 1998, when it had revenues of $6.6 billion and record earnings of $1.90.
CPB products are as much a part of Americana as V8 Juices, Godiva Chocolates, Prego, SpaghettiOs, Swanson, Franco-American and Pepperidge Farm. In fact, some prominent past spokespersons for Campbell Soups have been Ronald Reagan, Johnny Carson, Jimmy Stewart, Donna Reed, Orson Wells, Helen Hayes, George Burns, Gracie Allen and Robin Leach. If they say it’s ” M’m! M’m! Good!” it’s gotta be so!
This company outsells its leading competitor by 7 to 1 and owns 71 percent of the $4 billion soup market. While soups represent 41 percent of U.S. revenues they comprise 61 percent of U.S. profits. CPB has now learned that it’s not enough to remain a legend and rest on its past laurels. Between 1998 through 2002 management cut back on marketing figuring that current momentum would carry revenues forward. Big mistake that. Hard-hitting competition from private labels, General Mills and Heinz clobbered CPB’s profitability and morale.
The new chief executive officer (Doug Conant who took the helm in 2002) revived brand popularity and increased its marketing budget by $200 million a year. Conant spent heavily on new technology that improved quality and introduced “easy-to-open cans.” Conant increased the research and development budget, which created new products in the convenience market and new shelving designs.
The results were fabulous. Sales were up 16 percent (excluding underperforming divestitures) and profits grew by 14 percent last year.
The public’s new perception of CPB’s products has grown by orders of magnitude. This year, 71 percent of respondents considered CPB’s products superior to the competition vs. just 13 percent in 2001. Campbell is posting net profit margins of 10 percent, which is among the best in the food group. Campbell has achieved double-digit gains in its biscuits and confections products compared to an average 5 percent for its peers.
And CPB also seems to have positioned itself as an anti-obesity company. Its product categories are considered healthy and on trend with the market. CPB has a fair balance sheet and new management has reduced long-term debt to $1.8 billion from $2.4 billion since Conant took the helm. With new cost controls I think CPB’s book value could triple to $7 in the next four to five years, net profit margins could reach 10 percent and return on shareholder equity might reach 34 percent.
Campbell is a classy, pale-blue chip company with worldwide brand recognition, especially its iconic red-and-white cans of condensed soups. In the coming four years, CPB’s revenues could reach $8.5 billion and earnings could top $2.05 a share. However, I don’t expect any improvement in CPB’s niggardly 63-cent dividend.
Campbell, as you know, is one of those companies whose products are readily consumable and therefore generate frequent repeat sales. So in the coming four to five years, I think CPB could trade at an average price-earnings ratio of 20 and I think the stock could move to the $40-$42 level. That’s an average annual return of 15 percent, including the dividend. The growth prospects are attractively modest and as a long-term investor, you might do well owning 200 shares.
A number of our accounts own shares of Campbell Soup in their managed portfolios.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@adelphia.net.
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