Berko: Buy Swiss, sell American?
Friday, August 16, 2013 7:00 AM
Dear Mr. Berko:
I recently spent 12 days in Switzerland and was very impressed with the phone system there. I’m interested in buying 200 shares of Swisscom, especially because I read that Goldman Sachs has a buy rating on the stock. I would sell 400 shares of General Electric to purchase Swisscom, but I would first like your opinion.
M.K., Kankakee, Ill.
Switzerland is a place high in the mountains where the people don’t like to fight. So they get people to do their fighting for them while they ski and eat chocolate. Our politicians could learn a lot from the Swiss. But one thing I’d like to know is how the Swiss encouraged Goldman Sachs to raise its rating on Swisscom AG (SCMWY-$44.69) from “neutral” to “buy.”
I like Switzerland. I’ve been there a couple of times. But it has the highest amount of wealth per adult (financial and nonfinancial assets) in the world, and among its 8 million people are too many of the most insufferably stuffy and unfriendly adults in the universe. An American expat I know who lives in Basel explains that it may be illegal for Swiss nationals to have a sense of humor. However, I think it’s because most Swiss people are constipated from the high altitude. Anyhow, considering the neutral prospects for SCMWY’s future revenue and earnings, my expat acquaintance believes that Goldman raised its rating from “neutral” to “buy” after the Swiss Parliament made Lloyd Blankfein (Goldman’s CEO) an honorary Swiss admiral.
SCMWY’s 19,000 employees run this telecom’s $12.14 billion-revenue business. During nine of the past 11 years, those revenues declined. And that’s not surprising, considering the country’s low birth rate and the clenched-fist frugality of most Switzers. And in a surprisingly un-Swiss manner, SCMWY’s long-term debt grew nearly threefold, to $8.3 billion, and share earnings crashed like a rock from a high alp during the past decade. Revenues for 2014 are expected to rise by a couple million dollars, and earnings may improve from $3.34 to $3.37 a share, but that’s not much to yodel home about. The swell dividend of $2.30, which is paid once a year in April, yields 5.1 percent, and the share price is up 16 points from its average price of 10 years ago, but I can’t find a compelling reason to own this stock today.
And I almost fell off the floor when you wrote that you might sell 400 shares of General Electric Co. (GE-$24.31) to purchase 200 shares of Swisscom! Cheese and crackers got all muddy and son of a biscuit, selling GE is downright un-American. This is a stock that should be in every American’s long-term growth and income portfolio. What’s good for GE is good for America, and what’s good for America is good for GE. This company is as American as Babe Ruth, barbecued ribs, drive-in movies and Kentucky bourbon. And with the exception of the automobile industry, long-term investors have had good success with nearly every stock that has the name “General” in its title.
GE was formed in 1892 via the merger of Edison General Electric Co. and Thomson-Houston Co. In 1896, it was one of the original 12 companies that formed the Dow Jones industrial average, and after 117 years, it’s the only one of the original companies still listed on the index. Today it’s one of the largest and most diversified technology and financial services companies on the planet. With products including power generation, household appliances, jet engines, water processing, medical imaging, aerospace systems, mining equipment, many types of engines, business and consumer financing, and lighting products, GE serves customers in more than 100 countries. Revenues for 2013 are expected to be $156 billion. Earnings should be $1.70 a share, and GE has a 76-cent dividend, which yields 3.1 percent. Going out four years, the consensus expects GE to report $190 billion in revenues, post earnings of $2.80 a share, pay a dividend of $1.25 and trade at $50. So selling a classy company such as GE would be a big mistake, as well as unpatriotic.
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