Dear Mr. Berko:
I want to make a gift to Morning Star Development, an evangelical missionary organization that sends laypeople, doctors, nurses and teachers to Afghanistan to provide schooling, irrigation projects, medical care and nursing care to the poor people who live in the mountain villages. I have three stocks, each worth about $6,000, and want to contribute one of these three for the organization to sell and use the proceeds for its good work. I own 12 shares of Apple, which cost me $2,000, 100 shares of Johnson & Johnson, which cost me $5,700, and 322 shares of the Yacktman Fund, which cost me $4,000. I own other securities, but those are the three that I am considering selling. Would you please tell me which of the three you think has the least long-term appreciation potential?
R.P., Kankakee, Ill.
That’s as easy as pie to do while falling off a log! You do not want to liquidate the no-load Yacktman Fund (YACKX-$20.35). I’ve been following Donald Yacktman since he was managing the successful Selected American Shares Fund in 1983. This guy is darn good; he’s fantastic, certainly among the elite and most respected fund managers in the industry. And YACKX, which he founded in 1992, has done supercalifragilisticly well. This is a large-cap blend fund with $9 billion under management and a 10-year average annual total return of 10.82 percent. Issues such as Coca-Cola, Procter & Gamble, Cisco, Viacom, PepsiCo and C.R. Bard are stalwarts in his portfolio, which has a low 2.8 percent annual turnover (think tax efficiency), versus 46 percent for the average large-cap blend fund. Donald Yacktman definitely has that magic touch, and it’s worked well for 30 years.
Nor should you gift Johnson & Johnson (JNJ-$73.92), a classy health-care company that sells $65 billion of over-the-counter pharmaceuticals, nutritionals and baby-, oral-, skin- and wound-care products, plus a broad range of effective prescriptive medicinals. You don’t want to sell JNJ, because it yields 3.3 percent. And since 2002, it has doubled its revenues and increased earnings by 250 percent while tripling its dividend and book value. And the Street believes that it could increase its value (providing you reinvest the dividends) by 70 percent in the next five years. Mr. Yacktman might also tell you to keep JNJ, which is one of the top 10 holdings in the YACKX portfolio.
But you do want to sell Apple Inc. (AAPL-$455.49), because like Dell, Hewlett-Packard, Microsoft and Nokia of years ago, the bloom may be off the rose. AAPL without Steve Jobs is like the Cardinals without Stan Musial, the Red Sox without Ted Williams and the Dodgers without Jackie Robinson. They’re still fine teams, but they lack that spark, the hard, fine edge, the anticipation and excitement. AAPL will continue to do well in the future, but its future is not nearly so attractive as its past. AAPL needs innovation to grow, and unless another Steve Jobs happens by (think of Jack Welch at General Electric or Lee Iacocca at Chrysler), revenue and earnings cannot maintain their torrid pace. So give your Apple to Morning Star, but make certain it is an approved charity and qualifies for a tax write-off.
I applaud your noble intentions but wonder why you selected Morning Star Development to benefit from your munificence. I know little about this outfit except that three months ago, the Taliban kidnapped one of its people -- an American citizen named Joseph. And during the successful rescue attempt, an American special forces member was killed. I don’t trust organizations that provide medical and nursing care or educational opportunities to citizens of foreign nations. This sours my stomach because that need is unfilled at home. I can’t justify that an American service member lost his life rescuing a Morning Star jerk who should be helping Americans. Am I missing something here? I’d rather Morning Star used your money to provide caring services at home, which is where charity should begin.