Dump the shares, but securities are secure
.bodytext {float: left; } .floatimg-left-hort { float:left; margin-top:10px; margin-right: 10px; width:300px; clear:left;} .floatimg-left-caption-hort { float:left; margin-bottom:10px; width:300px; margin-right:10px; clear:left;} .floatimg-left-vert { float:left; margin-top:10px; margin-right:15px; width:200px;} .floatimg-left-caption-vert { float:left; margin-right:10px; margin-bottom:10px; font-size: 12px; width:200px;} .floatimg-right-hort { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 300px;} .floatimg-right-caption-hort { float:left; margin-right:10px; margin-bottom:10px; width: 300px; font-size: 12px; } .floatimg-right-vert { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px;} .floatimg-right-caption-vert { float:left; margin-right:10px; margin-bottom:10px; width: 200px; font-size: 12px; } .floatimgright-sidebar { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 200px; border-top-style: double; border-top-color: black; border-bottom-style: double; border-bottom-color: black;} .floatimgright-sidebar p { line-height: 115%; text-indent: 10px; } .floatimgright-sidebar h4 { font-variant:small-caps; } .pullquote { float:right; margin-top:10px; margin-left:10px; margin-bottom:10px; width: 150px; background: url(http://www.dmbusinessdaily.com/DAILY/editorial/extras/closequote.gif) no-repeat bottom right !important ; line-height: 150%; font-size: 125%; border-top: 1px solid; border-bottom: 1px solid;} .floatvidleft { float:left; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} .floatvidright { float:right; margin-bottom:10px; width:325px; margin-right:10px; clear:left;} tr.d0 td { background-color: #ccccff; color: black; }
Dear Mr. Berko:
My mother and I have $40,000 too much in our checking account, and we would like to get a higher rate of return than the bank will give us on certificates of deposit. We can afford to take risk, and we are no strangers to the stock market. I’m 52 and Mother is 80 years young. We’d like to get at least 8 percent on this money in issues that you think have a moderate degree of risk. We both know that we have to take risk to get this return, and we are willing. We also own 850 shares of Merrill Lynch, and we’d like your thoughts on whether we should keep the stock or sell it. We’re also concerned about the safety of our securities at Merrill and whether she should move them to another brokerage firm.
C.K., Oklahoma City
Dear C.K.:
You don’t have to be concerned about your account’s safety at Merrill Lynch & Co. Inc. (MER-$52.39); it carries a substantial amount of insurance to protect most of its investors. However, I’m not comfortable owning the common stock, because there could be more serious upheaval to come.
I wrote MER’s chief executive officer (John Thain) and asked him to verify the following:
1. That MER may have to write off an additional $11 billion.
2. That MER may reduce its dividend to 75 cents.
3. That MER is negotiating with investors for badly needed additional capital.
4. That MER might lay off 4,600 employees.
5. That MER will reduce the compensation packages for its brokers.
6. That some important people will be pink-slipped.
Thain hasn’t answered my letter, which concerns me. So I urge you to sell your MER common shares. In fact, MSN Money rates Merrill a 3 out of 10, Oppenheimer rates the stock as “underperform,” Sandler O’Neil recently downgraded the stock, and in January of this year quite a few officers and directors of MER (including Thain) sold shares between $57 and $55 a share. I advise you to do the same, even though MER is trading some 10 points lower.
But I would be comfortable owning the Merrill Lynch Capital Trust III 7.375 percent Preferred (MER-P), trading at $24.20 and yielding 7.6 percent. MER-P was an initial public offering last May, which raised a needed $750 million for issuing 20 million shares at $25. It’s A-rated, does not qualify for the 15 percent tax rate, and I’m comfortable recommending that you purchase 400 shares.
Wachovia Corp. (WB-$30.04) recently surprised Wall Street, reporting a first-quarter loss of almost $400 billion and announcing that it will raise $7 billion via an offering of common and convertible shares. It will also reduce the $2.56 dividend to $1.48, which will allow the company to increase retained earning by $2 billion. It was less than a year ago that Citigroup, Oppenheimer and Bank of America had strong buy recommendations on the stock. Meanwhile, WB’s 8 percent Noncumulative Preferred A (WB-S) is a new IPO that went public at $25 and now trades at $25.24 with a comfortable 7.9 percent yield and an A rating by Moody’s. I recommend that you buy 400 shares.
Citigroup Inc. (C-$25.99) is a stock I’ve never liked. I really can’t specifically tell you why I dislike C, but I kind of feel it is so diversified in so many areas that its parts don’t fit as well as they should and can’t communicate with one another. But I have zero doubt that Citigroup 8.125 percent Series AA Preferred (C-P) trading at $25.01 will honor its dividend. The yield on this issues is 8.1 percent, it’s rated A by Moody’s, and I recommend that you buy 400 shares.
Finally, I think that Washington Mutual Inc. (WM-$12.52), a once-beloved savings and loan that has raised its dividend for over 20 consecutive years (until 2008) is also in over its head. The largest S&L in the universe was severely whomped by the mortgage mess, and Texas Pacific Group, a $30 billion private equity investment firm, came to the rescue with a capital infusion of 7 billion big ones. So I figure the Washington Mutual 7.75 percent Series R Convertible Preferred (WM-R) trading at $895 per $1,000 is a superb and handsome speculation. A 125-share purchase will cost you a bit more than $11,000 and yield 8.7 percent. The shares are rated BBB by Moody’s and qualify for the 15 percent tax rate.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.© Copley News Service
Trending News
