Dear Mr. Berko:

Dear R.P.:

For the record, I must tell you that your adviser is the average thumb-sucking, toenail-biting, low-IQ stockbroker. And investors need a lot more than just an average broker to help them make today’s difficult investment decisions. So it’s important to know that you can lose money in a variable annuity. Brokers who tell you otherwise are disingenuous, thumb-sucking, toenail-biting, low-IQ liars.

Hi-Tech Pharmacal Co. Inc. (HITK-$34.25) is a $205 million-revenue specialty pharmaceutical company that designs and sells hard-to-manufacture liquid and semi-solid prescriptives. HITK also makes branded and generic prescriptives and a broad range of ophthalmic and inhalation products and is a leading producer of prescription and over-the-counter products for the diabetes market. The company also makes topical creams, ointments, nasal sprays, multivitamin and nutritional products. Most of its products are marketed to drugstores, wholesalers and supermarkets.

HITK’s revenue growth, from $33 million in 2002 to $205 million today, is impressive. Its net income, which increased from $3.5 million (32 cents a share) to $46 million ($3.36 a share) in that same time frame, is equally impressive. And in the past 10 years, HITK’s book value grew sixfold to $14.55 per share, its cash position grew sixfold to $76 million, and its stock price zoomed sixfold to a recent high of $35.

The company doesn’t have any fantastic products on the market, its research department is not high-science, and there are no drug patents that have exciting bragging rights. But what HITK does have is good products and a good sales force; almost zero debt; a 25 percent return on equity; operating margins of 32 percent; $10 million of free cash-flow per quarter; $76 million in cash; and shares that trade at only 10 times earnings.

This is enormously impressive. HITK is a glorious cash cow with low risk, so long as management can continue to grow revenues and maintain its generous margins. HITK’s 425 employees should continue to help the company pile up cash, but probably at a slower pace.

I know cash is king, but I doubt that management’s present product or its new product development has the zip to maintain its current torrid pace in revenue and earnings growth.

So because I can’t see clearly where the future growth is coming from, I suggest that you sell half your shares (1,125) and put the proceeds in a money market account for now.

Cash gives you time to think. Before you reinvest that money, it might be a good idea to define your investment goals.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or email him at malber@adelphia.net. ©2011 Creators.com