Check out Fifth Street
Dear Mr. Berko:
I got an e-mail from my broker, who advised me to buy 700 shares ($10,000) of NCR stock. I e-mailed him back to ask why NCR, and told him that $10,000 was twice as much as I usually invest in one stock. That was a week ago, and he has not answered me. Please tell me what you can about NCR, which I’ve never heard about, and if you think it’s OK to invest that much in one stock. Also, what do you think of a stock my wife picked called Fifth Street Finance Corp.? She wants to buy 250 shares with her own money. She did real good last year with her own account and made almost 40 percent, as her personal account went from $10,500 in early 2010 to $14,100 at the end of last year.
R.C., Troy, Mich.
Dear R.C.:
Fifth Street Finance (FSC-$13.14), a business development company, finances acquisitions, recapitalizations, bridge financing, first and second lien debts and management buyouts of small to mid-sized companies, investing $5 million to $50 million per company. FSC went public at the cusp of the market debacle in late 2008, ran up to $13, then abruptly crashed to $6 several months later. The stock is on the rise, and its $1.28 dividend yields a sweet 9.7 percent.
Considering how difficult it is for a company to borrow from its banksters, FSC and its excellent management are in fine fettle operating in a lucrative private-investment milieu and a good equity market to ply its trade.
Eleven brokerages follow FSC and have a “buy” rating. Several big institutions own FSC because its book value is $10.50 per share, because they believe revenues will grow by 40 percent this year, because they think the dividend might be increased to $1.45 and because management has net profit margins of 31 percent on 2010 revenues of $70 million.
I think your lady may have picked a dandy, and that 9.7 percent yield should be about 85 percent tax-deferred.
Meanwhile, you may have a smart broker, but I don’t like doing business by e-mail.
NCR Corp. (NCR-$17.09) formerly known as National Cash Register, was the “go-to” company for every business that needed a cash register since 1884. Today those beautifully scrolled heavy brass-and-steel contraptions are museum pieces worth big bucks.
But the new version of the cash register, like the new version of the Model T, is stuffed with microchips, lasers and communication devices. So NCR has had to transform itself, like IBM (which no longer sells PCs) or Kodak (which is making a valiant effort to survive the shift to digital photography). NCR’s management is doing a yeoman’s job implementing the new technology.
This $4.7 billion revenue company has been ranked No. 1 in ATM kiosks for 20 consecutive years, No. 1 in retail self-checkout for eight years and No. 1 in hospital patient self-check-in for four years; and in travel self-service, NCR owns 80 percent of the market.
In 2011, revenues should increase 10 percent to $5.1 billion. Net profit margins should improve 20 percent to 2.3 percent and net income should increase to $1.65 per share from $1.45.
This may be a solid long-term investment – but I like your wife’s pick better than your broker’s.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. ©2011 Creators.com
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