Frosh picks stocks
Dear Mr. Berko:
My daughter’s freshman high school class is studying the stock market, and each student was asked to pick three stocks they think will do well between January of this year and May, when school is out. She has selected Krispy Kreme Doughnuts, American Capital Ltd. and Pfizer. I asked my daughter why she picked those three, and she said that “they just sounded good to me” and that I “use Viagra, which is made by Pfizer.” What do you think of her picks?
I can understand her choice of Krispy Kreme Doughnuts Inc. (KKD-$6.74). I like the pick. But where in blazes did she find American Capital Ltd. (ACAS-$8.38), a company that, according to the latest research polls, is only known by 127 American investors and three members of the Politburo? I also like Pfizer Inc. (PFE-$18.21), and I hope her teacher doesn’t require the students to show and tell.
KKD, as most know, makes the sweetest doughnuts this side of Mars. Once a Wall Street darling, it went public at $25 per share in April 2000, ran to $108 in November, then split 2 for 1 and three months later zoomed to $75, splitting 2 for 1 again in June 2001.
Then the CEO got money fever and began passing out Rolexes, cost controls had no controls, management was selling franchises to rejected Burger King employees, established franchisees revolted and the U.S. surgeon general began a campaign to lambaste anything that contained trans fats and sugars.
A few years later, KKD was $10 per share. And a few years later, KKD was $1 per share. This laid-back North Carolina company was millimeters from bankruptcy.
Wow, have things changed. The old CEO was tarred and feathered and now runs two Orange Julius stands. The new guy now has KKD stores in Korea, China, Indonesia, Australia, Turkey, Malaysia, Lebanon, the United Kingdom, Qatar, Kuwait, Japan, Bahrain and Saudi Arabia. KKD is a rank speculation, but many on the Street think it could be a sweet turnaround.
Just a few years ago, American Capital was trading in the $40s, paid a $4.12 dividend and was invested in an exciting portfolio of private companies – many of which were destined for initial public offerings. This business development company was sitting high above the world. Then the bubble burst, the dividend collapsed, the new-issue market ceased to exist, the United States fell into a recession, and in March 2009 ACAS traded at 75 cents per share. Now ACAS is on a tear with a classy portfolio of mining, liquefied natural gas tanker, oil, natural gas, pipeline, information tech, original equipment manufacturing, solar, nuclear power, electrical and gas distribution companies. I think this could be a dynamite stock.
Pfizer has $70 billion in revenues, 114,000 employees, made $7 billion last year and should earn $14 billion on a 12 percent increase in revenues by 2015. PFE has drugs for every known disease and is developing new drugs for diseases that won’t exist for years. The Street thinks the new CEO can take PFE to $33 in the coming four years, or $75 if it can perfect a “libido” pill for women. Meanwhile, the dividend yields a comfy 4.4 percent and might be increased this year.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at email@example.com. ©2011 Creators.com