Dear Mr. Berko:

I’m a conservative investor whose primary goals are income, safety and growth, if that’s possible. I’m 63 years old, recently retired and need as much income as I can get. I will take some risks to increase my dividend or interest income, but I would like to minimize that risk as much as possible.

I have about $536,000 in stocks, and my goal is to have this money earn at least 7 percent and, if possible, have some appreciation, too. Can you recommend a stock, convertible bond or convertible preferred that will give me a good dividend or interest rate along with appreciation?

H.S., Everett, Wash.

Dear H.S.:

Take a peek at Smurfit-Stone Container Corp. (SSCC-$10.97), formed in 1998 by the merger of Jefferson Smurfit and Stone Container. Now that’s a real dumb name for an $8 billion company whose 255 million shares are listed on the New York Stock Exchange. Smurfit-Stone’s principal activity is the manufacture of paperboard (it is the largest in the United States) and paper-based packaging.

Its corrugated and containerboard segment produces containers designed to protect, ship, store and display products. The consumer packing division produces cartons, printed paper, foil, containerboard, kraft paper, folding cartons and recycled folding boxboard. SSCC has 19 paper mills, 148 container plants, 11 bag-packaging plants, 17 folding-carton plants and 14 converting plants. And all these facilities create products for the food agriculture, cement, chemical and construction industries.

This company’s performance has been embarrassingly underwhelming during the past dozen years. Though revenues remained flat in the late ’80s and early ’90s, SSCC’s earnings ranged from a profit of $1.10 a share to a profit of a penny a share the following year, followed by a loss of 41 cents, followed by a profit of $1.01, then a loss and another loss and another loss, and finally a hoped-for smidgen of a profit in 2007.

The lunkheads who head this company finally had an epiphany and seem to be taking aggressive and positive steps to increase revenues and lower costs. It took these idiots years to separate marketing operations from manufacturing operations. They hired a new and talented chief operating officer, who shuttered high-cost operations, sold segments of the company’s consumer packaging business, improved the balance sheet and streamlined various packaging and container operations.

The results are beginning to show. SSCC will lose a nickel this year, but expects to book a nice profit of 65 cents in 2007. But since you are a conservative investor with an income as well as a growth orientation, I recommend that you consider the Smurfit-Stone 7 percent convertible preferred (SSCCP), which pays a $1.75 dividend, trades at $23.50 and sports a nice, comfortable 7.45 percent current return. The shares are callable at any time at $25 and are convertible into one share of common at $34.

The dividend on this CCC-rated preferred qualifies for the 15 percent tax rate and it’s not unreasonable to assume that the shares could trade in the low $30s within the coming few years. I have a fair degree of confidence that this will occur.

New management seems to have the necessary focus and momentum to make SSCC a solidly run company. Their recent initiatives saved Smurfit-Stone $36 million during the first quarter, and they believe that within the next 18 months this restructuring will save SSCC more than $600 million a year. I like that.

Lehman Bros. Holdings Inc., Prudential Financial Inc. and Soliel Securities have upgraded the stock in the past few months, and UBS, Deutsche Bank Group, Goldman Sachs, Davidson and Bank of America have given SSCC a 5-star rating. Apparently, they recognize that the company’s new COO and the quality talent he brought with him can turn this company around and produce steady revenue and earnings growth. So I’m comfortable telling you that Smurfit-Stone’s 7 percent convertible preferred (SSCCP) should give you good income as well as modest capital growth over the coming two to four years.

My clients own shares in these issues, as do I.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net.

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