AABP Award 728x90

Research firm is a go, but pump maker is a no


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Dear Mr. Berko:

What do you think about Acacia Research? I’d like to buy 700 shares if you think it has good promise. And what is your opinion on Graco? I’d like to buy 200 shares if you think it has good promise. Both issues would be for my Independent Retirement Account, so I would be a long-term investor. My IRA is off 56 percent in the last 16 months, and I’d sure like to recover some of those losses.

E.R.: Gainesville, Fla.

Dear E.R.:

I had never heard of Acacia Research-Acacia Technologies. I thought you were asking about the acai berry, harvested from the Amazon rain forest and touted on “The Oprah Winfrey Show” as a weight-loss supplement and antioxidant. But a close associate who only buys interesting, low-priced public issues — and is as honest as the archbishop of Canterbury — tells me that Acacia Research Corp. (ACTG-$7.67) might be worth special consideration.

This small, $52 million revenue firm, located in Newport Beach, Calif., owns or controls the rights to more than 100 U.S. patent portfolios acquired from patent owners. ACTG assists the patent owner in developing the product, protects the patent from unauthorized use and assists in the development of patent revenues, from which ACTG generates a healthy revenue flow.

ACTG’s focus is primarily high-tech, covering areas like optical switching, data encryption, medical image manipulation, flash memory, telematics, wireless local area networks, etc. In June, ACTG licensed several patent technologies to three users, acquired the rights to four new technologies and enforced its patent protection and received settlements from two firms.

ACTG lost money in 2008, expects to earn 2 cents per share this year on higher revenues of $66 million, and next year management indicates it will earn 20 cents per share on $82 million in revenues. ACTG looks like it could be an interesting, high-class speculation.

The company has only 32 million shares outstanding, zero debt and book value of $2 per share, which includes $1.60 cash per share. The stock trades just below its 52-week high of $8 but well below its all-time high in November 2007, when it peaked at $17.92. Now, I have no problem with your intended 700-share purchase, and suggest that this stock could potentially reach the $11 level in the next 12 months. So do it.

I like Graco Inc. (GGG-$23.20). This Minneapolis firm makes and sells specialized pumps that mix, measure and spray various types of liquids, regulators, meters and valves for moving and applying liquids and semisolid materials for the auto, construction, plastic, chemical and food industries. Its industrial/automotive division generated 52 percent of 2008 revenues, the construction business was responsible for 26 percent of revenues, and lubricants accounted for 11 percent of revenues. GGG is considered one of the finest firms in this competitive pump business.

In 2008, the company reported $817 million in revenues, earning $1.99 a share, and raised its dividend 10 percent to 74 cents. Since 2001, GGG shareholders have enjoyed three 3-for-2 splits, so a 100-share position in 2001 at an average price of $30, a $3,000 investment, is now 328 shares at $23.20, or $7,610. That’s a darn good return.

Though I like this classy, 83-year-old company and have heard good words about its management, I wouldn’t go near GGG stock with a hazmat suit. Revenues for 2009 are expected to drop 25 percent to $615 million and earnings are expected to come in 40 percent lower at $1.20 a share. Graco has a strong balance sheet, but sagging order levels are likely to persist until late 2010.

I do not expect any positive activity on this issue until we’ve had a definable improvement in employment, home sales, commercial construction and the manufacturing index. The next 18 months look bleak. Though the recently raised dividend (now 76 cents) is safe and yields 3.3 percent, I think the shares could trade at the $19 to $21 level in the next six to nine months.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@comcast.net. © 2009 Creators.com

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