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Two for the money and two that won’t show


Dear Mr. Berko:

I have $12,000 to invest and would like to split it evenly among the following four stocks. Please give me your opinion of Lucent, Wyeth Labs, Eyetech Pharmaceuticals and Campbell Soup.

H.E., Erie, Pa.

Dear H.E.:

AT&T Corp. spun off 14 siblings between 1984 and 1996 and Lucent Technologies Inc. (LU-$3) was among the last to have its umbilical cord cut from Ma Bell. LU traded at more than $150 a share in 2000 when its revenues were $38 billion, but since then has lost more than $35 billion.

LU has a negative net worth and 4.3 billion shares outstanding. But rumor indicates that LU may make a dime a share this year on $9 billion in revenues. This much smaller LU is still the world’s leading designer, developer and manufacturer of telecom system and software products.

LU wants to get bigger and much better at what it does. The company just bought Telica (a voice-over Internet protocol company) for $295 million in stock plus options and intends to become a leader in VoIp. Lucent recently closed a contract with Cingular to deploy a trial “third-generation” wireless network in Atlanta that could lead to bigger things.

There’s a potpourri of good things happening at LU, including significant debt reduction over the coming few years. I think it’s a reasonable business person’s risk and believe the shares could double in the next two to three years.

Wyeth (WYE-$35.38), a $15 billion revenue pill company trading at about two points above its 12-month low, looks attractive at this price. Revenues are strong and earnings, before litigation charges, are good. Though new product development is excellent and its balance sheet is healthy, the company is being buffeted by lawsuits related to its fen-phen diet drug liability.

So far, attorneys for weight-challenged users have squeezed out $17 billion in damages, which exceeds 2003 revenues by $2 billion, plus another $4 billion that WYE will place in reserve. WYE’s drugs, such as Enbril, Effexor, Protonix and Prevnar, and its over-the-counter formularies, such as Dristan, Dimetapp, Advil and Robitussin, contribute impressively to revenues and earnings growth.

Value Line believes that 2003 earnings of $2.29 will increase to $2.60 this year and $2.90 in 2005. This translates to 12 times 2005 earnings and persuasively argues in favor of buying the stock. Standard & Poor’s analysts agree because they believe WYE could reach $49 in the next 12 months. Buy it.

Eyetech Pharmaceuticals Inc. (EYET-$36.50) specializes in the development and commercialization of drugs that treat eye diseases. The product that seems to be generating the most excitement among investors is a new drug called Macugen for the treatment of wet age-related macular degeneration and diabetic macular edema. EYET’s clinical trials have gone quite well and the FDA has indicated it will review the application to market Macugen by the end of September.

EYET has 40 million shares outstanding, zero debt, plenty of cash and the shares trade eight points away from its all-time high of $44.75. However, I wouldn’t touch this stock with a bullwhip.

Though Macugen might be a blockbuster drug, EYET’s shares, in my opinion, are not worth $36.50. The company may have some high-class research and development, but its other ophthalmic drugs, while elegant in design and effectiveness, do not have enough “zing” in potential revenues to bake my cake. Meanwhile, the competition, such as Miravant, Bausch & Lomb, Oculex, Alcon and Novartis, are snipping at EYET’s heels.

I wouldn’t buy this stock at $36.50, which at this price seems to be more foam than beer. It could move higher as hedge funds and other scum-feeders rumor the stock to new levels with hot air, but I doubt it will stay. I’d like you to stay away.

Campbell Soup Co. (CPB-$25.52) is “M’m! M’m! Good!” but its share performance is “M’m! M’m! Sad!” I grew up on Campbell products and its ubiquitous red-and-white soup cans, which were elevated to icon status by artist Andy Warhol.

However, over the last decade, CPB’s revenues and earnings have been underwhelming and its share price is down almost a mind-numbing 37 points from its high of $62 in 1998. Campbell’s dividend record isn’t much better. CPB’s Prego sauces, its V8 juices, its Pepperidge Farm breads and cookies, its Franco-American brands and Godiva chocolates are the best in both hemispheres, but its net profit margins and operation margins are woefully disappointing.

Meanwhile, the Dorrance family owns 54 percent of the stock and 25 percent of the seats on the board. That’s no good. The Dorrance clan is opposed to a merger or sale, so an acquisition at a higher price seems doubtful. And the Dorrance dandies won’t consider new management, which could put zip-a-dee-doo-dah into marketing, revenues, earnings and dividends.

I wouldn’t buy the stock. But I’d certainly buy the soup.

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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