Now isn't time to sell your Caterpillar stock

Leckey Q&A

April 10, 1991|By Andrew Leckey | Andrew Leckey,1991 Tribune Media Services, Inc.

Q. I am 26 years old and have owned Caterpillar Inc. stock for three years. I held on even though the stock kept diving. Now I don't know what to do.

A. The earth won't move for this stock any time soon.

Nonetheless, you should probably hold your downtrodden shares of Caterpillar Inc. (around $48 a share, New York Stock Exchange), the famous maker of earth-moving machinery, until there's some stabilization in its price, advised Karen Ubelhart, analyst with Shearson Lehman Brothers.

Considering how low your shares have fallen, this is no time to sell and recognize a big loss, she believes. Wait for better times.

"Caterpillar is going through some rough times, particularly since more than half its sales are international and its Brazilian operations are in critical condition," explained Ubelhart, who considers the current situation rather grim. "Also hurting the company are weak U.S. sales, down about 2 percent."

Q. My wife and I were disappointed with recent Aetna Life & Casualty earnings and want to sell our stock. My brother-in-law, the "expert," says we should wait until the economy improves before doing so.

A. There's something to what your brother-in-law says.

Hold on to Aetna Life & Casualty (around $45, NYSE), the multi-line insurance business, and play a wait-and-see game, yet realize that its 6 percent earnings drop occurred during difficult economic times, said Gloria Vogel, analyst with Bear Stearns & Co.

The decline was the result of a $24 billion real estate portfolio which has experienced considerable problems. However, it's worth noting that the firm's group health business remains strong.

"I would not recommend selling Aetna at this time," concluded Vogel. "The company has added extensive reserves because of all those real estate problems."

Q. I own 76 shares of Waste Management and have enjoyed th profits. However, some people say the company is having problems because of pollution regulations. Should I continue to invest?

A. Hold or purchase more shares of Waste Management (aroun $38, NYSE), but bear in mind that the inherent nature of its solid and chemical waste management businesses means negative environmental publicity from time to time, said Vishnu Swarup, analyst with Prudential Securities.

As a result, any prospective investor must individually decide whether he's comfortable with the stock of this company, which truly dominates the environmental industry.

"Its Chemical Waste Management division suffered losses due to state regulations prohibiting interstate flow of waste, but the company's international presence is exceedingly strong," said Swarup. "A new joint venture with a British water utility and the recent purchase of an Australian disposal company are fine examples of its expansion."

He also notes that the firm's Recycle America subsidiary is the nation's biggest recycler.

Q. I am going to buy a very small tool and die company. Whic purchase would be best for tax purposes, either buying the assets or buying the stock of the company?

A. From a buyer's point of view, it's usually better to buy th assets than the stock, said Robert Greisman, tax partner with Grant Thornton.

"Buying assets gives you an opportunity to allocate some of the price to assets which will give some future tax benefits," explained Greisman. "Basically, the purchase can be related to the fair value of those assets, rather than the depreciated value."

Q. I purchased 600 shares of Delicorp Food Services three year ago. I wonder if the company is still around, has been merged or has retained any stock value?

A. Don't expect much sustenance from this food firm.

The last market for Delicorp Food Services was for a mere 1 cent a share in late 1989, according to Robert Fisher, vice president with the New York-based R.M. Smythe & Co. stock-search firm.

While this Toronto-headquartered company is still legally in existence, its stock has inactive trading status.

Q. I have 3,600 shares of Calprop. Can you tell me somethin about the company? Is it worth holding?

A. Hold your shares of Calprop Corp. (around $4, America Stock Exchange), a major developer of homes, condominiums and land in California, in the belief that the real estate market simply has to improve, said Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

The company, suffering a large drop in revenues in the fourth quarter, has had to redesign some properties to meet the demand for lower-priced homes and also has slashed its work force by 60 percent. Negotiations are under way with its prime lenders. Further cost-cutting measures are being studied.

"While its real estate market was hit hard by the recession and inflated prices, there has been some upturn lately due to lower mortgage rates and fairer pricing," observed Conway. "Don't look for miracles, but do maintain some hope for your stock, based upon management efforts and a better economy."

Q. In 1989 I bought 600 shares of Meridian Bancorp. Since earl 1990, the stock has fallen sharply. What's the outlook?

A. The damage has already been done to the stock of Meridia Bancorp (around $15, over-the-counter), so you should hold on for better times, advised Richard Wholey of Chicago-based Wayne Hummer & Co.

Like many banks, Meridian had to boost its reserves to cover problem loans, and investors have kept this and the weak economy firmly in mind.

Andrew Leckey answers questions only through the column. Address such inquiries to Andrew Leckey, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611.

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