Quaker Oats worth buying, Browning-Ferris worth keeping

Leckey Q&A

May 01, 1991|By Andrew Leckey | Andrew Leckey,1987 Tribune Media Services, Inc. 435 N. Michigan Ave., Chicago, Ill. 606ll.

Q. I own several hundred shares of Quaker Oats and wonder if I should buy more, especially with the spinoff of Fisher-Price. What do you think?

A. This giant food company, no longer toying around, has a fine outlook.

Quaker Oats (around $59 a share, New York Stock Exchange) is a stock well worth buying, even when considered apart from the spinoff of its Fisher-Price toy division, said Roger Spencer, analyst with PaineWebber Inc. The company's stock is undervalued in the current market, he believes.

Third-quarter earnings should be flat, but things should pep up in the fourth quarter. Gatorade remains Quaker's biggest seller and its rapid growth appears to be resuming.

"As far as the spinoff is concerned, Quaker Oats shareholders will receive one share of Fisher-Price for every five shares of Quaker Oats and the starting trading price should be around $20 a share," said Spencer.

Q. I own 165 shares of Browning-Ferris Industries and expect to be disappointed with upcoming earnings. Should I get out, or hold out for good news to come?

A. If you're patient, you could clean up with this stock.

Buy more shares of Browning-Ferris Industries (around $27, NYSE) when its price dips following the expected announcement of strained earnings, said Vishnu Swarup, analyst with Prudential Securities. This waste management company is a good long-term investment with excellent price appreciation potential, he believes.

"Browning-Ferris earnings are currently suffering from the economic slowdown, especially in the Northeast, and some operational difficulties due to operating permits," Swarup said.

The company has also had several one-time expense charges for items such as building up reserves to operate more landfills. In the long run, these moves will be a plus, Swarup predicted.

Q. The Seagram investment with du Pont de Nemours doesn't seem to be helping my 35 shares. What do you think? Is bad news the time to buy, or what?

A. Opportunities remain spirited.

It's true that Seagram Co. Ltd. (around $95, NYSE), the world's largest wine and distilled spirits producer, is enjoying rapid expansion at the same time that its 24 percent stake in chemical giant duPont is slightly straining its earnings, said Roy Burry, analyst with Kidder Peabody.

However, shareholders shouldn't balk at the duPont holdings, since they do provide a significant portion of Seagram's profits in the form of dividends. The real reason to buy more shares of Seagram is its beverage division, he believes.

"Although distilled beverages took a dive in the 1980s, the company successfully diversified into juices with Tropicana, cognac with Martell and champagne with Mumm's," said Burry. "I see Seagram as an attractive purchase and wouldn't be overly concerned with the du Pont holdings as a negative force."

Q. What should I do about my AM International stock? It's selling for far less than I paid for it.

A. Don't sell your shares of AM International (around $1.50, NYSE), for its prospects seem to be improving, said Richard Wholey of Chicago-based Wayne Hummer & Co.

"In general, I think it's better to hold on to most NYSE issues that are trading under $5 a share," advised Wholey.

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