Blockbuster stock less than attractive

Answering the mail

August 07, 1991|By Andrew Leckey

Q. We're thinking of buying 10 shares of Blockbuster Entertainment. Its stores seem to be on every corner. Though 10 shares isn't a lot, we want to be careful with our retirement dollars.

A.This flashy company isn't receiving rave reviews anymore.

Don't buy shares of Blockbuster Entertainment (around $10 a share, New York Stock Exchange), the big video rental chain which both owns and franchises stores, for company growth has been slowing since 1989, said David Presson, analyst with Edward D. Jones & Co.

For example, average monthly sales of its company-owned stores, up 35 percent in 1988, rose just 8 percent in 1989 and 7.5 percent in 1990. This declining trend is likely to continue, Presson believes.

"The novelty of owning a videocassette recorder has dimmed because 75 percent of U.S. households own them, so the video rental business should be consistent but not robust," explained Presson, who also notes that Blockbuster is now a bigger business and has a harder time making a profit with growing expenses. "There are better investments than Blockbuster, especially if you have to be careful with your money."

Q. I would like your professional opinion on Colgate-Palmolive Co. I'm a novice investor with a small nest egg.

A. Buy shares of Colgate-Palmolive (around $40, NYSE), the household personal-care and food-product firm, because it has been making positive moves in recent years, advised Deepak Raj, analyst with Merrill Lynch & Co.

The company restructured in the 1980s to get rid of non-core businesses. It has been aggressive with its overseas operations, and, as a result, only 10 percent of sales are domestic.

"Though Colgate-Palmolive has faced a tough economy and stiff competition, especially in the U.S. from Procter & Gamble, Colgate-Palmolive earnings have stayed on track," noted Raj, who considers the stock good for both short- and long-term investors. "Earnings should continue to do well, growing 13 to 15 percent annually."

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