McDonnell Douglas stock only for investor willing to take risks

Answering the mail

August 14, 1991|By Andrew Leckey

Q. My wife and I are retired and reviewing out stock portfolio. One stock, McDonnel Douglas, is of great concern to us because the company hasn't been making a lot of money. We'd appreciate your opinion.

A. This stock can indeed be a risky business.

Hold shares of McDonnell Douglas (around $54 a share, New York Stock Exchange) only if you consider yourself a high-risk investor capable of absorbing the ups and downs of this famous aircraft, missile and spacecraft firm, said Paul Nisbet, analyst with Prudential Securities.

The company's heavy involvement in manufacturing commercial aircraft is worrisome, since that business is an expensive venture in this period of slow orders. McDonnell Douglas is currently developing a new "stretch" aircraft at an estimated cost of $3 billion. Last year's bottom line was hurt by the Navy's cancellation of A-12 attack planes. The entire firm, including commercial aircraft, is undergoing an extensive cost-reduction program.

"McDonnell Douglas' market share is limited and its profit will be as well," warned Nisbet, who doesn't agree with the projections of some analysts that a strong recovery is already under way. "Coupled with the company's high debt, this makes for a lot of uncertainty."

Q. We recently read a report that ranked Alaska Air Group as the best in the industry. We own shares which we'd been considering selling, and now we're confused. Give us the call on this one.

A. Don't freeze out this carrier's stock just yet.

Hold your shares of regional carrier Alaska Air Group (around $24, NYSE) even though it isn't expected to outperform the overall market short-term and operates in an economically sensitive industry, advised Thomas Longman, analyst with Bear Stearns.

The company owns both Alaska Airlines and Horizon Air. While passenger traffic has been helped by the resilience of Alaska's economy and the popularity of the company's flights to Mexico, considerable price discounting has been required.

"Alaska Air is a well-run airline with a Northwest niche, maintaining a high level of service recognized by loyal passengers who especially like its roomy interior," explained Longman. "I'm confident that it will rebound as the economy does, maintaining its superior quality and picking up market share at the same time."

Q. I would like to buy my granddaughter some quality stocks as a gift. Do you agree that 3M would be a good choice?

A. Buy shares of Minnesota Mining & Manufacturing (around $86, NYSE), the tapes and abrasives giant, for its price has been depressed by the strengthening U.S. dollar and the weak U.S. economy, said John Hilton, analyst with Argus Research Corp.

As you know, the company is respected for high quality and has enormous name-brand recognition for its product line. Despite a recent earnings stall, it should show strong improvement in stock price as the economy turns around. You just need some patience.

"3M is a quality stock to buy," Hilton said. "A better economy is certain to result in healthier earnings and a more robust stock price."

Q. In 1982 I bought 1,000 shares of Cardiac Control Systems Inc. I've heard nothing from the company. Can you help?

A. It's still ticking.

Cardiac Control Systems, a manufacturer of cardiac pacemaker systems whose stock is sold over the counter, remains in existence. Its most recent address was 3 Commerce Blvd., Palm Coast, Fla. 32137, according to Robert Fisher, vice president with the New York-based R.M. Smythe & Co. stock-search firm.

Q. Our real estate broker has strongly recommended various repairs to our home to make it easier to sell. Can I deduct these on my personal income tax next year?

A. First of all, there's a difference between home improvements and repairs, according to Robert Greisman, tax partner with Grant Thornton. Home improvements, such as new additions and remodeled kitchens, can't be deducted, but they do add to the basis value of your property and will therefore reduce your capital gains when you sell.

On the other hand, home repairs, which bring your home up to standards but add no value, do not receive deductions and aren't added to the basis value of your property, Greisman said. They are simply out-of-pocket expenses.

"The one exception regarding repairs is a limited category of repairs treated as an improvement when selling your home," explained Greisman. "To qualify, these repairs must be done 90 days prior to your closing date of sale and must be paid for within 30 days of the closing date of sale."

You can then add this amount to the basis value of your property and can therefore reduce your capital gains, he said.

Q. In May of 1989 I purchased Archive Corp. shares at $13 and saw them take a tumble last year. Should I bail out or purchase more?

A. Hold your shares of Archive Corp. (around $4, over the counter), maker of computer data storage products and a wide range of drives and subsystems, but don't buy any more shares until the economy improves, advised Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

Archive suffered an operating loss in its most-recent quarter on a sudden decline in orders from major customers. On the positive side, a new tape drive has been unveiled and two others are coming on line.

"The computer industry has been hurt badly by recession, and better days haven't arrived yet," said Conway, who suggests that you wait for happier days before buying more. "Furthermore, Archive's acquisition of Cipher Data was costly and hasn't brought much to the bottom line yet."

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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