Humana Inc. offers a healthy opportunity for investment

Answering the mail

September 04, 1991|By Andrew Leckey

Q. With so much in the news about good health care, is Humana a good investment choice?

A. It's a healthy opportunity. Humana Inc. (around $32, NYSE), specializing in acute care hospitals, is an attractive investment because it has a commanding presence in smaller towns with its clean and efficient hospitals, said Jeff Harris, analyst with Smith Barney, Harris Upham. "Humana's acquisition moves are another plus, because they permit it to enter larger metropolitan areas without extensive start-up costs," added Harris. "This company is an example of the new type of medical services offered due to increasing medical care costs and the consolidation of larger hospitals in urban areas."

Q. I like the way Mobil Corp. does business and am interested in investing in its stock. What's your opinion of this?

A. If you're really a fan of big oil, this firm may be your investment ticket. Buy shares of Mobil Corp. (around $67 a share, New York Stock Exchange), the giant world oil company, because it's a quality company and its shares are likely to outperform the overall market, advised Simon Trimble, analyst with Shearson Lehman Brothers. This famous firm, which has been around since the 1800s, has more than 10,000 gas stations. It has taken a lot of expensive steps to modernize them and make them more efficient. "Mobil should provide shareholders a very nice, low-risk total return in which you can generally safely predict earnings," said Trimble. "Though the company is not in the forefront of oil exploration, it has increased its exploration efforts overseas where environmental concerns aren't as great."

Q. What's your opinion of the Quest for Value mutual fund? I'm considering investing in it.

A. Your quest for a good fund may be over. The $61 million-asset Quest for Value fund, up 15 percent in total return in the first quarter of this year and 1 percent in the second quarter, looks for value among blue-chip stocks when they're temporarily out of favor. The fund suffered a 7 percent decline last year, following a 20 percent gain in 1989. Big holdings at mid-1991 included American International Group, May Department Stores and Philip Morris. The Mutual Fund Values investment advisory gives this New York-based growth fund an "above-average" rating, based on good return and relatively low risk. It has a 5.5 percent "load" (initial sales charge).

Q. I bought shares of Union Carbide after the Bhopal disaster, thinking the company would rebound. I'm now confused about whether to sell or hold on.

A. Hold your shares of Union Carbide (around $22, NYSE), the chemicals and plastics firm, and wait for earnings and fundamentals of its industry to improve, advised Harvey Stober, analyst with Dean Witter Reynolds Inc. The entire chemicals industry has been plagued by oversupply and weak demand, which has translated into strained earnings, he noted. "All this especially hurts Union Carbide because in the past several years it was focusing more attention on the chemical division and selling off non-core businesses," concluded Stober. "As you mentioned, it also suffered significant losses due to that major 1984 industrial accident in Bhopal, India."

Q. What are your thoughts on Schering-Plough? I'm interested in dabbling in pharmaceutical stocks.

A. Pharmaceutical firm Schering-Plough (around $57, NYSE), which built its reputation with asthma drugs and over-the-counter items, is expected to be about an average stock performer long-term, said Steve Gerber, analyst with Oppenheimer & Co. "I don't see Schering-Plough excelling in terms of either new products or earnings and, therefore, I'm neutral on its prospects," said Gerber. "I'd prefer some of its competitors which are more on the leading edge of drug development."

Q. I bought 3,000 shares of Echlin three years ago and have been pleased with their performance so far. Should I hold or buy more?

A. You've certainly been patient, for Echlin Inc. (around $14, NYSE) has been a poor stock performer since 1986 due to weak demand for its car replacement parts and difficulty in digesting some acquisitions. There's some reason for optimism, however, according to Richard Wholey of Chicago-based Wayne Hummer & Co. The increasing age of U.S. automobiles and their need for maintenance, coupled with tighter vehicle emission standards, enhance longer-term prospects, he believes. "When investors begin to focus on Echlin's recovery potential, the company's stock should make up for lost time," predicted Wholey. "Buy more shares if you can."

Q. In April of 1986, I purchased 400 shares of I.C.H. Corp. The price has dropped dramatically. Should I sell and take a huge loss, or hang on in hopes of recovery?

A. I.C.H. Corp. (around $3, American Stock Exchange), an insurance holding company which writes life, accident and health insurance, has suffered significant losses in recent years partly due to its interest in First Executive Corp. It is studying alternatives to improve its capital situation, including divestiture or an infusion of equity. Thanks to declining investment losses, its corporate loses narrowed last year even though revenues were lower.

Profits have improved this year. "In May of 1986, I.C.H. had a 200 percent stock dividend, so you should actually be holding 1,200 JTC shares and your loss isn't quite as large as you thought," said Sharon Conway, based in Chicago with A.G. Edwards & Sons. "If you've held all of this time, I'd consider sticking with the stock, though I believe new investors should hold off awhile."

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

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