Reebok International stock regains bounce

Answering the mail

October 09, 1991|By Andrew Leckey

Q. My brother-in-law is trying to sell me on the idea of buying stock in Reebok International. I was under the impression that the company is sort of fading out versus some of its competitors. Is this really a sound investment?

A. A lot of the old bounce is coming back to this famous sneaker firm.

Yet you'll need some patience if you buy shares of Reebok International (around $34 a share, New York Stock Exchange), said Brenda Gall, analyst with Merrill Lynch & Co.

"The company is coming out of some sluggish sales with a fight, thanks to its inflatable Pump technology and its popular Blacktop shoe designed for outdoor basketball," said Gall, noting that the attractively designed Blacktop sells out in many stores as soon as shipments arrive.

Reebok previously relied on its aerobic line of shoes to generate revenues, rather than the trendy athletic shoes of competitors such as Nike. The Pump and the Blacktop are rapidly changing that image, but you'll have to take a long-range perspective on the stock to see results, Gall believes. Also keep in mind, as you noted in your letter, that the athletic shoe business is highly competitive and success in it requires extensive promotion.

She currently rates Reebok a "weak" buy near-term, but a solid buy long-term.

Q. I quickly sold my shares of Morton Thiokol right after the 1986 Challenger disaster. Now my broker says shares of Thiokol Corp. (one of the two companies that resulted from a splitting of the prior firm) are cheap. I'm not so sure. What do you think?

A. Yes, it's true that the shares of aerospace propulsion systems firm Thiokol Corp. (around $21, NYSE) are inexpensive, said Michael Rosen, analyst with Smith Barney, Harris Upham & Co. But it's worth noting that, despite good earnings, the company's sales are sluggish. Should sales continue at this slow pace, earnings will eventually be hurt, he predicts.

"The government is curbing its defense spending and may do the same with its aerospace program, and, unfortunately, the government is Thiokol's top client," Rosen explained. "That's why I'm not gung-ho on Thiokol stock, despite its low price."

Q. What are your thoughts on Scott Paper Co.? Several buddies work there and like the management. Should I invest?

A. Paper profits are ahead.

Scott Paper Co. (around $39, NYSE) should be reaping benefits from its many cost-cutting measures and an improved economy in 1992, said Saul Yaari, analyst with Piper Jaffray Inc. While it would probably be a good idea to hold or carefully accumulate shares, Yaari believes, there's no need to be overly aggressive. That's because there will be continued pressure on Scott's profits from its towel and tissue consumer division.

"Competition is strong, especially from Kimberly Clark, which recently re-entered the premium bathroom tissue market," said Yaari. "That means that Scott will have to substantially increase its promotional efforts to maintain market share."

On the other hand, Scott's coated-paper division and its commercial-towel and tissue division will improve as the overall economy improves. It will also benefit from substantially decreased raw material prices in pulp and the addition of new paper machines it has bought to increase its capacity.

Q. My wife works for our company, which I own. I'd like to buy my wife a sapphire ring for $4,000. Can I write this off as an employee gift business expense?

A. My, you are one romantic individual.

No, a company cannot take a deduction for a business gift over $25, said James Schlesser, tax partner with Deloitte & Touche. Instead, a gift of the value you mention would be viewed as similar to a bonus, he said.

"Considered as additional compensation, the ring would be tax-deductible to the company, but taxable to the individual," Schlesser concluded.

Q. I bought 25 shares of TCBY in January. What's the outlook for this stock?

A. This company' frozen earnings picture is beginning to thaw.

Hold, but don't buy more, shares of TCBY Enterprises (around $6.50, NYSE), which owns or franchises more than 1,800 soft-serve frozen yogurt stores, advised Sharon Conway, based

in Chicago with A.G. Edwards & Sons Inc.

Earnings have been hurt by lower sales, but a licensing agreement was recently signed with Mrs. Field's Cookies.

"Increased competition and some dissatisfaction among franchisees is taking some of the sweetness from TCBY stock," observed Conway, who expects the shares will underperform the overall market near-term but have better long-term prospects. "Patient investors should find some happier times ahead, based on TCBY's well-known name, a still-growing interest in frozen yogurt and, potentially, benefits from the Mrs. Field's venture."

Q. I would appreciate your opinion on whether to hold or sell my shares of Magma Power.

A. Hold your shares of Magma Power (around $26, over th counter), which designs, manages and owns geothermal power plants in California and Nevada, said Richard Wholey of Chicago-based Wayne Hummer & Co.

The company sells electricity generated by its plants to other utilities, such as SCE Corp., the parent of Southern California Edison. There's plenty of potential in this field.

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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