Hechinger Co. is rebuilding its earnings as it rebuilds its stores

Answering the mail

November 13, 1991|By Andrew Leckey

Q. I am thinking of investing in a stock called Hechinger. What can you tell me about it?

A.Hechinger Co. (around $12, OTC), which runs a chain of building supply stores along the mid-Atlantic seaboard, is on the rebound after a couple of disappointing years.

It is remodeling its original building supply stores and has been expanding its discount warehouse format. Both efforts are powering a significant earnings recovery.

"The outlook for Hechinger looks good over the next few years," said Richard Wholey of Chicago-based Wayne Hummer & Co. "Since an economic recovery will also help results, go ahead and add this stock to your portfolio."

Q. My wife and I are retirees and we absolutely, absolutely love our Wal-Mart Stores shares. However, we've read that it's laying off people. Is this a bad sign and indicative of problems?

A. The allure of this famous stock hasn't ended, but its love affair with investors such as yourself may be a bit less passionate from now on.

Despite the fact that its stock price is rather high, prospects remain strong for discounter Wal-Mart Stores (around $46 a share, New York Stock Exchange), said Steven Kernkraut, analyst with Bear, Stearns.

The company operates an expanding chain of modern retail stores in 36 states under the Wal-Mart, Sam's Wholesale Clubs, Supercenters and Hypermarts names. Furthermore, it recently formed a joint venture with Cifra S.A., the largest retailer in Mexico, to open wholesale clubs in the Mexico City area.

"The layoffs announced by Wal-Mart management were part of a strategic adjustment and relatively insignificant in light of the fact the company keeps creating more and more jobs," Kernkraut noted. "It is one of the best-run retailers around and I continue to like it."

While current shareholders should hold on because further rewards are ahead, the high price of the stock means potential shareholders should hold off buying for now. Keep in mind that the company's growth rate is slowing as well. Its 30 percent annual growth rate of the past is likely to slip to the range of 20 percent to 25 percent, he predicts.

Q. I have owned 80 shares of Polaroid Corp. for little over a year and my investment doesn't seem to be going anywhere. What is the problem? What should I do?

A. The outlook isn't picture-perfect right now.

Hold your shares of Polaroid Corp. (around $27, NYSE), maker of photographic equipment and film, until 1993 when prospects should perk up a bit, said Alexander Henderson, analyst with Prudential Securities. He expects the company's stock to remain in a narrow trading range until that point because it doesn't have much planned by way of new or exciting products.

Eastman Kodak has paid Polaroid $925 million for patent infringement, terminating years of litigation and ending the possibility of more years of appeals. The company's board of directors will consider using the money for a number of possibilities, among them buying back shares and paying back debt.

"Management must concentrate more and bring new products out in a timely fashion," Henderson said. "Since it's unlikely anything will happen to hurt the price of your shares, you should hold until sales get a bit more exciting with some new products in 1993."

Q. I am looking for a long-term quality investment and Shaw Industries has been recommended to me. What's your opinion?

A. Shaw Industries (around $32, NYSE), by far the largest U.S. carpet manufacturer with 20 percent of industry sales, is worth buying as a long-term investment but is only so-so for the short run, said Lorraine Miller, analyst with Robinson-Humphrey Co.

The firm's carpeting is top quality and sold under the Philadelphia, Cabin Craft, Stratton, Armstrong and Magee labels. has increased the number of retail stores carrying its products, but, as with so many industries, the U.S. economy hasn't cooperated lately.

"Shaw Industries is a low-cost producer that continues to increase market share with new product lines and timely acquisitions," concluded Miller. "It will prove to be a fine investment."

Q. I purchased 50 shares of Dress Barn in 1986. After five years of not paying a dividend should I sell?

A. Hold your shares of Dress Barn Inc. (around $11, over the counter), unless you absolutely require a cash dividend, said Sharon Conway, based in Chicago with A.G. Edwards & Sons.

The company sells women's apparel with a chain of 518 stores in 31 states and plans to have 551 by the end of its fiscal year. Earnings have been on the rise. The shares, however, tend to be volatile in nature.

"When the economy gets back on track, cost controls are successful and its new distribution center improves efficiency, Dress Barn shares may climb high enough to merit another split," said Conway.

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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