International Paper Co. rolls into good postion for profits

Answering the mail

January 08, 1992|By Andrew Leckey

Q. What are your thoughts about investing in International Paper Co.? I know the paper industry has gone through hard times, but so has everything else. I'd appreciate your opinion.

A.You can expect plenty of paper profits. Buy shares of International Paper (around $69 a share, New York Stock Exchange), the pulp, paper, lumber and plywood company, because it is well-positioned for eventual economic recovery, advised George Adler, analyst with Smith Barney, Harris Upham & Co.

International Paper is a great paper producer, in Adler's opinion, one of the few companies making money in that field. It features a diverse product line and healthy balance sheet, and has handily outperformed its competitors in recession.

"This is an undervalued, quality stock," said Adler. "Furthermore, the company's European business is strong, with paper consumption there expected to grow much faster than in the United States."

Q. I would like to buy 50 or so shares of Delta Air Lines. Everyone is always talking about the other big carriers, United Airlines and American Airlines. I think Delta is a better bet. What do you think?

A. Don't take off just yet.

Hold off buying shares of Delta Air Lines (around $64, NYSE) because its stock is overpriced based on a lot of positive news about its expansion, said Ed Starkman, analyst with Paine Webber Inc.

"Delta Air Lines seems to be the darling of the sky right now, in light of its acquisition of most of the Pan Am routes, a hub in Germany and the New York shuttle," said Starkman, who still believes the stock has positive long-term prospects. "Yet I'm neutral on Delta stock right now, since we have to see how well it integrates its new assets and how well it does as an international carrier."

It will take about a year to see how the new debt and assets will appear on Delta's balance sheet, and at that point the stock would be a more certain investment, he said.

Q. What are your thoughts on V.F. Corp? Is this a new company or a solid investment?

A. There's more to this company than its name indicates.

Buy shares of V.F. Corp. (around $40, NYSE), whose initials originally stood for Vanity Fair, because it is a giant jeans manufacturer responsible for famous brands such as Lee and Wrangler, said Brenda Gall, analyst with Merrill Lynch & Co.

The company is involved in all stages of its product line, including the design, weave and coloring of fabrics. Near-term and long-term prospects are well above average.

"V.F. Corp. is no fly-by-night company, but was actually established in 1988," said Gall. "It should do better than the economy itself, since its jeans wear offers more attractive prices than the designer lines of competitors, who haven't fared as well."

Q. I run a small office-organization company that services seven different medical offices. I work as an independent contractor. I'd like to give a little something to my clients. Is this expense one that I can write off on my taxes?

A. Business gifts such as the ones you're talking about are deductible items so long as they are in the "ordinary course of business," said James Schlesser, tax partner with Deloitte & Touche.

By that, the Internal Revenue Service means the gifts are reasonable and not extraordinary in cost, and given in order to prompt or maintain a business relationship.

"For example, giving your client a car wouldn't fall under this category and would raise eyebrows at the IRS office," added Schlesser. "Business gifts are only deductible to an individual up to $25 per client."

Q. Safety-Kleen stock has been hammered recently. Is now a good time to buy?

A. Although the economy finally caught up with the company, this is a good time to buy shares of Safety-Kleen (around $25, NYSE), said Richard Wholey of Chicago-based Wayne Hummer & Co.

Safety-Kleen's businesses, which include recycling of dry-cleaning fluid and used motor oil, are down in volume. Its main business, parts-cleaning solvents used by virtually every repair shop, remains solid, but revenue growth has slowed.

The future looks better because Safety-Kleen is the leader in the processing of liquid wastes and the largest company in collection and recycling of used motor oil. Both businesses have tremendous long-term potential.

"The time to buy a good growth stock such as Safety-Kleen is when it is temporarily out of favor, so I'd buy and hold," concluded Wholey.

Q. I am interested in investing in CML Group. I understand that it owns NordicTrack. Should I buy?

A. CML Group (around $33, NYSE), a specialty products firm aiming at the 35- to 55-year-old "upscale active-lifestyle" consumer, is a good stock choice for an aggressive investor, said Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

The company features men's and women's apparel accessories, "nature-related" gift items and the NordicTrack line of exercise equipment. Products are sold through trade names such as Britches of Georgetowne, The Nature Co. and, of course, NordicTrack.

Earnings per share have been strong, and a small dividend was initiated recently after a 2-for-1 stock split. CML Group, Conway believes, is doing well despite the recession and could do even better after economic recovery.

"NordicTrack accounts for more than 70 percent of operating income, and the new products in its line are helping keep the division moving forward," said Conway. "However, this great dependence upon NordicTrack makes the shares suitable only for the aggressive."

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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