Old reliable P&G stock still offers an excellent chance to clean up

Answering the mail

February 05, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Q. I am interested in buying 35 shares of Procter & Gamble. I know it's a quality company. But what's your advice on this?

A. There's never been a gamble with this company's stock.

Buy shares of Procter & Gamble (around $98 a share, New York Stock Exchange), the household, personal care and food product company, because its growth in profits is strong and encouraging, said Deepak Raj, analyst with Merrill Lynch & Co.

Famous brand names such as Tide, Cheer, Crest, Ivory, Comet, Folgers, Pampers, Charmin, Noxzema, Old Spice and Hawaiian Punch pack a wallop.

At the same time, the company is becoming more flexible in its pricing, improving its competitiveness. Its aggressive entrance into the fragrance business also should prove positive in the long run. Last year's earnings reflected considerable promotional spending in its cosmetic and fragrance lines, which probably won't be the case this year.

"Procter & Gamble is a quality stock with a long history and diverse product line," Mr. Raj said. "The company now offers a lot of right reasons to be a buyer of its stock."

Q. My broker, who is a high-tech specialist, recommended that I buy shares of Compaq Computer Corp. I thought the company was having problems. What's your recommendation?

A. Compaq Computer Corp. (around $35, NYSE), a maker of personal computers, had problems that included shortages of its LTE 386 laptops, increasing price competition and abrupt management changes.

In the personal computer business, customers are more cost-conscious. This means Compaq must maintain its premium image but lower its prices.

Nonetheless, the stock is worth buying because the company is turning itself around, particularly in regard to lowering production costs, said Bruce Lupatkin, an analyst with Hambrecht & Quist.

"Compaq has introduced its new notebook computers and these, as well as other product lines, are aggressively priced to confront the competition that has eroded its market share," he said. "At the same time, the company continues to devise new distribution strategies and is revitalizing its products."

Q. I have owned 150 shares of Santa Fe since the early '80s and have enjoyed some of its rebound. What are your thoughts on this railroad now?

A. Put the brakes on buying any more shares now.

Santa Fe Pacific Corp. (around $13, NYSE) isn't worth buying now because it is unlikely to outperform the overall stock market in the near future, said Burt Strauss, an analyst with Shearson Lehman Bros.

There were positive changes for the railroad industry in the '80s because of regulation adjustments, cost-cutting and more aggressive attempts to seek business.

Santa Fe has done particularly well with its "intermodal" trains, which carry double-stacked cargo, permitting more to be transported at lower cost. The company also continues to rid itself of unprofitable track. It plans to shrink to 7,500 miles of rail lines from 9,200 miles.

"However, the stock price is currently reflecting this near-term value of the company," Mr. Strauss said.

Q. Many years ago, I inherited an antique doll collection, which I recently sold to an auction house for $7,000. How do I handle this money on my tax return?

A. The money earned on the sale of your doll collection is considered income, said Robert Greisman, tax partner with Grant Thornton.

The problem, he said, is knowing the basis, which is the value of the dolls at the time of the gift-giver's death.

"If you cannot establish that value, you may have a 'zero' basis and therefore will have to pay capital gains on the entire $7,000," he said.

Q. I bought 400 shares of SynOptics Communications, which have dropped dramatically in price. What's the reason for this?

A. SynOptics Communications (around $27, over the counter), which makes cabling systems permitting the use of ordinary phone wires for local area networks, has been hurt by the economy and competition, said Sharon Conway, based in Chicago with A.G. Edwards & Sons.

Its products include concentrators, transceivers, transceiver chips, cabling and other accessories. The company cut prices on its midrange work groups and, if this move is picked up by competitors, it could lead to lower margins and weaker profits.

"The balance sheet at SynOptics is strong, with less than 1 percent long-term debt," said Ms. Conway. "Near-term results will likely remain sluggish, but the company's fine management will likely provide capital gains in the long run."

Q. I recently bought shares of Hartmarx Corp. What's your opinion of this stock and what is its outlook?

A. Hartmarx Corp. (around $7, NYSE), a well-known clothing manufacturer, has posted losses for the past two years, primarily because of lower sales in its retail stores.

Management has embarked on wide-ranging cost-cutting measures, and there have been signs of an upturn in some areas. If conditions don't improve, the board of directors couldreduce or eliminate the dividend, said Richard Wholey of Chicago-based Wayne Hummer & Co.

"Hartmarx is appealing as a low-priced turnaround situation with only moderate downside risk," Mr. Wholey said.

"Its shares are trading below book value, and if the company can begin earning profits again, the upside is quite large."

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