Storm over anti-depressant Prozac leaves clouds on Eli Lilly's horizon

Answering the Mail

March 11, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Q. I have owned shares of Eli Lilly for some time and have weathered the Prozac storm. What are your thoughts on this investment?

A. You may have to weather further volatility, for there are still some clouds on the horizon.

The Prozac anti-depressant agent remains the determining factor in how well Eli Lilly & Co. (around $75 a share, New York Stock Exchange) does or doesn't do, said Barbara Ryan, analyst with Prudential Securities.

Competing drug company Pfizer Inc. has launched a similar product called Zoloft, which could have an impact on Prozac sales if it becomes popular. Concerns remain about about much-publicized allegations linking Prozac to an increased risk of suicidal tendencies and violent behavior.

Sales of the drug are flat, though the Value Line Investment Survey projects a 15 percent increase over the next 12 months.

Hold your Lilly shares, Ms. Ryan advised. However, despite an expected 13 percent gain in Eli Lilly earnings this year, there's really no compelling reason to buy more shares now, she said.

"On the positive side, there are expectations that Lovan, an Eli Lilly drug that controls obesity, will be approved by the Food & Drug Administration soon," she said. "Of course, the FDA operates on its own schedule, so we can't really count on that until it actually occurs."

Q. The investment letter that my wife and I receive suggests that we stay out of oil stocks. Since we own shares of Exxon, we don't know whether to sell them.

A. Don't sell with the stock price this low.

Hold your shares of Exxon Corp. (around $57, NYSE), the oil and gas production and marketing giant, because the selling price simply isn't high enough, advised John Hilton, analyst with Argus Research Corp.

As the largest oil company in the world, Exxon's earnings are somewhat less volatile than those of its major competitors and it has a better mix of businesses.

Exxon earnings are expected to be flat in 1992, with only a mild improvement over last year's results. Like its competitors, the company is suffering through a period of unfavorable pricing for its products.

"Exxon has a large refinery operation, as well as an extensive marketing operation, both of which are costly in a down period such as this," Mr. Hilton said. "I'd weather this difficult time and then review the stock's price before I jumped ship."

On another front, the company settled its liability for the 1989 Exxon Valdez oil spill in Alaska. The total payment to the state of Alaska of just over $1 billion in clean-up costs, fines and other penalties is $25 million higher than the settlement a judge struck down a year earlier.

Q. What's the outlook for Carnival Cruise Lines? We bought 100 shares last year and are considering doing the same this year.

A. This is a stock that won't make you seasick.

Buy shares of Carnival Cruise Lines (around $33, NYSE), the high-profile operator of cruise ships, hotels and casinos, because its solid earnings should be moving even higher, said Paul Mackey, analyst with Dean Witter Reynolds Inc.

"Despite the gulf war, low consumer confidence and a bleak economy, Carnival Cruise last year operated at 105 percent capacity," he said. "So we can only expect more good things once the economy picks up."

January bookings were up 40 percent from the prior year, and Carnival Cruise has cornered a whopping 26 percent of the cruise business. Furthermore, as the fastest-growing segment of the travel business, the cruising industry is expected to be serving 10 million passengers by the year 2000, Mr. Mackey said. Such volume will help revenues and growth.

Q. My employer has informed us that pretty soon we'll be getting more in our paychecks with the president's new plan. How will this affect me?

A. You'll basically be receiving more because less tax will be taken out of each check, but this is not really a tax reduction, said James Schlesser, tax partner with Deloitte & Touche. The amount taken out of a check depends on the number of dependents, your salary and a standard rate set by the government.

"Though you'll see slightly more in that paycheck, you still owe the federal government at the same tax rate," Mr. Schlesser said. "Therefore, you will either owe the Internal Revenue Service more on April 15, or you will receive a smaller refund."

Q. Can you tell me your thoughts on a stock I own called Santa Fe Energy? I bought it in 1987 and after a while it started to go down.

A. Don't expect much energy for a while.

Hold your shares of Santa Fe Energy Resources (around $8, NYSE), which is involved in exploration, development and production of oil and natural gas in the United States, said Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

The company's reserves are in California, Texas, Oklahoma, New Mexico and Wyoming. An agreement was reached in January for the acquisition of Adobe Resources in a stock swap. Last year's earnings per share were up, on flat revenues and positive hedging program results. Fourth-quarter earnings per share were down 70 percent on lower crude oil prices and revenues.

"Earnings near-term shouldn't be too exciting," Ms. Conway said. "However, long-term patient investors should be rewarded if oil prices rise and the unproven reserves in California come through."

Another long-term plus is Santa Fe Energy Resources' attempts to diversify away from California's heavy crude oil into the higher-paying lighter crudes found elsewhere, she added.

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