Hint to Gerber shareholders: 'You've got the right one, baby'

Answering the Mail

April 01, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Q. I am a mother of three children and like Gerber Products. I've been wondering whether its shares are worth buying.

A. Shareholders are cooing with pleasure.

Buy shares of Gerber Products (around $70 a share, New York Stock Exchange) because it controls 71 percent of the baby food business and has a solid history of strong earnings, said Roger Spencer, analyst with PaineWebber Inc.

Gerber's growing business features 165 varieties of popular cereals, vegetables, fruits, desserts, juices and main dish combinations. In other divisions, Gerber's Buster Brown unit has been doing well, while the demand for its cloth diapers has declined.

Thanks to top-notch management, Gerber's annual growth rate is 12 percent to 14 percent, Mr. Spencer said. Research efforts have increased the consumption of Gerber products per baby in the past five years.

"Another big positive for Gerber is its major international expansion, expected to more than double sales outside the United States by 1996," Mr. Spencer said.

"Despite its small current international presence, Gerber is ready to flood the world with its extensive product line," he said.

Q. What are your thoughts on First Chicago Corp.? I am holding 50 shares and would appreciate an update on what's happening with this stock.

A. Hold your shares of banking giant First Chicago Corp. (around $30, NYSE), but realize this stock comes with speculative risk, said Chip Dixon, analyst with Kemper Securities Group.

The bank's credit risk in highly leveraged transactions and the declining commercial real estate market took their toll in the second half of last year. This definitely hurt earnings momentum, which was already under stress in a difficult economy.

"To First Chicago's credit, it has faced its earnings problems by undertaking a restructuring at all levels, and we are seeing an improvement in asset quality as well," Mr. Dixon said.

The jury is still out on whether the bank will completely turn things around, he said. "Despite all of its attractive pieces, First Chicago must put them all together and maximize its potential."

Q. My husband and I are doing our annual review of our investments. One stock we own but haven't followed up on is Helene Curtis. What do you think of the investment? Where should we go from here?

A. Its price is a bit too stylish right now.

Hold shares of Helene Curtis Industries (around $36, NYSE) the beauty and hair care products company, but keep in mind that they are somewhat overvalued and that the company has a slower growth rate than some competitors do, said Laura Dryton, analyst with A.G. Edwards & Sons Inc.

Suave, Finesse and Salon Selectives hair-care lines and Degree antiperspirant are among its products gaining market share. Degree is expected to break even this year and turn a profit next year.

The company has spent a lot to launch Vibrance shampoo, although this expense shouldn't be a consistent drain on earnings, she said.

"Helene Curtis' slower growth rate ties into the firm's weak presence abroad, specifically in terms of the weak performance of its Finesse products in Germany," said Ms. Dryton, noting that the company is scaling back its German operations and improving distribution there.

Q. I am a small-business owner and can't afford a forklift, so I'll be leasing it. How will this transaction affect my taxes?

A. The rent that you pay for use of machinery of this type is treated as a deductible business expense, said Robert Greisman, tax partner with Grant Thornton. It is reported on your tax return with other business expenses incurred during the year.

"If you were to buy the piece of equipment outright, you would depreciate it over some of the life of the machine," Mr. Greisman said.

Q. I own stock in United Stationers. The share price, though up recently, is still well below what I paid a few years ago. Should I continue to hold, or should I take my lumps and move on?

A. Hold your shares of United Stationers (around $13, over the counter), leading wholesaler of office supplies and equipment, on their excellent rebound potential, said Richard Wholey of Chicago-based Wayne Hummer & Co.

The company has suffered in recent years from the "double whammy" of increased competition from office supply superstores such as Staples and Office Depot, as well as the overall sluggish economy.

It has reduced costs, instituted selling promotions to counter the superstores and negotiated better deals with suppliers in response to its problems, he said.

Q. I own several hundred shares of Foodarama, a supermarket chain. I've heard rumors that the company is in trouble. Should I get out while I can?

A. Hold your shares of Foodarama Supermarkets (around $17, American Stock Exchange) only if you are an aggressive investor who has some patience and doesn't need cash dividends, said Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

This food retailer operating 26 Shor Rite supermarkets in New Jersey, New York and Pennsylvania suffered a loss in the past fiscal year and has reported a gain for this year.

That rebound is due to reductions in expenses this year and heavier discounting last year. Foodarama also revised its

covenants with lenders.

"Foodarama introduced the concept of 'world class' supermarkets, featuring premium services in the form of fresh fish, meat counters and snack bars," Ms. Conway said. "Management is very involved, and investors should see continued improvement in the bottom line."

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