For now, it's best to hold off buying stock in Merck & Co.

Answering the Mail

April 08, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Q. Everyone seems to be raving about the drug stocks. Is Merck & Co. the right investment for me?

A. Right stock, but perhaps the wrong time.

Hold off buying shares of pharmaceutical giant Merck & Co. (around $146 a share, New York Stock Exchange) because its stock price adequately reflects its near-term prospects, said Steve Gerber, analyst with Oppenheimer & Co.

Among this respected company's important products are the Vasoteck and Prinivil inhibitor agents for high blood pressure and angina, as well as the Mevacor and Zocor cholesterol-lowering agents. Before year-end, its much-awaited Proscar compound for treating benign prostate enlargement should win Food and Drug Administration approval.

"Merck is a company that I like and a truly quality investment," said Mr. Gerber. "Nonetheless, I would wait until its price adjusts to lower levels before considering buying its shares."

Q. My wife and I were watching a cable series on the aircraft industry and how competitive that business is becoming internationally. We're concerned about our investment in Boeing Co. Do we have anything to worry about?

A. Its price certainly isn't flying high.

Buy shares of aircraft manufacturer Boeing Co. (around $44, NYSE) because they're inexpensive and the company is doing a good job of controlling many elements of its business, said Wolfgang Demisch, analyst with UBS Securities.

Boeing's finances are in good shape, it has competent management and its product line is strong. It is reinvesting aggressively to improve quality. A leading supplier of commercial jet aircraft, it will prosper in a healthy economy. Nonetheless, though you should hold your shares, the concerns you mentioned can't be overlooked.

"Boeing is dependent on external factors such as the global economy and global trade," Mr. Demisch concluded. "If political leaders fail to maintain or enhance global trade accords, international competition will hurt it."

Q. My broker once again has a great investment idea. I'm being sarcastic, since he hasn't always been correct in the past. What do you think of buying Aluminum Company of America?

A. No rush. Aluminum Company of America (around $71, NYSE) will be worth buying when demand for aluminum has increased and there has been some reduction in the industry's capacity, said Jeff Miller, analyst with Duff & Phelps.

Alcoa is an excellent company with good balance sheet, aggressive management and a dominant position in the beverage can industry. Yet the aluminum industry isn't in good shape, due to high inventory levels, and Russian exports of aluminum to the West have made the situation worse.

"For inventories to go down, demand must increase and supplies must taper off," explained Mr. Miller. "Demand for aluminum will increase this year, but not a lot."

Q. Among my dad's effects, I found some old stock certificates for a company by the name of International Chemalloy Corp. I don't recognize the name. I'd appreciate some information on these shares.

A. International Chemalloy Corp. incorporated in Ontario, Canada, in 1952, changed its name to Denbridge Capital Corp. in 1985. At that time, each 100 shares of International Chemalloy was converted to one share of Denbridge, said Robert Fisher, vice president with the New York-based R.M. Smythe & Co. stock-search firm.

Although its corporate charter is still in effect, the company has inactive trading status. Denbridge Capital's last known address was 26 Wellington St., Suite 910, East Toronto, Ontario M5E 1S2.

Q. I just bought a luxury boat for entertaining my clients. I am hoping that I can deduct a lot of the expenses I have and that I'll incur for entertaining. What do you think?

A. Tax paid on your boat is part of the cost basis when you consider gains and losses at the time of its sale, said Barbara Pope, tax partner with Price Waterhouse.

"The bad news is that no business deduction is permitted for an entertainment facility such as a boat or hunting lodge," said Ms. Pope.

Direct entertainment expenses such as the cost of refreshments served are deductible, she added. The catering, liquor and other costs associated with a party are deductible, so long as you can prove that this was a business function, Ms. Pope said.

Q. Someone recently recommended USX-Marathon stock to me as a good investment. The share price seems to be near its low. Is now a good time to buy?

A. Buy shares of USX-Marathon Group (around $21, NYSE) because its dividend yield of more than 6 percent, one of the industry's highest, is protected by strong cash flow, said Richard Wholey of Chicago-based Wayne Hummer & Co. Earnings should get a boost in 1993 when North Sea production comes on stream.

"USX-Marathon is trading at its lowest level in years," said Mr. Wholey. "Eventually crude oil prices will rise and oil stocks will follow, and USX-Marathon's dividend makes it worth holding."

Q. I am the not-so-proud owner of shares of Rax Restaurants. Are there better times ahead, or should I dump before it gets worse?

A. Hold shares of Rax Restaurants (Class "A," around $1.75 over the counter) and buy more on any good news, advised Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

The company owns 105 fast-food restaurants and franchises an additional 265 restaurants in 25 states and Canada, with sandwiches and "all-you-can-eat" food bars its forte. It broke even in earnings per share in the first quarter of its fiscal year and suffered a loss in its second quarter. A 70 percent stake in the company was sold to a management-led group last year to gain a $7 million cash infusion. An 8 percent stake was sold to Banc One Corp.

"Rax has a tough row to hoe, but its price has already gone up a bit on greater optimism," said Ms. Conway.

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