Weigh both sides when deciding the merits of Borden Inc. stock

Answering the Mail

April 29, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Q. I understand stock of Borden Inc. has done well. I would appreciate your opinion on whether I should buy.

A. This glass is half full and half empty. Investors must weigh the promising aspects of Borden Inc. (around $34 a share, New York Stock Exchange) against its discouraging side, said Roger Spencer, analyst with PaineWebber Inc.

For example, the dairy portion of Borden's business is working hard to become more efficient and the company's stock performance has been excellent for its group. On the other hand, Borden is involved in some difficult businesses hurt by greater consumer health-consciousness, said Mr. Spencer.

Americans are cutting back dairy consumption, especially richer items such as whipped cream and ice cream. Meanwhile, Borden's snack business consisting of Wise snacks and Cracker Jacks is facing stiff competition from Anheuser-Busch's Eagle snacks and Frito-Lay, making it difficult to raise prices.

"People these days are picking up an apple before they pick up potato chips," observed Mr. Spencer. "Matching the pros and cons of Borden stock leads me to a 'neutral' rating."

Q. My broker likes to find what he calls "lost gems." He thinks Molex Inc. is one. Should I invest in its stock?

A. Stock of Molex Inc. (around $33, over the counter), manufacturer of items such as electronic interconnection systems and control panels, should modestly outperform the overall stock market near-term and do very well long-term, predicted James Hickey, analyst with William Blair & Co.

The company has been prospering and earnings should improve with the cyclical recovery of the capital goods and consumer goods markets, Mr. Hickey believes. As with all investments, however, the stock is not without some risk.

"Molex has a large exposure to Japan, which accounted for 40 percent of revenues last year," he observed. "Should the weak Japanese stock market lead to a truly weak economy there, the upswing Molex experiences at home will be dimmed by weak revenues from the Far East."

Q. I am confused about what to do with my 135 shares of Chemical Waste Management. I bought them when pollution control and environmental protection were constant headline news. This stock doesn't seem to be doing much. Should I move on?

A. Hold shares of Chemical Waste Management (around $19, NYSE), the hazardous waste management firm, since business is finally starting to pick up after four quarters of flat earnings, said Vishnu Swarup, analyst with Prudential Securities.

"Chemical Waste Management is the largest company providing comprehensive one-stop services from landfills to waste disposal, from incinerators to waste stabilization," said Mr. Swarup. "Its clients realize it is a quality operation."

Current earnings are strained by the economy, some problem incinerators and the higher tax rates some states have for disposal firms. However, Mr. Swarup believes Chemical Waste Management leadership is strong. As the chemical industry starts running at capacity, it will be disposing of more waste.

Q. Years ago, I inherited 109 shares of Avildsen Tools & Machines Inc. I haven't been able to find out if this stock has any value. Should I write it off as worthless?

A. You hit the nail on the head.

Avildsen Tools & Machines Inc., formerly known as Republic Drill & Tool Co., was incorporated in Delaware in 1941 with offices in Chicago. It filed for Chapter 11 bankruptcy protection in 1977 and a plan of reorganization was confirmed by bankruptcy court in 1982, according to Robert Fisher, vice president with the New York-based R.M. Smythe & Co. stock-search firm.

At that time, the court confirmed Avildsen had no shareholder equity. As you guessed, you can write off this stock as worthless.

Q. How should the interest that I am spending on my margin loan be treated on my tax return?

A. Interest for margin loans is generally treated as investment interest, said James Schlesser, tax partner with Deloitte & Touche. It therefore is deductible up to the extent that the individual has some investment income, with interest reported on Schedule A of your tax return.

Q. I would like to know your view on American Electric Power. We have 400 shares and are reinvesting the dividends.

A. Hold shares of American Electric Power (around $32, NYSE), which serves Ohio, Indiana, Michigan, Virginia, West Virginia, Kentucky and Tennessee, advised Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

Its service region is dependent on metals, chemicals and coal mining. A high construction budget is expected to comply with new acid-rain legislation, for it is the nation's largest user of coal.

"American Electric Power's dividend is high and secure, though an increase is unlikely until earnings improve," concluded Ms. Conway. "The dividend makes the stock worth holding."

Q. Recently I read an article on Cifra S.A. and would like to know if you think it is a good investment.

A. Cifra (around $1.75, over the counter), Mexico's biggest retailer with $2 billion in sales, has good management, profitability and little debt, said Richard Wholey of Chicago-based Wayne Hummer & Co.

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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