'Wait and see' approach advised for Westinghouse stockholder

Answering the Mail

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

Q. I own 25 shares of Westinghouse Electric and want to know if I should continue with this small investment or wait until things get better.

A. Hold shares of Westinghouse Electric (around $16, NYSE) and take a "wait and see" attitude toward this consumer electronics and financial services firm, said Robert Cornell, Shearson Lehman Brothers analyst. The company has been hammered by recession, with the real estate portfolio of Westinghouse Credit hurt the worst. Its financial services division invested in some unprofitable businesses that led the company away from its core business of consumer electronics.

It has, however, lately been looking to sell properties and businesses, and cut dividends to increase its cash position.

"All moves should help in the long run and many losses have already been written off," Mr. Cornell said. "Hold your shares for now because, in this time of change, the stock has an equal chance of going up as it does of going down."

Q. What's the best way to play the current low interest rate situation? What about loan strategy and what about higher-yielding out-of-state certificates of deposit?

A. Try to use low rates to your advantage.

First, pay off credit card debt, since it's unlikely you'll be able to obtain high enough interest on investments to offset the high rates most cards charge. Bank money-market accounts and six-month CDs, after all, are averaging just a little over 3 percent nationwide.

Next, consider your home loan situation. Current mortgage rates at around 8 percent are a good deal if you're either buying a home or refinancing.

In regard to savings, if you're most comfortable with CDs despite the low rate environment, there are some better deals available to savers nationally. For example, J.C. Penney National Bank, P.O. Box 27, Harrington, Del. 19952 was recently offering a 4.41 percent six-month CD, a 4.65 percent one-year CD and a 5.45 percent two-and-a-half year CD.

The 100 Highest Yields newsletter in North Palm Beach, Fla., which tracks CD rates, notes that a $2,500 minimum deposit is required for those three CDs. The bank received a three-star rating from Veribanc of Wakefield, Mass., meaning it's in good financial condition.

Q. Everyone in our investment club is nervous about Merck & Co. and whether the good news will continue to roll. We are a veteran club, but need some reassurance about company prospects.

A. An aging product line has many investors jittery about prospects for this respected drug manufacturer.

Despite concern about the ability to maintain double-digit earnings growth, you should buy more shares of Merck & Co. (around $49 a share, New York Stock Exchange), said Larry Smith, analyst with Hambrecht & Quist.

Best-sellers such as the Vasotec anti-hypertension medicine and Mevacor cholesterol-lowering medication together bring in $1 billion in sales.

When the Proscar drug for prostate diseases reaches its sales potential, there should be annual Merck revenue growth of 13 percent to 14 percent, Mr. Smith predicted.

"I'm excited about Merck's commitment to research," he said. "The company continues to do the right things, such as its joint research venture with Du Pont and its stock-option plan for researchers who bring drugs to market."

Q. People kept telling me to sell my shares of Allied-Signal Inc. because of cuts in defense spending, but this stock has done well for me. Should I continue to buy?

A. Full speed ahead.

Buy more shares of Allied-Signal Inc. (around $55, NYSE), the aerospace and chemicals firm, because of the massive restructuring program it began last fall, said Howard Rubel, analyst with C. J. Lawrence, Morgan Grenfell.

Second-quarter earnings were up 73 percent due to better productivity and improved sales in its automotive division. This diversified conglomerate got deeply into debt, but is doing a good job of solving those problems. It cut capital spending by 24 percent, cut jobs and unloaded unprofitable businesses.

"Though restructuring will incur one-time expenditures, Allied-Signal is headed in the right direction and focusing on its bottom line," Mr. Rubel said. "Buy now when earnings and cash flow aren't what they eventually will be."

Q. I am holding 2,125 shares of Wilderness Experience Inc., purchased in 1987, and 500 shares of Old Hickory Copper Co., purchased many years ago. I've lost track of both of them.

A. You're 0-for-2 with this pair.

Wilderness Experience Inc. of Chatsworth, Calif., filed for bankruptcy in 1989, there's no equity left and its shares are worthless, said Robert Fisher, vice president with the New York-based R. M. Smythe & Co. stock-search firm.

Meanwhile, Old Hickory Copper Co., incorporated in Delaware, forfeited its corporate charter in 1983. Its shares also are worthless.

Q. I own a small printing shop that my wife and I bought a year ago. We've taken a lot of depreciation on the printing presses, but would like to take as much as we can, since our income has increased this year. Can you give some advice?

A. The depreciation you can take in one year is determined by the type of equipment you have and the year you put it into service, said James Schlesser, tax partner with Deloitte & Touche. Look at the tax table to determine whether you own five-year or seven-year depreciable equipment. Printing presses are likely seven-year properties and computer equipment five-year properties, he said.

"This calls for taking 14 percent in the first year [which was last year], and the maximum you can depreciate this year is about 24 percent of the cost of the equipment," Mr. Schlesser said.

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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