Baxter seen prospering even without Caremark LTC

Andrew Leckey

December 30, 1992|By Andrew Leckey

Today Andrew Leckey answers readers' questions about investments.

Q. I'm interested in investing in Baxter International, the medical services corporation. With the recent spinoff of its Caremark unit, would you recommend this stock as a good investment?

A. Though now a bit smaller, this company still packs quite a punch.

Buy shares of Baxter International (around $32 a share, NYSE) because the company should grow at a 15 percent annual pace even without high-growth Caremark, says Jean Queally-Swenson, analyst with Merrill Lynch & Co.

Caremark was spun off primarily because it distributes products to the home, while the rest of Baxter distributes products to hospitals. Baxter didn't want to be in direct competition with hospitals, many of which are expanding into the lucrative home health care field.

Baxter retains the ability to help hospitals reduce their costs through a variety of programs, such as its delivery program that lets hospitals cut back on inventory personnel.

In addition, Baxter just received approval for recombinant Factor VIII, a synthetic version of a clotting factor used to treat hemophilia. In longer-term development is its Novacor ventricular assist device to be used by patients awaiting heart transplants.

Baxter's research and development budget of $290 million should pay big dividends. Dialysis, a high margin business, now provides 12 percent of revenues, while hospital supplies and service account for more than half of revenues.

"By giving away Caremark, it turns out Baxter didn't really give away a lot," concludes Queally-Swenson. "It should remain a solid growth company."

Q. I own 300 shares of Travelers Corp. and have always had faith in this insurance giant. With recent troubles such as hurricanes and riots plaguing the insurance industry, I'm concerned about the company and its lagging stock price. Should I just continue to collect dividends and wait?

A. You'll need some patience.

Hold your shares of Travelers Corp. (around $25, NYSE), which had significant exposure to Hurricane Andrew, for it's in the midst of a protracted turnaround, says Weston Hicks, analyst with Sanford C. Bernstein.

Large hurricane losses led to the issuing of equity to Primerica to help restore the balance sheet and get its business back in order. This, however, added significantly to the number of shares outstanding, making it difficult to offset the effects of that dilution.

"At this price, given the risks and prospects, I think it's early to be a buyer of Travelers," advises Hicks, who expects the stock will perform about in line with the overall market for a while. "For this stock to make my recommended list, I'd have to see the prospects of an earnings recovery."

Q. My father purchased shares of Red Warrior Mining Co. in the early 1920s. Is it still around? Are the stocks worth anything?

A. This warrior was badly defeated.

Red Warrior Mining Co., incorporated in Minnesota in 1908, had a silver and lead mine and eight claims staked in Beaver County, Utah.

Unfortunately, the charter expired in 1938 and the company went out of business. As a result, your shares are worthless, according to Robert Fisher, vice president with the New York-based R.M. Smythe & Co. stock-search firm.

I am interested in purchasing shares of A&W Brands. Is this the same company that produces the great root beer? Is it time to buy?

A. There's great taste, but moderate investment potential.

Don't buy shares of A&W Brands (around $32, over-the-counter) until after year-end results are released, and don't harbor oversized expectations, cautions Sharon Conway, based in Chicago with A.G. Edwards & Sons Inc.

The company makes soft drink concentrates and distributes them to licensed bottlers, its brands including not only the popular A&W root beer and cream soda, but also Squirt, Vernors, Country Time Lemonade and Tetley ready-to-drink iced tea.

A&W has long been the nation's top-selling root beer. While the ** company does supply the root beer to A&W Restaurants, it has no formal affiliation with them.

Recent quarterly earnings were slightly below expectations, a result of cool, rainy weather in key markets. The full year should also be a bit below estimates, though a return to normal growth patterns is expected in 1993.

"A&W Brands is expanding international exposure with 20 markets in Asia being scheduled and has a new product called Everlast Sports Drink in test markets," notes Conway, who believes the future generally holds promise for the company. "It also expects cost savings because NutraSweet [made by Monsanto Co.] has lost its patent protection, and other competitors are now offering products in that field."

Q. I own 500 shares of Glaxo Holdings. My purchases average out at $29.50 a share. What are the future prospects? Should I hold or increase my shares?

A. Shares of Glaxo Holdings PLC. (around $23 as an American Depositary Receipt on the NYSE), Britain's largest drug manufacturer and a firm best known for its anti-ulcer medication Zantac, suffered a price slide this year on fears of government intervention in health care.

Nonetheless, the company's future looks bright, with a pipeline of promising new products. One that's particularly promising is Imigran, a migraine medication.

"Add to your position in Glaxo now while the price is low," counsels Richard Wholey of Chicago-based Wayne Hummer & Co. "My hunch is that, in two to three years, you'll be glad you did."

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