Berko: When will the market settle?
By Malcolm Berko Taking Stock March 8, 2013 8:13AM
Updated: April 9, 2013 11:10AM
Dear Mr. Berko: The stock market has had a phenomenal rise of more than 40 percent in the past 30 months. Unfortunately, none of my annuities or mutual funds or my good stocks — e.g., Microsoft, Intel, Johnson & Johnson, Emerson Electric, General Electric, General Dynamics, Cisco and Procter & Gamble — has done as well, though my dividend income has increased. How much longer do you think the market will continue upward?
Last year, you recommended some risky dividend stocks, and I bought all of them because they looked good and had nice dividend yield. On average, they are up 45 percent. I have $43,000 of speculative money remaining and want your recommendation of some cheap issues — about $10 a share — that might have some appreciation. I’d like to buy 1,000 shares of each. My broker at UBS recommended several issues, but his cheap-stock recommendations have failed in the past. What would you recommend?
Dear GS: This market will continue to rise as long as the Federal Reserve continues to pump $85 billion into the banking system every month. That’s more than $1 trillion a year flowing into the market, exploding values without equal explosions in revenues and earnings. But hang on to your chapeau. When the Fed stops stuffing the banking system, all votes are off because without this huge gusher of money, the Dow Jones industrial average is likely to reverse direction. Most on the Street believe it will happen late this year, when the Obama administration and its janissaries gird their loins in a full-court press to launch the full implementation of “Obamacare,” which may be the mother of all donnybrooks.
During the past dozen months, traders have become frighteningly aggressive, and I’ve received numerous requests for low-priced issues. But many $10 stocks, like many $10 cigars, stink like rot, and I have very little experience at this level. However, seeing as you paid a few coins for this paper, I’m obligated to pass a few names to you. So I called an acquaintance of mine at Fidelity. He rattled off the following four “exceedingly risky” stocks, which are held in Fidelity portfolios:
Raptor Pharmaceutical Corp. (RPTP — $5.07), a California biotech company with zero revenue in the past three years and 36 employees, is fervently working to improve existent therapies by the application of highly specialized drug targeting platforms. It’s believed that the Food and Drug Administration will approve RPTP’s treatment of nephropathic cystinosis in the coming few months. With one more modest success, RPTP shares could double. But RPTP hasn’t made a centime since the Battle of the Bulge, and unless management gets some bucks quickly, its bulge may rupture.
Verastem (VSTM — $9.85) is a biopharmaceutical company that focuses on developing drugs that target cancer stem cells. Several of VSTM’s candidates have had success in preclinical cancer trials. A potential contract with one of the big pharma companies would push this issue to the high teens. This 21-employee Cambridge, Mass., company has yet to book any revenues.
Erickson Air-Crane (EAC — $11.69) is a $175 million-revenue company from Portland, Ore., that operates a fleet of heavy-lift helicopters. EAC provides incident response systems, firefighting, hydroseeding, timber harvesting, flight crew and maintenance training, sales, engineering and contract crew services. The book value is $12.20, and revenues should reach $195 million this year. EAC came public at $7.50 in 2012, and some of its 700 employees, plus several local brokerages, think it could trade in the mid-teens.
Orbotech (ORBK — $9.18) is a $440 million Israeli company making computerized electro-optical systems that identify defects in printed circuit boards, liquid-crystal displays, multi-chip modules, computer-aided manufacturing systems and laser plotters. ORBK should be nicely profitable this year and could run to the mid-teens.
If you purchase 1,000 shares of any of those issues, use a discount broker — such as Fidelity, Schwab or Vanguard. Your UBS broker will charge a queen’s ransom, whereas the discount boys will charge you about $9 per 1,000-share trade. The lower commission costs will reduce your potential losses.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at firstname.lastname@example.org.