Q-My buddy, the computer nerd, as I call him, tells me a company called Intel Corp. is hot. True? I trust my friend about computers, but not necessarily stock investments.
A-Your friend believes you`re a daredevil.
Intel Corp. (around $59 a share, over the counter), maker of microchips and microprocessors, is a high-risk investment because of the unpredictability of its earnings, said Michael Gumport, analyst with Shearson Lehman Brothers.
Because of stiff competition facing the company, Gumport gives its stock only a ”neutral” rating.
Founded in the 1950s, Intel is credited with the invention of the microprocessor. Its involvement with new and advanced products helped boost last year`s earnings 26 percent.
The problem is that the 1990s are brutally competitive for Intel, characterized by eroding market share, clones of its microchip and some supermicroprocessors from rivals such as Texas Instruments. Although Intel may be able to continue double-digit growth, its business is becoming tougher.
Intel has committed itself to bringing out two different types of microchips a year, an enormous task. There also is risk because personal computer sales are sluggish and microchip demand is down.
”Should everything turn out right, there will be a lot of profits for Intel,” said Gumport. ”However, it`s a stock for an aggressive investor who can handle risks and potential losses.”
Q-Everyone keeps telling us the economy will turn around, but it isn`t happening. I`m concerned about my investment in General Motors. My broker actually says I should buy more. I don`t know what to do.
A-Get in gear and buy more shares of General Motors (around $37, New York Stock Exchange), because its restructuring efforts should pay off for shareholders in coming years, advised Douglas Laughlin, analyst with Bear Stearns.
It`s true that the world`s largest carmaker posted a $749 million loss in the second quarter, but that would have been a $392 million profit if it weren`t for a restructuring charge at its Hughes Electronics subsidiary. North American car sales were up 12 percent, as its U.S. market share improved a bit, to 35.9 percent.
The company is working to create a more flexible factory environment, which features around-the-clock production, careful machine maintenance and no overtime pay.
”I`m excited about GM prospects, and my commitment to its stock reflects this,” concluded Laughlin. ”Over the course of the industry cycle, it should be the biggest stock in the automotive group and investors should get in now.”
Q-I have a stock certificate for Expresso Aero Interamericana, South America. I am reasonably confident that this stock is worthless. Can you confirm my suspicions?
A-Those shares are as worthless as a used Cuban cigar.
Expresso Aero Interamericana, a Cuban corporation with offices in Havana, was established to facilitate air travel between the United States and Cuba. It did not prosper.
Your stock lost all value in 1948, according to Robert Fisher, vice president with the New York-based R.M. Smythe & Co. stock-search firm. Any last chance for a revival was wiped away when Fidel Castro took power in Cuba a decade later.
Q-I would appreciate your thoughts on American Express. Would it be a nice addition to my small portfolio?
A-Buy shares of American Express (around $22, NYSE) because this credit card and travel giant has been capably confronting the large number of problems it faces, said Larry Eckenfelder, analyst with Prudential Securities. In light of market share lost to Visa International and noisy complaints from merchants about high fees, American Express is working aggressively to keep its paying customers and cater to its business cardholders.
”The company`s new emphasis on customer service and its focus on the American Express card business should help immensely,” predicted Eckenfelder. Q-I am doing my midyear tax review with my accountant. He mentioned that I`d be eligible to deduct investment expenses this year. Can you clarify what this means? His explanation lost me in the first 30 seconds.
A-Investment expense is a miscellaneous itemized deduction on Schedule A of your tax return, explained Robert Greisman, tax partner with Grant Thornton.
You may take a deduction for expenses incurred in producing or collecting taxable income, and for managing or protecting property for earning income. Typical items that qualify include safety deposit boxes, tax preparation expenses, trust management fees and investment adviser fees.
”The sum total of miscellaneous deductions, including this investment expense, are deductible to the extent the total exceeds 2 percent of your adjusted gross income,” Greisman said. ”The amount that exceeds 2 percent is the deductible amount.”
Q-I`ve been watching St. Jude Medical stock for some time and the price has dropped considerably this year. What is the outlook? Is this time to buy? A-It`s a good time to buy shares of St. Jude Medical (around $32, OTC), the world`s largest manufacturer of mechanical heart valves, based primarily on that price decline tied to lower-than-expected earnings, said Richard Wholey of Chicago-based Wayne Hummer & Co.
More than 400,000 of the company`s valves have been implanted since 1977, and earnings have gained more than 40 percent annually in the last decade. Although recent quarterly earnings aren`t what some Wall Street forecasters expected, they`re still better than last year`s fine results, Wholey noted.
”Earnings continue to grow,” said Wholey. ”This is a fine opportunity to buy a quality company at a reasonable price.”
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Andrew Leckey, whose column appears Sunday, Monday and Thursday, answers questions only through the column. Address inquiries to Andrew Leckey, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611.
