Do You Want Fries With That? Dear Mr. Berko: My 16-year-old son has saved up over $6,000 in the past two years from part-time jobs and wants to invest this money. He has done some research on the computer, and his investment of choice is McDonald's. I also looked it up and read …Read more. Avon Lady Dear Mr. Berko: I've been using Avon's soaps, skin care lotions and fragrances almost forever, and my neighbors and I believe that the company's products are just as good or better than those of Revlon, L'Oreal and others. So I bought 200 shares in …Read more. Foreign ETFs Dear Mr. Berko: My new broker recommended Finnish, Norwegian and Swedish exchange-traded funds for me, which I have listed here. What can you tell me about investing in those countries? I know what an ETF is but hope you can explain the terms "…Read more. A Smokin' Stock Dear Mr. Berko: Several places in New York and New Jersey have increased the minimum age to buy tobacco products to 21, which is expected to sharply reduce smoking by our young people. Our 17- and 19-year-old boys smoke, and such a law here would …Read more.more articles
GM: Buy the Cars, Skip the Stock
Dear Mr. Berko: Back in 2010, you told me not to buy 200 shares of General Motors at the initial offering price. And I didn't, even though it went higher in price. I now have $100,000 to invest in a growth portfolio that I hope can produce some modest dividend income. At my age, this money will have to do well for me, and I hope it grows to a bigger pile so I can leave it to my grandchildren and future grandchildren.
My broker has recommended that I buy five stocks and invest $20,000 in each issue. I am 57 and need some growth as well as some income from these stocks, which are not in an IRA. And one of the issues that this broker has recommended is 700 shares of General Motors. Please let me know whether your thoughts on this stock have changed before I follow this advice. And if you still do not like General Motors, would you please recommend a couple of alternative issues. I don't want to speculate. Please advise. — LD in Phoenix, Ariz.
Dear LD: General Motors (GM-$26.22) has been selling cars perhaps for a century. And during that time, GM stuck us with some classic clunkers and a few darned good, high-class models, too. But don't concern yourself with leaving your grandkids a sixpence. Rather, worry about making sure that you will have enough income to live with modest comfort in a certain to be difficult economic future for most Americans.
As I told you in October of 2010, prior to GM's IPO, I wouldn't touch the stock with a pitchfork, a stun gun or a cruise missile. GM recently reported the largest annual profit in its 103-year history. Customers are paying record prices for cars and trucks, which has helped revenues rise 62 percent from last year and pushed earnings to $7.9 billion.
Of course, that profit was aided by a free $50 billion no-interest lifeline from U.S. taxpayers, plus $39 billion in liquidity and a bankruptcy that wiped out 75 percent of its debt.
Meanwhile, GM's troubles in Europe today exceed, by orders of magnitude, its troubles in the U.S. four years ago, and the European unions are aggressively resisting GM's efforts, nail and tooth, to lower worker costs and benefits. So far, GM has done some "caving," agreeing not to close any plants until 2016. Last year, GM lost nearly $900 million in Europe, and this year looks just as bad.
However, GM's biggest problem is its net profit margins that really stink. Then, I suspect it won't be long till the UAW begins to agitate for higher wages and demand that the company make significant contributions to its huge pension plan deficit. That's going to be a bear, especially in light of the fact that last January, GM quietly attempted to borrow $14.4 billion from the government for retooling costs (what a mess), and the Treasury said: "No."
Today's GM is the same old wine in a new bottle. This is not an investment quality stock, its revenues are cyclical, its earnings are cyclical, and management is dependent on a powerful union workforce to deliver its product. Sounds like an airline stock to me! I like their cars, but I do not like the stock.
Finally, I think your portfolio should have more than five issues and recommend that you diversify with at least a dozen issues. So have a confab with your broker, and suggest that he include PepsiCo, Yum Brands, Aflac, Hormel Foods, United Health Care, Walgreens, Magna International and Colgate Palmolive. If he gives you any trouble, find another broker.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at email@example.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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