Just a Dollar Dear Mr. Berko: My broker is excitingly enthusiastic about Dollar Tree because of its pending merger with Family Dollar Stores. He thinks the shares could trade at more than $100 in two years. He wants me to sell my Boeing and Wal-Mart to buy 400 …Read more. Inflation and Interest Rates Dear Mr. Berko: In early March 2012, I asked you about a maturing $30,000 certificate of deposit in my individual retirement account. I was thinking about putting it in a 10-year Treasury bond yielding 3.125 percent. You said "absolutely not" …Read more. Bad Biotech and IT Recommendations Dear Mr. Berko: I have $10,000 to invest for a two- to three-year time frame and want to invest aggressively in a biotechnology issue and an information technology issue. Our Ameriprise broker has carefully researched and recommended three IT stocks …Read more. Planning Retirement Without Social Security Dear Mr. Berko: Several weeks ago, your email advice to our 32-year-old college-educated son about Social Security was distressing and frightening and went overboard with negativity. It illustrated your lack of faith in the American system. A member …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 firstname.lastname@example.org. 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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