Taking Stock by Malcolm Berko

Dear Mr. Berko: I have $10,000 to invest and would like to buy a high-yielding preferred with an 11 percent or better yield that could increase in value as the company improves its earnings. I bought $10 m face value of the 7.75 percent Lucent Convertible Bonds you recommend at $660 per bond with an 11.7 percent yield and I'd like to buy another high-yield security. What do you recommend? Also, I own 600 shares of Sara Lee, which I bought in 1999 at $27. It's done nothing but go down. Please tell me what you think. — W.T., Springfield, Ill.

Dear W.T.: Yep, your Lucent Technologies Convertible, now trading at $735, has done well this year. Sometimes we get lucky, which proves the old saw that even a blind hog can find an acorn once in awhile. So if you are comfortable with another enormous gamble, then squint at the nefarious American International Group's 6.45 percent Series A-4 Jr. Subordinated Debentures due 6-15-2077 or (AFF-$12.12). Its $1.6125 annual interest yields 13.3 percent, a fair yield for a very risky security, even though on June of this year, it was rated BBB by Standard & Poor's. But considering S&P's perfidious past, I support that rating is suspect! Now, one might rightly assume, because the Treasury has flooded AIG with tens and tens of billions of dollars, that AIG (like Citicorp, Merrill Lynch, etc.) has too much government money invested to fail. This issue was a $30 million IPO in June 2007 and pays interest quarterly on the 15th of March, June, September and December. So a 700-share purchase ($8,400) would, with heaven's help and enormous good fortune, continue to pay $282.18 a quarter. It certainly beats CD rates, though worrying about AFF's long-term ability to pay may give lots of folks a case of agida. But according to an old but knowledgeable English friend "Bonny" Bobby Shaftoe III, American International Group could earn a swell profit in 2010.

Sara Lee (SLE-$11.09) may soon be nominated by the Inter-Galactic Analysts Association as the worst performing marketer and manufacturer of branded consumer products in the "Little Dumbbell Nebula." The company has oodles of recognized branded products, most of which are fairly priced, appeal to the pallette and attractively presented.

And one would be right to think that, with brands like Kahns, Jimmy Dean, Sunbeam, Ball Park, Holsum, Douwe Egberts, Earth Grains, Healthy Choice, Grants Pass and so on, this $13 billion revenue company would be sitting on the throne of the nebula, basking in glory and shareholder adulation. Well, fewer assumptions could be more distant from reality. In the past 10 years, SLE's revenues crashed by 35 percent, earnings collapsed 34 percent, dividends dropped 10 percent, long-term debt grew 20 percent, return on capital toppled by 55 percent and return on equity plunged nearly 80 percent. So while you paid $27.60 for 600 shares when SLE appeared to be a solid company, the current $11 price truly reflects Wall Street's very low opinion of this company, a decade of failure plus 10 years of brain dead management. Among the 45 or so brokerages that have followed SLE in the last 10 years, only seven have published a "buy" rating on the stock and each of those "buy" ratings have been wrong. However, in 2005, my friend Duncan Hines told me that SLE's board of directors possess encyclopedic ignorance and that daft and dotty management could benefit enormously by the application of weekly enemas. It seems that SLE's get up and go (when it was called Consolidated Foods) got up and went.

I see very little revenue and earnings growth in the coming years so with alacrity I would recommend that you sell this stock. There are so many better investments where your money will work effectively for you. And Value Line's Robert Green, as well as Barclay's Andrew Lazar, tells us that "these shares do not stand out for the year ahead." Take your $10,000 loss and don't look back. If Gen. Robert E. Lee could see how poorly this namesake company is managed today, he'd roll over in his grave!

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.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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