Dear Mr. Berko: When our father passed away about a year ago, he left my sister and me eight stocks. We have decided to keep the five utility stocks and continue reinvesting the dividends each quarter. Please give us advice on keeping or selling the other three — Cincinnati Financial, Zogenix and Medtronic — which we know nothing about. — CC, Jonesboro, Ark.
Dear CC: I can't advise you competently because I know nothing about your stock market experiences, risk tolerances, short- and long-term goals, capital and income needs, debts, etc.
Cincinnati Financial (CINF-$74.10) markets property and casualty insurance, life and health insurance, and financial services through independent insurance agencies around the nation. I graduated from college the year that CINF's CEO, Steve Johnston, was born. CINF has a good portfolio of financial products and a stable balance sheet. Its long-term debt is 9 percent of capital. Management has excellent underwriting practices, and profit margins are improving nicely. Since 2000, premium income has tripled, and the dividend, now $2.12 and yielding 2.1 percent, has been increased each year and has tripled. And the share price has increased almost sixfold since the Great Recession low of $13. Meanwhile, healthy premium growth from its property/casualty lines and rising policy retention levels should boost 2019 revenues to $5.5 billion, up from $5.3 billion this year, and improve earnings to $3.47 a share, up from $3.20. And the dividend may be increased by 5 percent, to $2.24. CINF is a solidly managed insurance holding company, and the fact that millions of shares are owned by Vanguard, BlackRock, Bank of America, J.P. Morgan and the Royal Bank of Canada is proof of the pudding. But I don't care to own the shares of this large-cap company, primarily because CINF is priced ahead of itself, at 23 times earnings, and also because I doubt that the Bengals will ever win a Super Bowl.
Zogenix (ZGNX-$41.21) is one of the innumerable biotechnology firms that can trade like a bull in a china shop. ZGNX is engaged in the development and commercialization of therapeutic solutions for people living with serious and rare disorders of the central nervous system. One of its products, ZX008, is a low-dose fenfluramine for treatment of Dravet syndrome and Lennox-Gastaut syndrome, a rare and severe form of epilepsy that commences in childhood. In the past three years, ZGNX has lost nearly $1.5 billion. However, 4 million shares are owned by Perceptive Advisors, a New York hedge fund that has made hundreds of millions of bucks in the past few years taking positions of biotech issues. And Scopia Capital Management, another New York hedge fund specializing in biotech issues, has a 3.4 million-share position. If you can handle well-above-average risk, ZGNX could give you well-above-average long-term gains. But its 52-week price range of $12 to $62 a share suggests that ZGNX could also give you well-above-average long-term losses. There are five brokerages covering ZGNX, and each has a "buy" recommendation on the stock. And I think there's a 71 percent chance that there will be 20 to 25 more points in the stock by late 2019.
Founded in 1949 as a medical equipment repair shop, Medtronic (MDT-$96) is now the world's largest manufacturer and distributor of implantable biomedical devices and sells its products in 160 countries via 372 locations. MDT's 84,000 employees design and market products for diabetes care; ear, nose and throat care; gastrointestinal and neurological disorders; spinal and orthopedic problems; tumor management; urological and urogynecology issues; renal care; cardiovascular problems; and general surgery. Revenues, net income, dividends and new products have nearly tripled during the past 18 years, as has the stock price. And there are many reasons to believe that MDT can do it again. Meanwhile, a retired MDT salesperson gave me two good pieces of advice several years ago: "Buy Medtronic stock and hold it forever. And be nice to everyone in the hospital, because you never know who's going to pull out your urinary catheter." I'd follow that advice in a heartbeat.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected] 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.