Malcolm Berko answers financial questions
Copley News Service
Vail CO, Colorado
Dear Mr. Berko: I’m thinking of buying 400 shares of Yahoo!, 2,000 shares of Sun Microsystems and 400 shares of Intel. What do you think about these three issues as a one-year or two-year hold? I’ve tried to find Sun Microsystems on Yahoo! but for some reason the Yahoo! finance Web site doesn’t know the stock, but other financial sites have huge amounts of data on this stock. So, tell me what you think. I’ve got about $21,000 to invest from the sale of a home I bought a couple of years ago and I don’t think it’s wise to reinvest in real estate. But I recall when Sun when traded over $100, Yahoo! at more than $200 and Intel in the $80s. So perhaps its time for those issues to get back to their old high prices.
Dear E.B.: About a dozen columns or so ago I suggested that Yahoo! was having trouble keeping its act together and some observers think Yahoo! is scouring the bottom of the barrel to find help. While the network is attracting new users, and while advertising revenues are increasing and while fee revenues are growing, Yahoo! Inc. (YHOO-$27.08) 2007 net income will continue its nose dive from 2005 and 2006 and some think 2008 might continue lower. The reason is that some of those YHOO people are real yahoos. And as sure as shootin’ YHOO stock, trading at 52 times this year’s earnings, is as overpriced as an airport hot dog.
Net profit margins are collapsing to 8.6 percent this year, operating margins have fallen and so has return on capital and shareholder equity. And until recently, you couldn’t find Sun Microsystems on Yahoo! Finance Web Site because the YHOO people didn’t know that Sun Microsystems stock symbol was changed to JAVA from SUNW.
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Anyhow, YHOO broke its $24 support level and some think it’s headed to the teens. If you must buy the stock consider the mid-teens as an entry point but certainly not at its current price. Management is no help! Jerry Yang, chief executive officer who, while at Stanford University, co-founded YHOO in 1994 ought to return to Stanford. And Chairman Terry Semel, whose tenure at YHOO has been enormously underwhelming, ought to return to making kites again.
Sun Microsystems Inc. (JAVA-$5.66) took over Storage Technology in late 2006 hoping that this acquisition would breathe new life into Sun. “Au contraire!” The stock ran all the way up to $6.80 and a few months later JAVA resumed trading in the low $5 to the mid-$4 range. I doubt that the stock of this supplier of servers, workstations, storage devices and software will ever trade in the teens, certainly not $100 again and I think you gotta be crazy to own it.
Competition is nipping at JAVA’s heels, demand in the U.S. and United Kingdom is wimpy, unfavorable currency shifts and high labor costs for its 36,000 employees have not helped earnings this year. I believe that 2008 won’t show much of an improvement over 2007 and the longer term doesn’t appear to augur well, either. I think JAVA is mired in this $6 to $4 trading range and I wouldn’t care to pay more than $4.25 for the stock.
Intel Corp. (INTC-$25.40), a $37 billion revenue company that makes integrated circuits for communications equipment, personal computers, industrial automation, the military and other electronics equipment, is a waste of time.
There are two main reasons that INTC is mired in the $19 to $25 trading range: (1) Growth in the PC industry has slowed to a crawl and (2) The competition – especially from AMD – is intense so net profit margins, which were 25 percent to 31 percent a few years back, are now lucky to come in between 15 percent and 18 percent. While earnings, which have been regularly irregular, will improve to $1.10 from 86 cents in 2006 and possibly to $1.30 in 2008; I feel the stock has lost its panache and its past glory doesn’t mean borscht to today’s investors, who remember INTC when it traded at $150 a share. Forget it.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at firstname.lastname@example.org.