Tele­com stock has ma­jor hangups

The Oklahoman (Sunday) - - BUSINESS -

Dear Mr. Berko: My part­ner and I seek long-term growth in con­ser­va­tive blue-chip stocks. We are both gain­fully em­ployed in sales, and to­gether we earn nearly $175,000 an­nu­ally. Af­ter do­ing poorly in the stock mar­ket dur­ing the past two years, we de­cided to change stock­bro­kers and find a pro­fes­sional whom we could work with to build a solid port­fo­lio with stocks that have good growth po­ten­tial. At this point, div­i­dend in­come is not im­por­tant to us. Our new bro­ker has rec­om­mended that we in­vest $100,000 in 10 dif­fer­ent sec­tors — telecom­mu­ni­ca­tions, util­i­ties, tech, re­tail, phar­ma­ceu­ti­cals, fi­nance, biotech­nol­ogy, oil and gas, de­fense, and for­eign stocks. He wants us to in­vest $10,000 in each sec­tor, and the first stock he has rec­om­mended is U.S. Cel­lu­lar. My part­ner doesn’t care for this stock, and he wants to set­tle this dis­agree­ment be­fore we pro­ceed with the other sec­tors. Please give us your opin­ion of this stock.

— JF, De­troit Dear JF: U.S. Cel­lu­lar was founded in 1983, and its cel­lu­lar busi­ness is pro­moted by 256 re­tail stores and kiosks around the coun­try.

In my opin­ion, this cel­lu­lar com­pany is a great big huge blah. And I can’t imag­ine one sin­gle rea­son in the en­tire uni­verse this bro­ker would rec­om­mend an in­vest­ment of $10,000 in U.S. Cel­lu­lar (USM-$44). USM has to be among the most mun­dane, tire­some, dull, bor­ing, hum­drum pub­lic com­pa­nies traded on the New York Stock Ex­change. And be­cause a com­pany usu­ally im­i­tates the per­son­al­i­ties in its top man­age­ment, USM must have piti­fully tire­some, ter­ri­bly mun­dane, ap­pallingly dull, in­cred­i­bly bor­ing and dread­fully hum­drum man­age­ment. USM’s chief ac­count­ing of­fi­cer doesn’t own a sin­gle share of USM. USM’s se­nior vice pres­i­dent in charge of sales doesn’t own USM stock, ei­ther. Nei­ther do the ex­ec­u­tive vice pres­i­dent of op­er­a­tions, the chief tech­nol­ogy of­fi­cer, the EVP of fi­nance and nu­mer­ous other of­fi­cers and di­rec­tors of this 6,000-em­ployee com­pany. The rea­son so many of­fi­cers and di­rec­tors don’t own USM stock is sim­ple: None of them feels the stock is worth a beg­gar’s dime.

Dur­ing the past 10 years, the mar­ket price of USM (even with buy­backs be­gin­ning in 2009) shares has been on a gen­tle de­cline, with a steady rate of lower high prices and a steady rate of lower low prices. I wouldn’t rec­om­mend this stock to a mudsill in a cock­fight.

Rev­enues of this cel­lu­lar com­pany, which serves 5.1 mil­lion U.S. cus­tomers, have been up and down on its in­come state­ments like a $1 Dun­can yo-yo since 2008. That year, USM’s rev­enues were $4.2 bil­lion, but even as rev­enues have grown for nearly all cel­lu­lar com­pa­nies for the past decade, USM will be for­tu­nate to record rev­enues of $3.9 bil­lion this year. Even T-Mo­bile and Voda­fone con­tinue to grow rev­enues. By some kind of cor­po­rate black magic, USM’s man­age­ment was able to make about $300 mil­lion (7.5 per­cent) of rev­enues dis­ap­pear into the ether.

And while other tele­coms man­aged to pro­duce re­spectable net profit mar­gins of 4 to 5 per­cent, USM’s net profit mar­gins have been all over the map — from less than 1 per­cent in 2008 to 5.1 per­cent to

3.2 per­cent to 2.5 per­cent to 6 per­cent (wow) to 1.2 per­cent to 0.3 per­cent to 1.9 per­cent. And over the past 10 years, USM’s earn­ings have been just a screw-up and a screw-down. Last year, USM’s man­age­ment em­bar­rass­ingly posted earn­ings of 14 cents a share, and this year, earn­ings may, on a wing and a prayer, come to 80 cents a share, with net profit mar­gins for­tu­itously ex­pected to come in at 1.7 per­cent. And div­i­dends? Well, I’m told that USM has, since the Civil War, never paid a div­i­dend.

Frankly, there’s no rea­son for this to be a pub­lic cor­po­ra­tion. In the past 10 years, this com­pany has been sit­ting at its NYSE post like a blob, trad­ing about 100,000 times a day. Its in­utile, dozy man­age­ment should pe­ti­tion the NYSE to delist USM and make room for an­other com­pany that could bet­ter rep­re­sent the Big Board.

Don’t dare buy USM. If this is one of your new bro­ker’s rec­om­men­da­tions, you’d bet­ter send me his other rec­om­men­da­tions, too.

Please ad­dress your fi­nan­cial ques­tions to Mal­colm Berko, P.O. Box 8303, Largo, FL 33775, or email 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.

Mal­colm Berko mjberko@ ya­hoo.com

TAK­ING STOCK

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