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Berko: Stay Away From These Stocks

Weekly financial column by Malcolm Berko.
By Malcolm Berko, For The Oklahoman Published: August 3, 2014
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Dear Mr. Berko: We have been with our broker since October 2008. Our original $525,000 investment, from which we take $1,200 a month, has grown to $557,000. Because we would like to take more money out of this account and not touch any of the principal, he wants us to buy the following three stocks: 7,000 shares of Atlantic Power at $3.70 because it pays 10 percent, 7,000 shares of Intersections at $4.60, paying 18 percent, and 10,000 shares of China Nepstar chain drugstore, which pays 13 percent, at $2.43. Please give us your thoughts on these income stocks.

ST, Oklahoma City

Dear ST: I don’t know what your real objectives are, but if you invested $525,000 in late 2008 and have taken out only $1,200 each month, your account value should be a lot higher than $557,000. Frankly, I would be telling that cirrhotic bumbler of a broker to take a long walk off a high Alp.

During the past five years, we have enjoyed a stock market so spectacular that even a drunken monkey could have given you more income and better performance. Where did this stumblebum come up with those doozies?

In January of last year, this Atlantic Power (AT-$4.06) traded in the $12-$13 price range and paid $1.10 a share.

The following month, the dividend tanked to 36 cents, and Atlantic headed to the toilet but still pays almost 10 percent.

AT is a power generation and infrastructure company that owns, operates and maintains 28 power generation facilities in the U.S. and two in Canada plus a 300-megawatt wind facility, a short drive from your home. Together these facilities produce 3,300 megawatts of power, which AT sells to utilities and other large users under long-term purchase agreements. Revenues in 2013 grew to $551 million, but its long-term debt inched to $2 billion.

AT hasn’t made a dime in the decade it’s been in business, and I see no reason the next decade should be any different! There’s no joy here.

China Nepstar chain drugstore (NPD-$2.38) is the Chinese version of Walgreen Co., with 2,100 retail drugstores in 77 cities across 14 of China’s 23 provinces.

In the past 10 years, revenues have more than doubled, to $2.7 billion, but earnings have been pathetic, and so has the stock performance. In the summer of 2009, NPD traded at between $7 and $8, and its dividend was $1.50. Now the dividend has been lowered to 30 cents, though it does yield a hefty 12.1 percent.

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