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Berko: Adviser’s advice solid on NextEra

By Malcolm Berko

Published: February 20, 2016, 6:05am

Dear Mr. Berko: We’re 59 and both retired with a decent municipal pension. We have too much cash in our money market account and the adviser thinks we should buy 100 shares of NextEra Energy. This stock has a low yield. So I looked up a real estate stock called CBL & Associates that pays 9.8 percent. Please tell us what you think about this stock and if would be good to use $15,000 and buy 1,400 shares of this real estate company because the yield is more than three times higher.

— N.E., Akron, Ohio

Dear N.E.: Your broker’s NextEra (NEE-$111) is an excellent and classy recommendation. Your adviser sounds like a good guy since he hasn’t recommended an annuity or high-load bond fund. By comparison, CBL & Associates Properties, Inc. (CBL-$10.00) can’t hold a candle to NEE.

CBL & Associates Properties is the publicly traded real estate investment trust that owns a portfolio of enclosed and open-air malls. It’s also the REIT in which Tennessee Republican Sen. Bob Corker and his family, just a few years ago, initiated 70 short-term trades and profited by multiple millions of dollars. It’s suggested that Bob’s real estate background, while he was mayor of Chattanooga (2001-05), also earned him similar favors. Let’s face it, Bob’s probity is no higher than most members of Congress. He’s a sleazy, deceitful con artist with a silver tongue who was elected by “stupids.” This is America’s most significant problem: The election of Congress and the presidency is determined by voters whose favorite TV programs are filled with Kardashians and Jerry Springer.

In 2004 and 2005, while Bob was doing his mayoral bit in Chattanooga, CBL was trading in the high $70s to the high $80s, then split two for one that summer. CBL owns, has interests in and or manages 147 properties, is an active developer of new regional properties, open-air centers and lifestyle community centers, primarily in the southeast. Today CBL is trading close to its six-year low and management believes in 2016 it will book $986 million in revenues, $2.32 in share earnings, increase the dividend by 2 cents a quarter to $1.14. Its bonds carry a BBB rating by S&P, as do the unsecured notes of its Limited Partnership.

I agree with this rating and suspect hasn’t been purchased as other ratings have been. CBL has a book value of $8.48 a share and more than $400 million in operating cash flow, which speaks well of management.

According to the Street’s consensus of 11 brokers, CBL has a median target price of $13 so the shares trade at a very low and less than 5 times earnings. And that worries me. However, those earnings are substantial enough to assure investors that their payout appears safe. The current $1.06 dividend yields 10.6 percent and an expected $1.14 dividend in 2016 may give buyers at today’s price an 11.4 percent yield.

This looks like a Jim dandy, safe yield, and Bob’s obvious influence from his senatorial position may be the reason why 21 hedge funds have good positions in the stock. So even as second glance it appears that CBL may be an acceptable gamble for those who can afford above average risks.

I’m not as knowledgeable about CBL as Bob and I don’t know if Bob still owns a block of stock. A 10.6 percent current return is attractive, especially when projected earnings are expected to come in at $2.32 a share. That sounds like fantastic return; however, “when some things sound too good to be true, sometimes they’re not!” So I called Bob’s office in Washington (202-224-3344) to ask if he thinks if it’s a good time to purchase CBL. Bob wasn’t there and because the person who answered the phone sounded like a 15-year-old intern, I left a message and my name. Bob hasn’t called back.

CBL and NEE are as different as cheese and chalk. But my gut tells me that NEE may split and is a far superior long-term investment. Still, if you’re able to handle above-average risks I’d prefer CBL. However, I like both.

Malcolm Berko addresses questions about stocks. Reach him at P.O. Box 8303, Largo, FL 33775 or mjberko@yahoo.com.

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