Dear Mr. Berko: We have a $262,000 portfolio that yields 5 percent, and we need those dividends to live on. Recently, our stockbroker had us take some profits and losses, and now we have about $60,000 in cash to invest. He recommended an annuity that would pay us 5 percent. But we’ve decided to take a big gamble to improve our return. We want to invest $30,000 in three aggressive stocks that you think can increase by at least 50 percent in the coming 18 months. Because aggressive stocks don’t pay dividends, we want you to recommend a quality junk bond yielding 10 percent, where we will invest the other $30,000. This will produce a 5 percent overall yield on our $60,000, and we need this income. We plan to sell the aggressive stocks and the junk bond in about a year and a half because we think the U.S. will enter a recession.
— TA, Bloomsburg, Pa.
Dear TA: Some might say that’s a bloody dumb idea. And if there is such an animal as a quality junk bond, I don’t know it.
I’m certainly not a font of information about aggressive issues that could increase in value by 50 percent in 18 months. So I sent a fifth of Old Crow to an old friend, Velveeta Jackson, who lives in Blue Eye, Mo., with a note telling her I’d call around 10:30 on Wednesday for three aggressive stock recommendations. I called right on time, and without preamble, Velveeta answered, gave me three names and then hung up. She is a superb stock picker but lacks proper manners and loses her social niceties after two drinks. The three names Velveeta shouted were Vertex, Pentair and JD.com. So invest $10,000 in each.
Vertex Pharmaceuticals (VRTX-$172) is a biotechnology company using drug discovery technologies to develop small-molecule drugs that treat major medical problems such as cancer and viral, autoimmune, inflammatory and neurological diseases. Brilliant research people, a fecund pipeline, minimal long-term debt, a 27 percent net profit margin and impressive past and future revenue growth could move VRTX to your target price.
