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Berko: Turns out broker’s picks were mostly good buys

By Malcolm Berko

Published: March 18, 2018, 6:00am

Dear Mr. Berko: In 2009, when I was 78, I had $70,000 in cash to invest long term for my grandchildren. I wrote to you for advice after my stockbroker had me invest $10,000 in each of the following stocks: Signet Jewelers at $6, Costco at $44, Macy’s at $12, Sears at $69, Bed Bath & Beyond at $23, Fossil Group at $14 and Hibbett Sports at $15.

You told me that I was nuts to take advice from a broker who’d been in the business for just three years. I know you will remember because he found your phone number and gave you a piece of his mind for trying to trump his advice. Please tell me whether I should buy or hold those six stocks.

— TB, Wilmington, N.C.

Dear TB: Yes, I remember your broker’s phone call. He verbally trashed me (and did a good job of it), but I realized that one can’t reason someone out of an idea he hasn’t been reasoned into. So I just listened to him shouting and calling me unkind names, and that made him feel good. Yep, he gave me a piece of his mind, but he didn’t ask for its return. So I have kept it boxed in my desk drawer, and every once in a while, I’ll open the box and tickle it with a ballpoint pen.

You have a nice profit in Signet Jewelers (SIG-$49), which owns Zales, Piercing Pagoda, Jared and Kay Jewelers. In fact, SIG traded as high as $150 in late 2015. However, earnings have slowed in the past two years, and demand for its baubles has declined. It would have been nice to sell SIG when it was trading above $100. Still, you have a swell profit of $43 on 1,600 shares, or $68,800.

You’ve got a $145 profit on each of your 250 shares of Costco (COST-$189), one of my favorite places to shop. Revenues, earnings and net profit margins should continue to rise, and so should its miserly $2 dividend. Wall Street thinks that over the coming few years, COST could trade between $260 and $290. Keep the stock, on which you have a $36,250 profit.

About a year ago, Macy’s (M-$30) closed a bunch of locations as management began to recognize that revenues were declining and the internet was sucking revenues from its mall stores. M now has 720 department stores, including Bloomingdale’s outlet units. Net profit margins have collapsed, and M seems to have lost its attraction with the consumer. Take your profit of $18 on 800 shares, or $14,400.

Sears Holdings (SHLD-$2.50) is a disaster. Many believe that CEO Eddie Lampert purposely ran SHLD to the ground so he could profit enormously from SHLD’s various real estate properties. He has succeeded! Sell SHLD and take your loss of $9,975. (That’s $66.50 per share on 150 shares.)

Bed Bath & Beyond (BBBY-$27) ran up to $80 a share a few years after you bought it. Revenues continue to grow, but at a much slower pace, which has dulled investors’ enthusiasm in the stock. Blame the internet. You have a $4 profit on 450 shares, or $1,800. Sell it.

Fossil Group (FOSL-$12.50) traded as high as $139 in 2012 as its product captivated the public. What a nice time to have sold the stock. FOSL sells neat and unique watches and sunglasses but has lost its appeal with the consumer. Revenues and investor interest have declined. Sell your 700 shares and take a $1.50-a-share, or $1,050, loss.

Hibbett Sports (HIBB-$22) sells athletic equipment, apparel and accessories. And management dropped the ball, as revenues are now in a nosedive. In 2013, HIBB was trading in the high $60s, but competition from direct-to-consumer website sales (especially Nike’s and Under Armour’s), has wounded HIBB. I don’t think your 600 shares of HIBB can recover, so sell them and take a $7-a-share profit, or $4,200.

I was wrong as sin. The young man was right as grace. He earned you a $114,600 profit. So your $70,000 is now worth $184,600.

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