Dear Mr. Berko:
I have $10,000 to invest for a two- to three-year time frame and want to invest aggressively in a biotechnology issue and an information technology issue. Our Ameriprise broker has carefully researched and recommended three IT stocks — Nimble Storage, Cornerstone OnDemand and GT Advanced Technologies — and three biotech stocks: Agios Pharmaceuticals, NPS Pharmaceuticals and Synageva BioPharma. He has sent us the latest reports on each, as well as the names of mutual funds that own them and how many shares they own. To reduce my risks, would you help me select the best of the three IT stocks and the best of the three biotech stocks?
— RT, Indianapolis
Dear RT:
No! Your brokerage is not recognized for its skilled stock research. Rather, Ameriprise Financial (AMP-$125.59) is best-known for its selling skills and expertise in peddling some 4,000 load mutual funds, life insurance policies and annuity products. Aided by the vast ignorance, gullibility and greed of the average investor, AMP does this so well that I’d sooner invest in the shares of AMP than I would in any of those recommended issues. In the past decade, this smartly profitable selling organization has increased revenues by 50 percent, to $11.5 billion, while doubling net income to $1.4 billion. During that time, AMP’s dividend has zoomed impressively to $2.26 a share as the stock has increased fourfold in value. And the well-liked chairman and CEO, Jim Cracchiolo, who earned $88 million last year, has done a yeoman’s job of running this very impressive financial sales company.
I believe that those six picks were derived from a list of Goldman Sachs recommendations and are the work of David Kostin. Kostin, who has been with Goldman for 20 years, is the company’s chief U.S. equity strategist (whatever that means), and he’s good enough to have made partner. I follow Kostin’s recommendations (and those of other analysts, too) sort of like how a baseball fan follows the pitching and batting records of various players. Kostin is usually a keen analyst. I’m surprised at the pathetic quality of those recommendations. Even my Ouija board could select better stocks in this record-setting stock market.
During the past two decades, Wall Street has aggressively fostered, aided and abetted an insidious and burgeoning investment philosophy that earnings never matter. Because there’s so much cheap cash floating in our financial hyper-sphere, the Street’s buccaneers sneer at the time-tested metrics of skilled management and earnings growth to grow shareholder value. This breed has successfully adopted the “greater fool theory”: Buy a junk stock that’s being promoted by Wall Street. When there is a quick gain, immediately sell it to a fool, who in a couple of weeks will sell it at a profit to a bigger fool, who will sell at a profit to an even bigger fool. This continues until there are no fools left to hold the bag you held. This game is also called “musical fools.”
Dinky Nimble Storage (NMBL-$28.82), with $130 million in sales, is among thousands of similar companies in the data storage business. Some fool actually paid $59 a share knowing there are no profits in its future.
Cornerstone OnDemand (CSOD-$41.35), down from a fool’s purchase of $62, has $185 million in sales. This trifling company is part of a multitude of application software companies without anticipated profits.
GT Advanced Technologies (GTAT-$17.28) is a $263 million-revenue IT stock (among zillions of IT stocks) with no earnings, and some fool recently paid $22 a share.
Agios Pharmaceuticals (AGIO-$46.56) is among the bush-league cancer therapeutics companies seeking a Golconda. It has $29 million in revenues and may never make a dime, but a big fool recently paid $50 a share.
NPS Pharmaceuticals (NPSP-$29.88) is among the thousands of piddling public pharmaceuticals, and some fool recently paid $39. It has $170 million in revenues and has never earned a profit.
Finally, Synageva BioPharma (GEVA-$65.07) is a three-bit profitless $10 million-revenue outfit competing with a panoply of other three-bit pharmaceuticals. Some pathetic fool paid $119 for it not long ago.
Consider investing $5,000 in the no-load Fidelity Biotechnology Portfolio (FBIOX) and $5,000 in Fidelity Software and Computer Services Portfolio (FSCSX).
––––––––––
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com. Visit Creators Syndicate website at www.creators.com.
© 2014 Creators Syndicate Inc.
