Taking Stock: Escaping All Fates But Number One

Dear Mr. Berko: I own a very profitable manufacturing plant here in Phoenix that has 37 employees, which I built from the ground up and you are the reason for my success. Your column was published in the Jonesboro Sun when I attended the University of Arkansas in 1994, where you were a guest lecturer in my business class. And I clearly remember your opening remarks to the class. You counted the students in our classroom out loud (42) and said; '' 45 years from now, 7 of you will be dead, 8 of you will be living on welfare, 9 of you will be hopelessly in debt and will work till you die, 8 of you will have a hardscrabble life making ends meet on inadequate pensions and social security, 5 of you will scrimp to maintain a marginal retirement, 2 you will have a very modest retirement, 2 of you will enjoy a comfortable retirement while 1 of you will retire with a net worth in excess of $1 million. And this is an optimistic prediction.'' You looked right at me when you made those comments. They are verbatim and you scared the hell out of me and I have your comments on tape. I will always remember that lecture because I vowed I would never be any of those numbers except number 1. I was a couple years older than my classmates, recently out of the service and thought I was a hot shot, and you opened my eyes. So I kept my nose to the grindstone and, thanks to you, I am a successful businessman, and as of the close of 2011, my net worth reached $1 million and I am YEARS from retirement. And now that I have brown nosed you, could I have your opinion of Advanced America Cash Advance Center located in Spartanburg, S.C., where my wife's family lives and her father works? RS, Phoenix, Ariz.

Dear RS: Congratulations. Reading your letter was a satisfying emotional experience; even my two dogs Sigmund and Freud howled in approval. However, you must be mindful that if you keep your nose to the grindstone too long, you could end up with a very short nose. And when I presented the class those numbers, I don't believe I was looking at you. Rather, I think I was looking at a very striking coed who may have been sitting behind you! Anyhow, when on speaking engagements, a half dozen times a year I enjoy being a guest lecturer at one of the colleges in the city where I speak, and I hope I inspired others as I seem to have inspired you. It's a tough world out there, and most young folks haven't a clue.

Advance America Cash Advance Centers (AEA-$10.55), with 2,600 locations in 30 states, may be the largest nonbank provider of cash advances in the nation. But it seems that Advance America Cash Advance Centers AEA-$10.55) may be managed by the sons of the Three Stooges with frequent advice from John Corzine, Bernie Madoff and members of Congress. The price action of its shares have been enormously disappointing in the last ten years. With nearly $700 million in revenues, AEA is one of those companies with a super business model but a stinky execution. In the last decade, earnings have been on a broken ferris wheel, up, up and up, down, up and down, up, down and up, and maybe this year up to $1.36 from $1.09. This values AEA common shares at an attractive 8 times 2012 earnings. AEA's return on assets seem to explode and implode annually, but its asset base has grown by 50% since 2002. Book value, which was $2.06 a decade ago, managed to squeeze itself upwards to $2.44 last year. But behold and lo, the 25-cent dividend yielding 2.4% is on track to be raised to 35-cents if 2012 earnings meet this year's analysts' projections.

This is a swell business for our current economic environment, and AEA (management notwithstanding) should grow its revenues and earnings nicely during the coming few years. The typical loan is about $380 for 18 days with an average fee of $57, which is an annual return of over 300%. The only other folks who make that kind of vigorish are politicians, government contractors and drug whosalers. Customer demand is strong and may continue stronger in the coming few years as increasing numbers of workers are coming up short every pay day. In this very strong business climate, I think AEA's upside potential is limited by a very weak management team.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko @yahoo.com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.

Copyright 2012

Published: Thu, May 17, 2012