TAKING STOCK: Supercalifragilisticexpialidocious LinkedIn Recommend

Dear Mr. Berko:

I am 67 and will retire in November of this year. Through my employer, I converted almost all of my 401(k) into a guaranteed income annuity that next January will begin to pay me a guaranteed $1,312.26 a month until I pass away. My wife and I decided to keep $34,000 in cash to use for a three-month dream cruise with some lifelong friends who will retire in February of 2013. So, in order not to pay taxes on the money this year, we transferred the $34,000 to our small $42,000 IRA and put it in a money market fund.

Our broker is bullish on a stock called LinkedIn and wants us to buy 300 shares for my IRA. He is very enthusiastic about LinkedIn and insists that the stock could at least double by the time we are ready to pay for our cruise next year. And while I don't know much about the company, I tend to believe him because he told our son to buy it in June of last year when it was $88, and it went to $115 in less than three weeks. Now, it's below $100 again, and if LinkedIn just goes up 50 points, that gain will allow us to upgrade to a really nice cabin.

We told our friend about this stock, and he said he doesn't know anything about it, but that it "sounds like too much of a big gamble." That got me thinking that he may be right. So my wife and I decided to write you for your opinion. Do you think LinkedIn could double by this time next year?

JD in Erie, Pa.

Dear JD:

I think that broker leaves a wake of green-yellow slime as he slithers out of his office when the market closes every day. And you, JD, gotta be dumber than a bag of hammers, especially at your age and stage, to even consider owning LinkedIn (LNKD-$99). Yes, I think there is a possibility that LNKD could be $200 by this time next year; however, it's a far better bet that we'll have world peace and a balanced budget.

LNKD is a supercalifragilisticexpialidocious concept. It operates an online professional network using a proprietary platform that lets members create, manage and share their professional identities, compare knowledge and insights, and keep on top of business opportunities. LinkedIn also allows businesses and professional organizations to advertise job opportunities, while enabling recruiters and hiring managers to locate candidates to fill job openings at their respective companies.

But I'm willing to wager my two "like-new" IBM Wheelwriter 1000 Electric Typewriters to a rusty penny that LNKD won't trade at $200, nor will its price increase by 50 percent within the coming 12 months. LNKD is currently priced at 157 times expected 2012 earnings of 63 cents a share. In my opinion, only one-eyed fools and their cousins pay such obscene premiums, and 93 times out of 100, they lose money. LNKD should continue to be profitable, and Wall Street believes earnings will grow to $1.05 by 2013, which places its P/E ratio at a heady 94. Well, apples to LinkedIn.

AAPLE - trading at $630 with a lowly P/E of 35 times earnings, paying a quarterly dividend of $2.56 and possessing billions of dollars of cash - makes infinitely more sense than LNKD. LinkedIn is not a suitable investment for you. However, if you fall for that brokester's sales pitch and buy LNKD and a year from now it's sold for less than your cost, I believe a complaining phone call to that broker's boss should result in a check to cover any loss.

Your broker must be jailed and banned for life from the brokerage industry because of this patently unsuitable LNKD recommendation. His behavior is emblematic of what's going on in the brokerage industry today. The old, time-tested guidelines professionals use to evaluate stocks (book value, revenues, earnings, net profit margins, dividends, price to earnings, price to sales, price to book, management consistency, etc.) have disappeared into the ether. Today's metrics, known as "bandwagon buying," are measured by hype, momentum, speed and greed. This manner of trading (almost all of it confined to hedge funds and investment banks such as Goldman Sachs, Citigroup, Merrill Lynch, UBS) accounts for a disproportionately huge percentage of the buying and selling volume on major exchanges.


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.

© 2012 Creators Syndicate Inc.

Published: Mon, Apr 16, 2012