TAKING STOCK: Quest Diagnostics

Dear Mr. Berko:

I researched then purchased 1,000 shares of Quest Diagnostics a year ago at $64.30. And while the stock market has gone up a lot, my Quest stock has fallen in price. I've been thinking of selling the stock for several months ,but I keep holding off as the stock continues to dwindle. Should sell this stock and look for a better opportunity? Do you have any thoughts on how much higher the market can go or if and when the market will fall again?

-- HT: Oklahoma City, Okla.

Dear HT:

Many readers don't know that Quest is the leading independent provider of diagnostic testing services in the country. Quest derives 90 percent of its revenues from clinical tests, anatomic pathology, esoteric testing and substance abuse testing via 2,000 plus service centers across the nation. And many customers will tell you that their Quest experiences are unsatisfactory. Quest generates the remaining 10 percent of its revenues from clinical trials testing, risk assessment services and information technology services, and some professionals consider these services unsatisfactory.

Since late 2009, the Dow Jones zoomed 6,000 points, but in that time frame the share price of Quest Diagnostics (DGX-$55.22) has remained flat as a pancake. And since 2009, DGX's revenues slowly slipped from $7.45 billion to $7.38 billion while net profits fell from $721 million to $660 million in 2013 in that same time frame, net profit margins deteriorated and return on total capital, return on shareholder equity and DGX's working capital also declined as long-term debt increased. Industry changes: Hospitals are eroding DGX's business model with better service and friendly personnel; additional restrictions on government and commercial health care spending, plus the confusion surrounding Obamacare and consolidation, have diluted DGX's bargaining power. And recent changes in management have neither improved the company's spotty operational execution nor its ability to focus on corporate strategy.

Additionally, observers believe that CEO Stephen Rusckowski lacks the operational skills needed to synchronize Quest's various moving parts. Certainly DGX's poorly conceived entry into the fast-growing Indian market and animal health care testing, have been major disappointments. Another niggling problem is the snippy service at DGX's blood centers. Even Value Line mentions anecdotal evidence of complaints by patients and physicians about insensitive, grouchy employees and incomplete test results. Finally, an angry Orlando, Fla., reader who received incomplete test results told me the folks she talked to at DGX's regional and home office headquarters had the personalities of a "sucked orange." Most bosses hire employees in their own images. However DGX's only significant competitor, Laboratory Corporation of America (LH-$90), is reporting continued higher revenues, higher earnings and a stock price that has increased 35 percent since 2009. And it's interesting to note that while DGX is 40 percent larger than LH, investor assigned both companies an equal market capitalization of $8 billion.

You can continue let this dead dog sleep or swallow the bullet, grab the bull by the tail, look it in the eye and sell DGX. Any dope with the capacity to invest $65,000 in one stock should have the common sense to demand proper due diligence. Apparently you don't, so I suggest that you hire a money manager who can provide you with the experience, knowledge and wisdom to make informed investment decisions.

Anyhow, I have no idea how much higher the market will continue to rise. As long as the FED prints money, force feeding banks with $75 billion every month, the market will continue to rise because those cumulative trillions gotta be spent. In fact one "stupid" with an overflowing bank account recently paid $142 million for a 1969 oil by Frances Bacon ("Three Studies of Lucian Freud") surpassing another "stupid's" $120 million recent purchase of Edward Munch's "The Scream," which was $10 million more than what a third "stupid" recently paid for Andy Warhol's, "Silver Car Crash." And this is what the avalanche of FED dollars has done to equities, encouraging "stupids" to bid up the prices of stocks that have no or little earnings. Meanwhile, the Dow Averages will certainly slow when administration instructs Yellen to stop printing money.


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.

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Published: Mon, Dec 30, 2013