TAKING STOCK

Costly Social Security gambit may be worth it

by Malcolm Berko

Dear Mr. Berko:

I bought 100 shares of Value Line stock a couple years ago at $74 because I was told it was in merger talks. And if you look at its performance you can see that my 100 shares have gone down in value right after my purchase. Are you hearing anything about a merger? Please tell me why this stock has done so poorly. What is wrong with this company that publishes research reports for the brokerage industry and investors? Do you think I should buy 100 more shares and wait till it comes back? Or do you think I should sell my 100 shares and take a huge tax loss, which I don't need.

T.T.

Everett, Wash.

Dear T.T.:

Value Line Inc. (VALU-$42.28) publishes some of the sweetest research this side and that side of Wall Street. Their Mutual Fund Survey, their No-Load Fund Advisor, the Options Survey, Convertible Bond Survey, Special Situations Service and various other niche publications are well-written, easy to read, accurately edited and professionally researched. Their popular Investment Survey is on the mark, the numerical data is clearly presented, the company description, the company outlook and analyst's opinions are logical, realistic and concise. And I'd be remiss if I failed to compliment VALU on its superb balance sheet and income statement presentation of the 2,000 companies it smartly covers.

However, VALU's management really "sphinx." Jean Bernhard Buttner, the 74-year-old executive chairman, president, chief executive officer, chief financial officer and chief operating officer, apparently wants the company to molt, mold and decay with her as she grows older and older and older. And with the exception of VALU's analysts, I suspect that Jean probably hires people in her image.

Ten years ago, VALU's revenues were $94 million, earnings were $3.68 a share, the dividend was $1 and cash flow was $3.68 a share. Since then, VALU's revenues slowly deflated to $83 million while earnings and cash flow steadily shrank to $2.48 and $2.39 a share, respectively.

On the balance sheet side, book value crashed 50 percent to $6.90 and $100 million of VALU's $208 in assets disappeared into the ethers since 1998. Capital expenditures fell by 50 percent in the same time frame, as did VALU's common to equity ratio. What a lousy way to run a debt-free company that provides subscribers such superb information.

Jean obviously knows bupkis about marketing, which is painfully evident, and the mice who warm her boardroom chairs ought to be exterminated before what's left of VALU's assets gets nibbled away. With the exception of the gorgon who answers the phone, Jean's administrative employees are a decent sort but they sound feckless, unsure and give the impression that they're sitting on thumbtacks.

Management hasn't even a foggy idea how to promote itself; doesn't know how to price its products, has failed to consider changes in its various products to improve content, subscriber appeal, the authority of its recommendations and of course future revenues.

However VALU's sustainable growth rate is quite close to the rate at which its share earnings have grown. Obviously that's not good.

Unfortunately VALU will have to raise capital from outside sources if its doddering management and its inutile board of dinosaurs wish to grow the company. But if the past is any indication of the future ... it doesn't and it's worth noting, that! Jean's salary, not including bonuses, perks and pension, equals a huge 1 percent of revenues. Rather large, that!

I can't recommend the stock, which has been slipping steadily downward from its high of $74 back in 2005. But I can certainly recommend VALU's research products, which in my opinion are, at their very worst, much better then the slanted opinions published by Goldman Sachs, Credit Suisse, UBS, Standard & Poor's, Merrill, etc. VALU's research people, unlike the dudes at Merrill, UBS, Goldman Sachs, Citigroup, do not use their reports to butter up, or stroke the egos in order to seek investment banking business from corporate clients. Value Line's reports are dependably unbiased and their veracity is unquestionable. It's shameful that we can't truthfully say this about the opinions published by the brokerage industry.

Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail him at malber@comcast.net.