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Listen to your wife’s, not broker’s, stock advice

Dear Mr. Berko: I got an e-mail from my broker, who advised me to buy 700 shares ($10,000) of NCR stock. I e-mailed him back to ask why NCR and told him that $10,000 was twice as much as I usually invest in one stock.

That was a week ago, and he has not answered me. Please tell me what you can about NCR, which I’ve never heard about, and if you think it’s OK to invest that much in one stock.

Also, what do you think of a stock my wife picked called Fifth Street Finance Corp.? She wants to buy 250 shares with her own money.

She did real good last year with her own account and made almost 40 percent, as her personal account went from $10,500 in early 2010 to $14,100 at the end of last year. — R.C., Troy, Mich.

Dear R.C.: Fifth Street Finance (FSC, 52-week high of $13.64 as of May 13), a business development company, finances acquisitions, recapitalizations, bridge financing, first- and second-lien debts and management buyouts of small to midsized companies investing $5 million to $50 million per company.

FSC came public at the cusp of the market debacle in late 2008, ran up to $13, then abruptly crashed to $6 several months later. The stock is on the rise, and its $1.28 dividend yields a sweet 10 percent.

Considering how difficult it is for a company to borrow from its banksters, FSC and its excellent management are in fine fettle operating in a lucrative private-investment milieu and a good equity market to ply its trade.

Eleven brokerages follow FSC and have a “buy” rating, while Oppenheimer, Vanguard, StateStreet, BlackRock, Fidelity and few others own more than 30 million of the 54 million shares. They own FSC because its book value is $10.50, because they believe revenues will grow by 40 percent this year, because they think the dividend may be increasing to $1.45 and because management has net profit margins of 31 percent on 2010 revenues of $70 million.

I think your lady may have picked a dandy and that 10.7 percent yield should be about 85 percent tax-deferred.

Meanwhile, you may have a smart broker, but I don’t like doing business by e-mail. Most folks like to talk to their broker, rather than being prompted by an e-mail to make a purchase that is probably sent to 50 other clients.

NCR Corp. (NCR, 52-week high of $18.99 as of Feb. 7), aka National Cash Register, was the go-to company for every business that needed a cash register since 1884. Today those beautifully scrolled heavy brass-and-steel contraptions are museum pieces worth big bucks.

But the old cash register, like the old Model T, is now stuffed with microchips, lasers and communication devices. So NCR has had to transform itself like IBM, which no longer sells PCs; Apple, which no longer just sells desktops; or Kodak, which is making a valiant effort to survive the shift to digital photography. And NCR’s management is doing a yeoman’s job implementing the new technology.

This $4.7-billion-revenue company enables businesses to efficiently connect, transact and serve the public. NCR has been ranked No. 1 for 20 consecutive years in ATM kiosks, No. 1 in retail self-checkout for eight years, No. 1 in hospital patient self-check-in for four years. And in travel self-service, NCR owns 80 percent of the market. NCR is a world leader in c-tailing, which significantly reduces the cost of doing business by reducing the number of employees needed to perform a consumer/employee task. Certainly a far cry from the old “ding-dong bell” cash register.

In 2011, revenues should increase 10 percent to $5.1 billion. Net profit margins should improve 20 percent to 2.3 percent, and net income should increase from $1.45 to $1.65 per share this year. While NCR doesn’t yet pay a dividend, it only has $10 million in debt, nearly a billion in working capital and just 158 million shares. This may be a solid long-term investment, but I like your wife’s pick better than your broker’s.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or e-mail him at mjberko@yahoo.com.

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