TAKINGSTOCK: Dean Foods and Tasty Baking turn the stomach

Dear Mr. Berko:

What can you tell me about Dean Foods? My broker wants me to buy 700 shares. He also wants me to buy 1,200 shares of Tasty Baking with the $12,000 I have to invest for conservative long-term growth in my IRA. Please give me your take on both companies.

C.S. in Elkhart, Ind.

Dear C.S.:

Every once in a while, you come across a broker who should return to broker school or who needs a frontal lobotomy because he thinks a blue chip is made by Doritos. Your broker fits all three categories. And if those recommendations are an indication of this fellow's intelligence, then he has a room temperature IQ and your IRA won't be worth spit on a sidewalk.

Tasty Baking Co. (TSTY-$2.39), a Philadelphia bakery founded in 1914, is a Norman Rockwell memory. Back in the late 1940s and early 1950s, I lusted after TSTY's savorous Krumpets and Kandy Cakes, its succulent Pineapple Cheese Danish, pies, doughnuts and honey buns, relishable Kreamies, gustable cupcakes and mouthwatering Banana Muffin Loafs, Tasty Treats, Pecan Swirls, Pound Cakes, Swiss Rolls and various flavored wafers.

Add an RC Cola, a Nehi Orange Soda or a Squirt, and I was in hog heaven ... and it only cost me a quarter at the mom-and-pop grocer across the street from my father's lumberyard.

Neither the grocer nor the lumberyard is there anymore. And after 96 years of baking delectable vendibles that kept dentists in clover, TSTY may also fade into the ethers of the past.

TSTY never had revenues of more than a half-million dollars a day. It traded in the mid $20s in 1997 and paid a special $7.20 dividend in 1993. It may follow in the footsteps of Cerbona, Mrs. Fields Cookies plus a few other snack food makers and give up the ghost.

This iconic Philadelphia baker has had to defer payments on a $78 million bakery in Philadelphia due to years of flat revenues, exacerbated by the big bucks it can't collect from A&P, Pathway and Super Fresh stores, which recently went belly up. Now, this severely cash-strapped bakery is considering several options, including a sale, Chapter 11 or even a merger with Boeing.

Meanwhile, Flowers Industries and Lance may be interested, and the talk is in the neighborhood of $7 to $8 a share. This is a terribly rank speculation and not a suitable IRA recommendation.

Dean Foods (DF-$10.10) doesn't float my boat - rather, it sinks my ship. Dean, a food and beverage company, makes and sells private-label dairy products and beverages: stuff like cheese, ice cream, dairy creamers, yogurt, sour cream, cottage cheese, fruit juices, iced teas, butter, eggs, soy products and milkshakes.

After reaching a high of $50 in early 2007, Dean's net profit margins began to "curdle" - a result of aggressive product pricing to boost customer demand. And to DF's chagrin, retailers were using Dean's products as loss leaders.

Meanwhile, the dairy industry continued to increase supply, which further contributed to price weakeness. This spoiled Dean's highly leveraged balance sheet (debt is 74 percent of capital), and huge interest payments limited Dean's ability to make acquisitions in a fragmented dairy industry.

So 2010 profits fell from $1.59 to about $.79 a share, and earnings for 2011 are to be flat on a teeny increase in revenues from $12 billion to $12.4 billion. I think Dean has mold on his cheese and is not a suitable IRA investment.

My father told me that I should always bend over to be sincere even if I don't mean it. So I must tell you that this broker is dumber than a dupe: My two Schnauzers, Albert and Einstein, can pick better stocks blindfolded. Find another broker before this dope does some real damage to your wealth.


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.

© 2011 Creators Syndicate Inc.

Published: Fri, Mar 4, 2011