Taking Stock: Mystery checks and big box bets

Dear Mr. Berko: I recently got a check for $23.46 from Wexford Clearing Services concerning a Bank of America Fair Fund and MFS Emerging Growth Fund. I called Bank of America, wasted over 35 minutes on hold, and after being transferred to various people in various departments, I still don't have any idea why they sent me this check or how they decided $23.46 was the right amount to send to me.

How would I know if it is? The same thing happened about seven months ago with a $6.87 check from something about another fund that I couldn't track down either. My stockbroker is a very nice guy but a little light in the brain department and is no help. He told me to write you.

Also, what do you think of Wal-Mart? Or would you prefer to own Costco? My broker gave me his firm's opinion on both issues, and UBS rates both of them as neutral. Which would you prefer?

--JR: Des Moines, Iowa

Dear JR:

I'm not sure what ''neutral'' means. In UBS language, it means ''sell.'' In Merrill Lynch language, it means ''hold.'' And in Morgan Stanley language, it means ''market perform.''

In Berko language, neutral means your brokerage lacks the guts to tell the truth. Wal-Mart (WMT-$59) is a significantly better-managed company than Costco (COST-$82). But I prefer shopping at Costco because its inventory presentation is superior, the isles and shelves are more orderly, the bakery and meat and produce departments seem fresher, and the store attracts a more upscale clientele.

While both retailers recorded good results for 2011, their respective income statements and balance sheets suggest COST's management has a lot to learn from its WMT brethren. For instance ... WMT's gross margins are 25 percent versus COST's 12.5 percent. WMT's operating margins of 8.1 percent are more than twice that of COST's 3.7 percent. WMT's return on equity is 23.5 percent, but COST limps along with a 13.5 percent return.

The most important metric, however, is a company's net profit margins. For every dollar of sales, WMT brings 3.5 cents to the bottom line, which is impressive. COST, however, brings just 1.7 cents to the bottom line per sales dollar, and by comparison, that's unimpressive. WMT is clearly a better-managed company, and its 2.6 percent dividend versus 1.2 percent for COST suggests that WMT may be better stock to own.

However, if you bought 100 shares of WMT a dozen years ago at its highest trading price of the year ($60), you'd be $400 in the hole. But if you bought 100 shares of COST 12 years ago at its highest trading price ($39), you would have a sweet gain of $4,400.

COST can get bigger, and there's lots of room for improvement. WMT can get bigger, but there doesn't seem to be much room for improvement. So buy Costco if you're looking primarily for capital gains, but buy WMT if you seek good income and modest capital gains.

I also got a check from Wexford Clearing. Apparently between 2000 and 2003 when we ''supposedly'' owned shares of MFS Emerging Growth Fund, MFS must have done something naughty. Well, that was over a dozen years ago when the Dow Jones was about where it is today.

Because I don't recall owning this thing, I phoned the money manager who looks after my IRA and the money manager who looks after our joint account, and neither knew beans about this thing. The employees at Bank of America or Wexford wouldn't know a blue-chip from a buffalo chip, so I went online.

After wading through pages of stultifying legal lingo, I discovered that several tort lawyers accused some lads at these funds of ''excessive trading,'' and the SEC was encouraged to agree. The tort lawyers figured they had to have $6.5 million for their two weeks of work. So they told the SEC to fine these funds $13 million (the lawyers only get 50 percent), and the remainder was delivered in $5, $10, and $15 increments that shareholders selected at random.

I couldn't find any reason to justify your $23.46 and doubt anyone can because it's basically an arbitrary number. Meanwhile, the so-called accused parties neither admitted nor denied their guilt and all danced merrily back to their trading desks. But poor Martha Stewart, who foolishly admitted her guilt in 2001, had to walk merrily to prison for five months for a $200,000 insider-trading profit. Martha had terrible legal advice.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at mjberko @yahoo. com. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators .com.

Copyright 2012 , Creators.com

Published: Thu, Feb 23, 2012

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