Taking Stock: Ball Corporation

Dear Mr. Berko:
I bought 50 shares of Ball Corporation in 2001 at $80 and now have 200 shares with over $9,000 profit. What do you think of this company? My broker insists the market is going to crash this year and wants me to sell all my Ball and put the money in a government GNMA fund for safety that pays 4.4 percent. Please advise.
P.P., Lady Lake, Fla.

Dear P.P.:
While your broker may be right, I think you gotta be dumber than a woodpecker to follow this guy’s greedy advice and get slugged with a $650 commission to buy a GNMA fund, especially when interest rates look to be headed higher.

Meanwhile, if you’re into graffiti, you are probably using an aerosol can made by Ball (BLL-$66). If you use an aerosol deodorant, cooking spray, whipped cream, etc., you’re probably using a product made by BLL. In fact, BLL is the largest maker of aerosol cans in the entire United States.

BLL also makes aluminum containers so if you drink sodas from a can, beer, fruit juices, energy drinks and other beverages, you are probably drinking those gustables from a BLL product. BLL produces more than 100 million of these recyclable aluminum cans every day, seven days a week.

When you do your grocery shopping for corn, asparagus, soups, sauces, tuna, beans or potatoes, you are likely buying those comestibles in a BLL tin can. And when you buy those butter cookies, peanuts, shoe or car wax, popcorn, coffee, snuff, etc., they all come in a Ball can whenever they can. In fact, Ball makes the largest selection of promotional special-day and holiday tins in the free world.

BLL doesn’t sponsor golf tournaments, it doesn’t advertise on “Dancing With the Stars” and it doesn’t have a sports arena named for it. BLL is a quiet company, and its products sit mutely on the shelves of every convenience store, drug store, supermarket, paint store and hobby store in the U.S., plus a few other countries. The can business provides 91 percent of BLL’s $7.4 billion in revenues while the aerospace and hi-tech division give the Ball boys just under $700 million in sales.

BLL has been a darn fine long-term investment, and I think it will continue to be a darn fine long-term investment. Management has improved BLL’s net profit margins from 3.1 percent 10 years ago to 5.7 percent last year. And two analysts tell me that they believe BLL will continue to grow its net profit margins, predicting 6.6 percent by 2015.

Long-term debt is declining, shareholder equity has tripled in the last 10 years, free cash flow has increased 400 percent since 2001, but the dividend is niggardly. As you know, the shares split 2 for 1 in 2002 and 2004, and there’s talk the shares may split again this year if the price moves to the mid $70s. And a mid $70 price is very possible.

BLL earned $4.05 in 2009, increased earnings to $4.60 last year and those analysts think BLL could earn $5.30 this year. So with an average P/E of 13.5, a $70 to $75 price objective is reasonable. And because Ball’s contracts allow for raw material increases to be passed on to its customers, it’s reasonable to expect earning growth of 11 percent to 15 percent over the following few years.

Jefferies, Credit Suisse, Market Edge and Ned Davis have “strong buy” ratings on the stock while Value Line’s Jason Smith believes BLL could trade over $100 in the next couple of years. And apparently the Vanguard folks agree, as they own more than 9 million shares.

Meanwhile, don’t sell. But place a good till cancel, do not reduce, stop-loss order at $60 and move it up as the BLL increases in value.

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 Web site at www.creators.com.
© 2011 Creators Syndicate Inc.