Taking Stock- 99 cents only stock

   Dear Mr. Berko:  For the past three years, we've been using a money manager whom you know, and while our income/growth account isn't going great guns, we're plus-19 percent since February 2007. I wish he were more aggressive; through, at age 79, I know we should be conservative, but I'm still disappointed. The only advantage is that I'm not tied to a computer making portfolio decisions, which was starting to become stressful. I called our manager and asked him about 99 Cents Only Store, which I bought in a non-managed account at $8.70 two years ago. It's doubled, and I think it will double again. I told him to buy 1,000 shares in our managed account because it will double again. He wouldn't do it. So I told him if he wouldn't buy the stock, then I would cancel our agreement (I have it all on tape), so I did. I thought he would back down, but he didn't. Now, I have two questions. Can you recommend a money manager, and what do you think of the stock?
—W.S., Columbus, Ohio

   Dear W.S.: I'm going to be as nice as I can, but it's not easy. You really could have handled that a lot better than you did. I believe that money manager wouldn't follow your requests because 99 Cents Only Stores (NDN -- $15.51) is not consistent with your investor profile. While NDN may rise in value, perhaps its risk factors exceed your risk tolerances. But why, in the name of all the spirits, good and evil, would you tape your conversations? Shame on you! I suggest that you ask your friends whose conversations you don't tape to recommend a money manager.
   I'm impressed with the variety of merchandise at those 99 Cents Only Stores, and when I visit a shopping plaza with an NDN outlet, I enjoy glimpsing its vendibles because it's always fun to discover a few satisfying bargains. NDN has 280 retail locations, 203 in California and 70 stores scattered in Nevada, Florida, Texas and Arizona. A dozen brokerages follow NDN, four of whom have a "strong buy" rating. In fact, Wedbush Morgan, a classy boutique brokerage, has published a darn good report, which is worth a read.
   Net income will be up this year over last year and earnings for 2011 may post a 20 percent gain from 2010 on 3 percent higher revenues. This is a well-managed $1.4 billion revenue company whose employees punch a lot of cash register keys a dollar at a purchase to total $1.4 billion. NDN has a strong balance sheet, an $8 book value, good cash flow and excellent, though parochial, management. Management seems content to remain in its own back yard and has little interest in expanding its franchise. Organic growth is fine, but at a certain level, it reaches a point of diminishing returns, which is not far from where its business is now.
   While its business model is superb for this economy, management's timidity and its reluctance to open new locations does not augur well for long-term growth. However, management's timidity doesn't deter NDN from closing 12 underperforming stores in Texas, opening eight new stores in its California market and targeting a 5 percent same-store sales growth this year.
   I think NDN's share price has another 2 or 3 points remaining this year, which is not enough profit motive to risk a $16,000 investment. Rather, I suggest that you sell 500 of your 1,000 shares and park the proceeds until a better opportunity appears. And I'd also recommend that you ring the fellow you fired, and BEG him to take you back. He probably won't, but you will be hard pressed to find a professional with his skills and character. And while you may not be pleased with a 19 percent return on your conservative income/growth account, I assure you that your portfolio performance rates in the top of the class for the last three years.

   Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, FL 33429 or e-mail 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 2010 CREATORS SYNDICATE, INC.

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