Q & A
Q: I would like to know what Wall Street thinks of Exxon Corp. stock. I own more than 500 shares and wonder if I should sell some or all of the stock and diversify my risk. Or should I continue to take the dividends and buy more stock? Or maybe I should just take the dividend money and spend it any way I see fit? --Schwenksville, Pa.
A: Wall Street likes Exxon right now. With oil prices rising nearly every day because of the Kuwait situation, how could you not like the oil industry?
But some analysts on Wall Street aren’t as high on Exxon as they are on other oil stocks. Smith Barney & Co., for instance, has only a “hold” recommendation on Exxon, which was recently selling at around $49. That’s about the mid-range of its price for the last 52 weeks. But Smith Barney is recommending Amoco, Arco and Texaco.
Michael Young, Smith Barney’s analyst, told clients, “Exxon remains a hold-rated stock because, in our view, it just does not have the earnings leverage or earings-per-share growth that other oil companies have in a higher energy price environment.”
He said Exxon’s $2.40 a share dividend, which produces a yield of around 4.8%, is attractive. This, and the fact that the dividend could be increased to $2.60 a share in October, makes this stock worth holding. But Young didn’t see any “catalyst” that would propel Exxon’s stock higher, so he withheld a “buy” recommendation.
Young predicts that Exxon will earn $3.75 a share this year, up from $3.44 a share in 1989.
Analysts say the rise in oil prices is not complete gravy for Exxon. The profit margins at its refineries are being pinched by the high price of crude.
Exxon is not completely without risk. Don’t forget the Alaskan oil spill. While most analysts say the damage to the company’s stock is over, a judge in Alaska last week ruled that Exxon must pay all actual damages “proximately caused by the spill.” That ruling could lead to a lengthy and complicated trial to determine the compensation that the company must pay.
Q: In 1988 I bought 100 shares of Marion Labs, which was later merged into Marion Merrell Dow. I tendered 43 shares and now have 57 shares left.
I am aware that the Dow Chemical rights I also received will allow me to buy shares of Marion Merrell Dow and that those rights will expire on Sept. 30, 1991. If I were to acquire these rights, would I have to use them to purchase Marion Merrell Dow stock before this date? And are the rights worthless after September, 1991? --Pacific Palisades
A: Let’s start from the beginning. You should have already received $38 a share cash for each of the 43 shares that you tendered. Those shares are now gone and the money safely in your hands. According to David Thompson of Marion Merrell Dow, you still have 57 shares of the new company, plus 57 “contingent value rights.”
The new Marion Merrell Dow stock currently is selling for around $33 a share, and the rights--which trade on the American Stock Exchange--were recently selling for around $8. The two securities trade separately, so you can sell the stock and keep the “contingent value rights,” or vice versa.
If you decide to keep the CVRs until maturity (which could come in September, 1991, or September, 1992, at Dow Chemical’s discretion), you will get a cash payment of up to $15.77.
Here’s an example of the payment schedule: If the stock price averages $30 or below for the three months prior to a September, 1991, maturity date, you would receive the maximum $15.77 for each right. But Dow has to call the issue at that time for this payment schedule to be put into effect.
If the price averages above $30 for those three months, then the CVRs’ value diminishes. If the stock averages $45.77 a share in those three months, a CVR is worthless.
The same thing happens if maturity is set at September, 1992. Essentially the same formula holds, although the amount of total interest on the CVRs (set at 9.75%) would be greater because of the additional year, says Thompson.
The CVRs, however, are not convertible into stock.
Q: I have a stock certificate purchased in 1966 for Empire Petroleum Co., a Colorado corporation. I was notified that the company had been taken over and that I would receive shares in the new company.
But I never heard another word, and I do not know whether my certificate has any value or should simply be thrown away. I’d appreciate any help you could give me. --Venice, Fla.
A: You certainly have been patient waiting for that new certificate to arrive. According to Robert Fisher of R. M. Smythe & Co., which tracks down missing firms, Empire Oil changed its name to Empire International Inc. on July 15, 1970. That’s probably the “merger” you heard about.
But Fisher says Empire International went bankrupt just three years later. He says the stock is worthless.
