June 30, 2008

Your incredibly shrinking 401k ...
(unless you invested in Twin Disc or CNH)

Three-year comparison (click to enlarge)

The stock market, once again, is not for the faint-of-heart.

Sad to say, the one sure-fire way to make $1,000 in the market -- start with $10,000 -- has come true for Lee Enterprises, the parent company of one key Racine employer, my old hangout, the Journal Times. (Full disclosure: I own none of the following stocks, and my own portfolio is nothing to brag about.)

Lee Enterprises shares fell to $3.81 this morning, a quick drop of almost 13% in the opening minutes. As I write this at about 10:30 a.m. it's "recovered" some of today's decline and has leveled off, back "up" to $3.97.

What a $4 per share price translates to is this:

If you had bought $10,000 worth of Lee stock five years ago, when it was selling at $38.13 per share it would be worth only $1,049 today.

If you had bought $10,000 worth of Lee stock one year ago, when it was selling for $21.16 per share, it would be worth $1,890 today. That's a decline of 81% in one year, 89% in five.

Lee is faring worst of all the local nationally listed companies I checked -- blame its industry more than its management -- but the situation for all of you whose 401k's are heavy in your employer's stock aren't doing much better.

--Marshall & Ilsley (parent of M&I Bank) hit $15.26 this morning -- it's back "up" to $15.50 -- compared to $48.03 a year ago, and $30.96 five years ago. That's a 67% drop in one year, and a 50% drop over five.

--Modine Manufacturing, at $12.92 today is off 32.9% from five years' ago, when it was at $20.16, and down 43% from last year's $22.60.

--Johnson Outdoors -- the only publicly-owned portion of SC Johnson -- is at $15.60 today, down 22.73% from last year's $20.39 on this date, but up 18.6% from its $13.15 per share price five years ago.

--Another local company with mixed results -- terrific over the past five years, not so hot this year -- is Case New Holland. CNH stock is at $33.85 as I write this. Five years ago it was selling for $9.65, a gain of 259%! This year, not so good: it's dropped 33% from its selling price of $51.09 on July 2 last year.

Racine has one real winner over both the five-year and one-year timeliness: Twin Disc. At $21.16 as I write this -- up 90 cents this morning! -- TWIN is still on a tear. Five years ago, the stock was selling for $1.83 per share. The five-year gain: 1,097%. In the past year, the stock has climbed from $17.97, a one-year gain of 17.75%.

Back to Lee. The blogosphere has been unrelenting recently, about the future of newspapers in general. The phrase "newspaper death watch" shows up more and more, as newspapers throughout the U.S. continue to cut staff -- about 1,000 journalists were laid off last week alone, One major publisher said recently he believed 19 of the nation's 50 largest newspapers were losing money, and he predicted that at least one major city newspaper would fold.

Lee is at the center of these death watch speculations, because of its $1.4 billion purchase of Pulitzer Newspapers three years ago. Total Lee capitalization -- share price times the total shares outstanding -- fell to $179 million today, an amazingly low figure, given Lee's ownership of 50 dailies and hundreds of weeklies and shoppers. At current prices, Lee would be a steal -- except for the fact that it still owes $1.3 billion for the Pulitzer purchase...

One area where Lee as an investment absolutely shines is its dividend. Thanks to the decline of the stock price, anyone who buys LEE now at $4 or so will receive a 19% annual dividend (19 cents per share, per quarter). But, although Lee has never missed a quarterly dividend in the almost 30 years I've followed the company, that dividend may be in jeopardy. The website Stockhouse, in an article about Gatehouse Media, a troubled New England newspaper owner (its stock has fallen from $19.60 to $2.79 in the past year), said it is "likely to suspend dividends and begin the sale of its properties." That's Gatehouse, not Lee. But the article concluded: "Newspaper chains McClatchy and Lee Enterprises may be facing the same fate." So if you're looking for dividends, caveat emptor.

The website 24/7 Wall Street recently rated Lee as having a 1 in 15 chance of filing for bankruptcy this year. (American Airlines was given a 1 in 2 chance; United, 1 in 4; Northwest, 1 in 5. General Motors, 1 in 30.) 24/7 wrote of Lee on June 9, when the stock was selling for 30% more than it is today:
LEE shares have dropped from a 52-week high of $24.97 to $5.57. The company wrote off $841 million in assets last quarter. Advertising revenue dropped almost 6% year-over-year, and that is almost certainly accelerating. Lee is sitting on almost $1.3 billion in debt and, before the end of the year, it probably will not have the operating income to cover debt service.
What to do? It's too late for advice, and if we had the secret we surely wouldn't post it here for free. We'll give the last word to Will Rogers, who sagely advised: "Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it."


  1. I have a comical interest in Emerson Electric stock. I worked there a number of years ago and received several shares of stock as a freebee. When I left I needed a car so I told the them I wanted to cash in my stock ($5000.00 and change). They gave me the $5000 BUT kept the change which kept earning interest. I now have 13 shares at about $54.00 a share..all from the change I left there. Profitable little investment from a mistake!

  2. Good for you! I tracked Emerson Electric, but didn't put it in the story.

    Over the past 12 months, EMR is up 5.66%; but over the past five years it has gained 92.26%. Not too shabby. EMR closed at $49.45 today, up $1.28 but down about $10 from earlier in June.