Something to think about.
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November 24, 2001 03:18
The Sacramento Bee, Calif., Jack Sirard Column
By Jack Sirard, The Sacramento Bee, Calif.
Nov. 24--QUESTION: I purchased 100 shares of Enron Corp. on Sept. 29 last year at $85.25 a share. I understand there has been a class-action lawsuit filed on behalf of shareholders. Will I be included? If the suit is successful, what could I expect to gain? Most analysts are saying hold or strong buy. What is your opinion?
--Donald B., Sacramento, Calif.
ANSWER: Talk about a good story gone bad, it's embattled Enron Corp.
Earlier this month, Enron reported that its financial statements from 1997 through the first half of 2001 "should not be relied upon." The energy trader said its profits during that time period were about $585 million less than previously stated, and its debt was nearly $630 million higher.
The company's shares have plummeted from the mid-$80 range to $7. And on Wednesday, shares dropped to about $5 a share/closing price was $5.01/ after analysts lowered ratings on the company. Enron is so beaten up, it's being bought out by former rival Dynegy Inc. for $7.8 billion in stock.
Enter the lawyers.
Several law firms from San Diego to Philadelphia have sued Enron and its principal officers on behalf of shareholders nationwide. In a nutshell, the suits are seeking class-action status, accusing Enron of misleading investors and artificially inflating its stock price.
For instance, Milberg Weiss in San Diego has filed suit for people who invested between Oct. 19, 1998, and Nov. 7, 2001. The suit says investors can join the suit at www.milberg.com/enroncorp.
In addition, the Little Rock firm of Cauley Geller Bowman & Coates (1-888-551-9944)cq, which also has offices in California, filed a suit for people who purchased Enron stock between Jan. 18, 1999, and Nov. 8 this year.
Meanwhile, a number of big pension firms and mutual fund companies are reportedly considering their options and may in fact join in the lawsuits.
Sacramento money manager Joe Milam says Enron investors should be receiving in the mail "something that looks like a prospectus telling investors that they have to file to participate in the suits."
But, he warns, there's typically not much to gain from such lawsuits.
"It's a huge mental effort, and you're usually better off selling your shares, taking your loss and moving on," he says. "At least you'll benefit from the tax loss."
Usually, he says, the only ones for whom it pays to participate in such suits are the large institutions that own millions of shares in the company being sued and often have a fiduciary responsibility to pursue a claim.
Of the 10 companies that his firm has had investments in that were the subject of class-action suits, Milam said he participated in only two of the suits.
The other times, he sold the stock and looked to the next investment. That's because, in most cases, investors get back only pennies on the dollar in such cases, he says.
Milam's take on Enron today is the same as mine.
When a company puts out erroneous financial statements, you have nothing to go on. "When you have garbage numbers, you can't make an analysis," he adds.
Q: I'd like to start investing in Microsoft for my grandchildren. Does the company have a dividend reinvestment program, and can you buy shares directly from the company?
A: Despite all the talk and rumors about what's going to happen to Microsoft in regard to its court case, I think it's a great long-term investment. It reportedly is sitting on a whopping $32 billion in cash. And since you're looking at buying the shares for your grandchildren, they certainly have time on their side.
The company (ticker symbol MSFT) does not have a dividend reinvestment plan because it does not pay a dividend.
The company says it chooses to reinvest its profits into its operations rather than to issue dividends on its common stock. It is an issue that its board of directors takes up from time to time, but so far the directors have not chosen to pay a dividend.
In addition, Microsoft does not offer a direct stock purchase program, but notes on its Web site that some businesses offer investors opportunities to invest directly in the company. The one it names is buyandhold.com, which allows investors to buy as little as $20 worth of stock at a time. Microsoft is traded on the Nasdaq Stock Market.
Q: My friends and I were talking about the stock market the other day, and when tech stocks and the Nasdaq came up, all of us had heard the term but none of us knew what it was. What's the answer?
--Dorothy H., Sacramento, Calif.
A: The Nasdaq is an acronym for the National Association of Securities Dealers Automated Quotations system, which is run by the National Association of Securities Dealers (NASD).
Nasdaq is a computerized system that provides brokers and dealers with price quotes for stocks traded over the counter.
Trading on the Nasdaq began in February 1971. In 1994, it surpassed the New York Stock Exchange in annual share volume. Last year, the Nasdaq formally opened the new MarketSite cqin New York's Times Square and had a massive advertising blitz. Between 1997 and 2000, it brought 1,649 companies public.
The Bee's Jack Sirard can be reached at (916)321-1041 or jsirard@sacbee.com
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