Dear Mr. Berko: My stockbroker is recommending that I buy 1,000 shares of Patterson Companies Inc. The stock yields 4.6 percent and has increased the dividend every year since it began paying dividends. He believes that this would be a good long-term investment because management is turning the company around. Please tell me what you think.
— F.J., Waterloo, Iowa
Dear F.J.: In January 2006, I bought 300 shares of Patterson (PDCO-$23) at $34, and in September 2008, as the stock market was imploding, I sold it at $24, taking a 10-point loss. I had a dumb broker!
But I think you’ve got a smart broker who may have ferreted out an undervalued stock. A couple of years ago, in a rising stock market, PDCO was trading upward of $50 a share. Then the fit hit the shan! Members of management got caught with their pants around their ankles. Operating margins crashed from 10 percent to 5.9 percent, and net profit margins imploded from 5.8 percent to 3.2 percent. Return on total capital sank by 25 percent last year. Not good, that!
PDCO began selling dental supplies in 1877. Today this St. Paul, Minn., company has 7,500 employees engaged in two businesses: dental supplies, which provided 43 percent of 2017’s revenues, and animal health, accounting for 57 percent of last year’s revenues. PDCO’s dental division sells consumable products, instruments, sterilization systems and basic, heavy and high-tech equipment. PDCO is also in the dentist’s front office, selling practice management software, equipment maintenance and repair, equipment financing, office forms, and e-commerce solutions. PDCO’s animal health division markets pharmaceuticals, consumable supplies, vaccines, diagnostics, pesticides and prescription and nonprescription diet programs for farm animals and pets.
