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Dear Mr. Berko: What do you think about Acacia Research? I鈥檇 like to buy 700 shares if you think it has good promise. And what is your opinion on Graco? I鈥檇 like to buy 200 shares if you think it has good promise. Both issues would be for my independent retirement account, so I would be a long-term investor. My IRA is off 56 percent in the last 16 months, and I鈥檇 sure like to recover some of those losses.

E.R.
Gainesville, Fla.

Dear E.R.: I had never heard of Acacia Research-Acacia Technologies. I thought you were asking about the highly touted berry harvested from the Amazon rain forest and pushed by Oprah Winfrey as a weight-loss supplement and antioxidant. But a close associate who buys only interesting, low-priced public issues 鈥� and is as straight as the Archbishop of Canterbury 鈥� tells me that Acacia Research (ACTG-$8.03) might be worth special consideration.

This small, $52 million revenue firm, located in Newport Beach, Calif., owns or controls the rights to more than 100 U.S. patent portfolios acquired from patent owners. Acacia assists the patent owner in developing the product, protects the patent from unauthorized use and assists in the development of patent revenues, from which Acacia generates a healthy revenue flow.

Acacia鈥檚 focus is primarily high-tech areas, such as optical switching, data encryption, medical image manipulation, flash memory, telematics, wireless LAN, etc. In the month of June, Acacia licensed several patent technologies to three users, acquired the rights to four new technologies and enforced its patent protection and received settlements from two firms.

Acacia lost money in 2008, and expects to earn 2 cents this year on higher revenues of $66 million. But management says next year it will earn 20 cents on $82 million in revenues. Acacia looks like it could be an interesting, high-class speculation.

The company has only 32 million shares outstanding, zero debt and book value of $2, which includes $1.60 cash per share. The shares trade just below their 52-week high of $6.90 but well below its all-time high in November 2007, when it peaked at $17.92. Now I have no problem with your intended 700 share purchase below $7 and suggest that this stock could potentially reach the $11 level in the next 12 months. So do it.

I like Graco Inc. (GGG-$21). This Minneapolis firm makes and sells specialized pumps that mix, measure and spray various types of liquids, regulators, meters and valves for moving and applying liquids and semisolid materials for the auto, construction, plastic, chemical and food industries. In 2008, its industrial/automotive division generated 52 percent of its revenues, the construction business was responsible for 26 percent, and lubricants accounted for 11 percent. And Graco is considered one of the finest firms in this competitive pump business.

In 2008, Graco reported $817 million in revenues, earning $1.99 a share; it raised its dividend 10 percent to 74 cents. Since 2001, Graco shareholders enjoyed three three-for-two splits, so a 100-share position in 2001 at an average price of $30 is now 328 shares at $23. That鈥檚 a darn good return worth $7,500.

While I like this classy, 83-year-old company and have heard good words about its management, I wouldn鈥檛 go near Graco with a hazmat suit. This year, revenues are expected to drop 25 percent to $615 million and earnings are expected to come in 40 percent lower at $1.20 a share. Graco has a strong balance sheet, but sagging order levels are likely to persist until late 2010.

I do not expect any positive activity on this issue until we鈥檝e had a definable improvement in employment, home sales, commercial construction and the manufacturing index. The next 18 months looks bleak. And while the recently raised dividend (now 76 cents) is safe and yields 3.3 percent, I think the shares could trade at the $19 to $21 level in the next six to nine months.

Address your financial questions to Malcolm Berko, c/o The Daily Journal of Commerce, P.O. Box 1416, Boca Raton, FL 33429, or e-mail him at [email protected].
漏 Creators Syndicate Inc.