Last week’s answer

Headquartered on Long Island, N.Y., I trace my business roots to Southern Italy in 1850. I’ve entertained at six U.S. presidential inaugurations, the Olympics and countless Independence Day celebrations. I serve customers big and small, from major international cities to people throwing private parties. I make pyrotechnics, pyrotechnic simulators and training devices. I also provide storage for explosive materials and offer ballistic range testing. I invented the “stringless shell,” eliminating the major problem of burning fallout. In 1997, I opened a new plant in Virginia, to make and distribute high and low explosives. I’ve been America’s First Family of Fireworks for decades. Who am I? (Answer: Grucci Fireworks)

Savings bonds look good

The Treasury Department recently announced new rates for I Bonds and Series EE savings bonds. Compared to what you can get these days from other fixed-income investments, money markets and certificates of deposit, U.S. savings bonds are looking very attractive and offer additional benefits.

Here’s a quick rundown:

• I Bonds: The “I” stands for “inflation” because the return on an I Bond is a combination of a fixed rate (established at the time of purchase) and a floating rate that’s adjusted every six months based on the consumer price index for all urban users (CPI-U). For I Bonds purchased from May through October 2003, the annualized rate will be 4.66 percent.
• Series EE Bonds: The interest rate on these bonds is 90 percent of the average yields for the preceding six months on five-year Treasury securities (got that?). The rate is adjusted every six months. EE bonds are purchased at half their face value (e.g., you pay $50 for a $100 bond) but are guaranteed to reach face value in 17 years — for a 4.24 percent annual return. Series EE savings bonds issued on or after May 1, 1997, will earn an annualized 2.66 percent from May through October 2003.
• More fun facts: Savings bonds are issued by the U.S. government, which makes them arguably the safest investments in the world. They’re exempt from state and local taxes, and earnings are tax-deferred and can be tax-free if used for qualified higher-education expenses. Also, they can be purchased commission-free at http://treasurydirect.gov.

Investing in savings bonds doesn’t require large sums of money. They can be bought in denominations of $50, $75, $100, $200, $500, $1,000, $5,000 and $10,000. Though savings bonds are very safe, they’re not very liquid. They can’t be redeemed for 12 months (up from six months as of last January), and there’s a penalty worth three months of interest if they’re redeemed within five years.

There’s a lot more to learn about savings bonds before you invest, so make sure you do your homework. Start by visiting the horse’s mouth: www.savingsbonds.gov. Our Short-Term Savings Center at www.fool.com/savings explains a few more options.

Pfizer’s outlook improves

Having spent $5 billion on research and development in 2002, Pfizer (NYSE: PFE) is king of the drug world today and positioned to remain so tomorrow. And with its $60 billion Pharmacia merger completed in April, the king just got fatter.

Pfizer recently projected lower-than-expected results for 2003. But it expects stronger results in 2004, with earnings growing 23 percent and revenue nearing $55 billion. Pfizer’s stock price looks all the more attractive given this new guidance. Priced around $35, shares of the world’s premier drug company trade at 16.4 times estimated 2004 earnings, a discount to the S&P 500 and to other strong drug peers. Johnson & Johnson (NYSE: JNJ) trades at 18.5 times 2004 estimates, while Novartis AG (NYSE: NVS) fetches 20 times.

Most of Pfizer’s large drugs are years from patent expiration, while additional growth will depend on the introduction of new blockbusters and new uses for existing drugs. Lipitor, for example, Pfizer’s best-selling cholesterol drug, might treat diabetes, while one of its most promising drugs in trials helps people stop smoking.

Pfizer has more than 80 compounds in phase I and phase II human trials. According to FDA statistics, phase I drugs have a 20 percent chance of eventual approval, while phase II drugs have a 29 percent chance. Odds jump to 60 percent when a drug enters phase III. If any pharmaceutical giant is poised for double-digit growth well into the future, it’s Pfizer.

Didn’t bank on it

In the early ’60s, I was employed by a bank in northern Illinois. Out of loyalty, I bought 50 shares of its stock at $10 apiece. I held on to them for a while, then decided to sell them because they weren’t moving — their price remained about the same. Ten years later, the bank merged with another local bank. I laughed, as I’d worked at the other bank too. I thought it was cute, that my two banks married (and in hindsight, kept marrying!). Recently, I traveled to northern Illinois and southern Wisconsin and what did I see — virtually every bank in the area was the one my bank had merged into. Had I not been so impatient, I might have made a bundle. — D.A., via e-mail

The Fool Responds: Patience is one of the most critical qualities of the successful investor. If you’ve studied a company and have enough faith in its future to invest some of your hard-earned money in it, you should give it a chance to blossom. Keep up with its progress and bail out if it develops big problems, of course.