Andrew Leckey's
Q & A
Q. What's your opinion of AT&T Corp. stock, both short and long-term? L.G., Indianapolis, IN
A.
The brutal battlefield of cut-rate
calling plans is always closely monitored by AT&T's 3.5 million registered
shareholders, who are understandably wary of its impact on the bottom line.
This
industry giant is in there slugging it out to try to retain its 60 percent
market share of the $80 billion long-distance market. Its recently-announced
"One Rate 7 Cents" plan permits consumers to make interstate long-distance
calls from home day or night for seven cents a minute with a monthly fee
of $4.95if the company also handles their residential local calls.
AT&T's
stock currently receives a solid "buy" consensus rating from analysts
who track it, according to the I/B/E/S International research firm. That
includes 15 "strong buys," 12 "buys" and six "holds."
Recent recommendation changes have all been upward, which is a positive
sign.
Nonetheless,
the company isn't ringing up any big earnings increases as it aggressively
makes acquisitions. Earnings are expected to decline 2 percent this year
and increase 3.2 percent next year, results which pale in comparison to
a projected 25 percent gain for the overall telecommunications industry
in each of those years. The forecast then calls for a 4.1 percent increase
in AT&T earnings the following year, versus 49 percent industrywide.
"Pricing
pressure in AT&Ts core long-distance business is hurting earnings, but
the company is also seeing great revenue growth in a lot of its other businesses,"
observed Joseph Abbott, equity strategist with I/B/E/S. "Analysts are
therefore sticking with it."
Chairman
C. Michael Armstrong, who has an ambitious cost-cutting program in place,
is intent on transforming this long-distance giant into a high-growth provider
of many different kinds of communications. Examples of this effort are its
purchases of cable operator Tele-Communications Inc. and broadband communications
firm MediaOne Group.
Q. Should we withdraw our money from the Janus Worldwide Fund? We've heard that companies in foreign countries aren't as well-prepared for the Y2K problem as those in the United States. J.K., Niles, IL
A.
Some of your concern should be
blunted by the fact that this world fund includes numerous U.S. stocks in
its portfolio.
In
fact, nearly 40 percent of this rapidly growing $21 billion fund's portfolio
is in the shares of domestic companies. Furthermore, its foreign company
holdings are giant, savvy firms with a reputation for doing their financial
homework.
"Janus
Worldwide Fund is invested in the stock of large, global companies that
are much less likely to be affected by Y2K than are many others," believes
Edward Foster, chief investment strategist with the $179-a-year Fabian Premier
Investment newsletter (2100 Main St., Suite 300, Huntington, Beach, CA 92648,
800-950-8765).
The
biggest of Janus Worldwide Fund's 125 stock holdings are Cisco Systems,
Mannesmann, Microsoft, Nokia, NTT Mobile Communication Network, Telefonica,
Time Warner, Tyco International and Vivendi. Besides the U.S., its largest
country holdings are Japan, the Netherlands, the United Kingdom and France.
It is diversified across many different industries.
Janus
Worldwide Fund gained 25 percent over the past 12 months to rank near the
top one-third of all world stock funds. Its three-year annualized return
of 23 percent puts it in the top 8 percent of its peers. This Denver-based
"no-load" (no sales charge) fund requires a $2,500 minimum investment.
Helen
Young Hayes, fund manager for the past seven years and the Morningstar Mutual
Fund advisory's "International Manager of the Year" in 1997, has
a track record of being adept at picking European stocks and balancing overseas
risks with domestic stocks.
The
biggest surprise among industry experts is the fact that Janus hasn't closed
the gigantic fund to new investors to keep up with its dramatic growth.
Still, it is performing admirably despite its size.
Q. Since Frank Sinatra died, I've been trying to obtain a reliable appraisal of his autograph that I received in 1946 when I met him at the Trocadero night club in California where the Nat King Cole trio was playing. He gladly gave his autograph to me, a 23-year-old lady, on a card from the club. One appraiser has told me it's worth $100, while another offered $50. What do you think? A.L., Buffalo Grove, IL
A.
Because he was such an immensely
popular entertainer who signed few autographs, demand for the late Sinatra's
signature greatly outstrips the available supply. Constantly surrounded
as he was by fierce bodyguards, few fans ever got close enough as you did
to actually hand him pen and paper.
One
major problem for collectors is the fact that most autographs Sinatra sent
out to fans who wrote to his offices were signed by secretaries working
there and are completely worthless. While you were there in person for your
card's signing, any purchaser of a Sinatra autograph should have it carefully
authenticated by someone knowledgeable about what his signature actually
looks like and familiar with the phony secretarial examples as well.
A
genuine, nicely centered Sinatra signature in good condition from the 1930s
or 1940s that was written on a card, piece of paper or autograph album page
is likely worth about $400, estimated Bill Miller, publisher of Autograph
Collector Magazine in Corona, CA (800-966-3977). In the case of your card,
an autograph made on the unprinted back side would be worth around $400,
while one on the front with the Trocadero printing would be $250.
"Most
valuable card of all is Sinatra's personal calling card signed on the front,"
Miller added. "In addition, an authentic autographed 8x10 Sinatra photograph
is valued at $600 to $900 or more."
In
contrast, autographed 8x10 photos of the late comedian George Burns, despite
his prominence in the entertainment industry, are now valued at only about
$50. That's because Burns sent out authentic autographs to everyone who
write to him and readily gave an autograph and a smile in any fan who approached
him. The fact that they're so plentiful keeps down their value, but one
would assume the happiness he brought to those fans outweighs any lack of
current monetary value.
Q. I've been following the firm Input/Output Inc. for a year or so. I think it could be on the rebound from previous years and its stock might be a good investment for the future. What's your take on the company? E.D., Norfolk, VA
A.
Although you might be on to something,
most of Wall Street remains cool to the company's immediate prospects.
This
leading designer and manufacturer of seismic data products for the energy
industry suffered a $105.6 million net loss in its recently completed fiscal
year. It has served up negative earnings surprises in each of its last four
quarters, thereby damaging some of its credibility with Wall Street.
A
solid comeback is dependent upon how soon the oil exploration companies
that use its products get back into sound financial shape themselves.
Consensus
recommendation on the stock of Input/Output from the analysts who track
it is a "hold," according to the I/B/E/S International research
firm. There are currently seven "holds." The only other recommendation
is one "strong buy" from the Louisiana-based Johnson Rice &
Co. brokerage house, which specializes in energy stocks.
Input/Output,
known for its 2D, 3D and 4D imaging technology, is expected to remain in
the red this fiscal year or next. Yet, its projected five-year annualized
growth rate is 15 percent, based upon the likelihood of improved prospects
in its industry.
"In
addition to Input/Output facing problems from oil pricing and the completion
of its restructuring, oil service companies are still struggling,"
explained Joseph Abbott, equity strategist with I/B/E/S. "However,
people are looking for some value in cyclical stocks these days and Input/Output's
long-term potential is actually pretty good because its seismic data will
eventually be needed."
Plenty
has been going on during these difficult times for the energy industry.
Input/Output
reduced its workforce by nearly 600 over the past year and a broader reorganization
of the company's operational structure took effect on Sept. 1. There have
also been significant changes at the top. Chairman and chief executive officer
W.J. "Zeke" Zeringue, on board just two years, resigned last spring.
He was replaced as CEO on an interim basis by former Landmark Graphics chairman
Sam Smith, 67, James Lapeyre, 46, president of Laitram Corp., which owns
11.5 percent of Input/Output shares, became chairman.
Q. My husband and I each make contributions to several mutual funds for our minor grandchildren under the Uniform Gifts to Minors Act, with one of us as custodian of the respective funds. If either or both of us die before these minors reach legal age, are the values of these custodial accounts included in our estates? If this is the case, is there anything we can do to change this, such as making the parents the custodians? H.J., Barrington, IL
A.
That's a question frequently asked
of accountants, and you've hinted at the answer.
If
you die while the child is still a minor, it will indeed be taxed in your
estate because you were still in control of the money. Most accounts have
parental custodians, rather than grandparents, because it is assumed the
parent is likely to be around longer.
I
always suggest that grandparents give the money as a gift to the parents
of the children, with the parents than acting as custodians," recommended
Ed Slott, certified public accountant and editor of Ed Slott's IRA Advisor
newsletter in Rockville, Centre, NY.
However,
there's no need to fret. it is no problem to change the custodian of an
account, so long as it remains the child's money, he concluded.
Q. I have decided to do my own mutual fund research and, after hours in the library, have come up with several possibilities. One fund that looks interesting is Harbor Value Fund, though it doesn't appear to be very popular. What do you suggest? S.F., Indianapolis, IN
A.
You've made a good call. This low-risk fund with impressive results merits
greater attention.
Here's
how it works: David Tierney, with the fund since 1993, manages 30 percent
of assets using an index-style approach that's designed to control risk.
Meanwhile, Gregory DePrince, on board since 1994, manages the remaining
70 percent of assets. He looks for stocks whose dividend yields are higher
than the Standard & Poor's 500 and whose valuations are low.
Together,
they've transformed a weak fund into a solid performer.
Using
their two-pronged system, the $177 million Harbor Value Fund gained about
20 percent over the past 12 months and on a three-year annualized basis.
Those two returns respectively rank in the top 17 percent and top 20 percent
of mid-capitalization value funds.
"This
isn't your typical core holding, but its unusual structure does offer a
safer way for an investor to start venturing down the ladder to mid-cap
stocks," said Emily Hall, analyst with the Morningstar Mutual Funds
investment advisory. "Tierney and DePrince have definitely proven their
worth."
The
fund currently has about 28 percent of its assets in financial stocks, 23
percent in industrials, 15 percent in services and the rest in staples and
retailing. Top holdings among its 171 stock names were recently Bank of
America, Citigroup, Bank One, Burlington Northern Santa Fe, Best Buy, MCI
WorldCom, GTE, Chase Manhattan, Bestfoods and Baxter International.
This
"no-load" (no sales charge) fund requires a $2,000 minimum
initial investment.
Q. I would like your opinion of the mutual fund Pioneer II, which is in my individual retirement account. I've owned it for 10 years, but its most recent results have been quite poor. Should I keep it or switch? J.G., Park Ridge, IL
A. If you choose to stay put, you'd be banking primarily on the potential
of its manager.
This
stumbling fund was turned over to veteran portfolio manager Richard Dahlberg
in September 1998. Though he switched some assets into mid- and large-cap
financial and health-care stocks, he has yet to resuscitate its lackluster
returns.
The
$5.85 billion Pioneer II fund gained 16.75 percent over the past 12 months
to rank in the lowest one-third of all mid-capitalization value funds. Its
three-year annualized return of 10.35 percent put it in the bottom quartile
of its peers.
"It
is unfortunate that some of Dahlberg's redeployed assets haven't worked
out this year, for he is an experienced manager and I think he can turn
things around," said Kelli Stebel, equity fund analyst with the Morningstar
Mutual Funds investment advisory. "Performance thus far has picked
up a little bit, it still isn't looking all that great."
Dahlberg
spent 10 years effectively managing MFS Total Return. He uses a combination
of quantitative screens and qualitative analysis, hoping to find downtrodden
firms that have a catalyst for change. With Pioneer II, he intends to keep
volatility low by making fewer sector bets than his predecessor did.
Rather
than a core holding, Stebel sees Pioneer II more as a fund to complement
a growth fund already in one's personal portfolio. The only reason for worry
is if an investor feels uncomfortable with the financial and health-care
stocks Dahlberg is currently investing in.
The
fund's heaviest emphasis areas are financial, technology and health-care.
Its top holdings among its 106 stock names were recently Koninklije Philips
Electronics, Ambac Financial Group Inc., Dominion Resources Inc., International
Business Machines, Conseco Inc., Merck & Co., Chase Manhattan Corp.,
Intel Corp., Bell Atlantic Corp. and Charter One Financial Inc.
The
fund's Class A shares require a 5.75 percent front-end "load"
(sales charge), while B shares have a back-end load and C shares have a
level load. The minimum initial investment is $50 for A shares and $1,000
for B and C shares.
Q. What is the conventional wisdom regarding disposition of interest distributions from bond funds? Is it better to let it ride or withdraw and/or transfer the distributions to some other investment as the interest is paid? Would the answer vary with the investor's time horizon. I'm retired and a long-term investor. Although the value of the funds decrease if interest rates rise, would I still come out ahead in the long run by letting the interest compound? C.S., Schaumberg, IL
A.
The conventional wisdom on this
decision depends on your situation, since neither move has an inherent advantage.
One
reason for not reinvesting distributions from your bond funds is that the
cash might be nice to have either for diversification purposes or to rebalance
your overall portfolio. You might, for example, select a growth stock fund
with a smaller dividend yield so that it can accumulate faster for your
heirs. Or you could use the money now for gifts for children, grandchildren
or charities.
Another
rationale for not reinvesting dividends is that whenever you do so in mutual
funds, you must adjust your cost basis on the funds, making that cost basis
just a bit trickier to track.
If
you don't find any of those points especially compelling, keep plowing those
distributions back into the funds.
"So
long as you're happy with a fund and review its characteristics from time
to time to make sure it still fits in with your overall strategy, it makes
perfectly good sense to reinvest the distributions," added Christine
Fahlund, senior planner and certified financial planner with T. Rowe Price
Associates in Baltimore.
Much
of this decision has to do with your tax bracket and whether your bond funds
are tax-exempt or taxable. We know neither of those circumstances. A financial
adviser should take a closer look at your specific holdings and your overall
financial situation before you make a final decision either way.
Q. I have several hundred shares of Warner-Lambert Co. My financial adviser says I should sell some of them, but I'm hesitant. What's your opinion? B.I., Bridgeport, CT
A.
Your adviser may be thinking about
a diversification move for your personal portfolio, since this pharmaceutical
giant is in superb financial health.
The
company's second-quarter earnings rose 36 percent, boosted by continued
strong performance of its cholesterol-lowering medicine Lipitor. That popular
drug, whose patent runs into the year 2010, has been capturing 41 percent
of new prescriptions in its market.
This
isn't a company that stands pat. Last May, Warner-Lambert acquired AGOURON
Pharmaceuticals, which focuses its research in the oncology and virologya
reas. Its first product, the HIV/AIDS treatment Viracept, is the leading
product of its kind in the world.
A
surging 30 percent earnings growth rate is forecast for Warner-Lambert this
year, to be followed by 20 percent next year, according to the Boston-based
First Call Corp. research firm. That compares to a pharmaceutical industry
projection of 20 percent for both years.
The
company's five-year growth projection is 20 percent, versus 15 percent for
the industry as a whole.
Based
on all of its good fortune, the consensus Wall Street recommendation on
shares of Warner-Lambert is midway between a "strong buy" and
a "buy," according to First Call. That includes 12 "strong
buys," seven "buys" and three "holds."
The
largest of Warner-Lambert's three business segments is pharmaceuticals,
marketing products under the Parke-Davis brand name. It also makes popular
consumer health-care products such as Benadryl, Efferdent, Listerine and
Neosporin. Its confectionary business includes Halls drops, Certs, Trident,
Dentyne and Bubblicious.
Q. What's the safest place for investments in the upcoming Y2K situation? P.F., Richmond, VA
A.
Even as companies and government
move aggressively to shore up their potential Y2K vulnerability, questions
such as yours underscore the degree of investor anxiety as Jan. 1, 2000
approaches.
Beyond
how the computers and systems function, there's concern about how emotional
investors and companies may affect the situation. For example, economic
growth may be slowed if a stockpiling of money and supplies must be gradually
worked off.
"Emerging
markets and new companies will actually be very safe, since all their technology
is new," observed Kirsten Hudson, analyst with the ValueLine Mutual
Fund Survey. "Countries and firms with very little technology also
won't be affected much, either."
While
problems that occur in this country will most likely be quirky and isolated,
it makes sense to be on alert. It's always important to keep good records
of all of your investments, a point made more vital in light of Y2K. It's
worthwhile to have holdings diversified among several investment firms and
banks just in case one encounters difficulties when you must access your
money. Keep more cash on hand as well if it makes you more comfortable.
"It
is very, very unlikely that you're going to lose your money and whatever
does happen will most likely be a temporary hassle, so don't go overboard,"
warned Hudson, who believes big cities, big banks and big companies are
best prepared. "For example, if people stock up on gold and take it
to the local grocery store, it won't accept it, and if people decide to
liquidate their stocks, it will just serve to drive down stock prices in
general."
The
Securities and Exchange Commission recommends individuals ask investment
firms these questions:
- What is your firm doing to become year 2000 compliant?
- How can I be satisfied that your firm will be ready on time?
- If it is not ready, how will I be affected?
- What is being done to make sure exchanges, clearing agencies and other market participants your company deals with will also be ready?
- Are there provisions to conduct industrywide tests with those organizations?
- What will happen if my sale is delayed or can't be executed in a timely fashion? What would your firm do for me?
- How can I be assured my interest and dividend payments won't be affected?
Q. Several years ago, I invested more than $20,000 in a fund family through my stockbroker. Over the past nine months, I've tried to move my money to another brokerage company. I've written letters, completed forms and even hired an attorney to try to get the broker changed. The fund company recently told me my brokerage company is "like a black hole in which your money goes in and is never seen again." Is my brokerage firm just inept, or is it something else? To whom can I complain about its behavior? P.T., via the Internet
A.
The National Association of Securities
Dealers (NASD), the industry's self-regulatory organization, recommends
that you contact one of its 14 district offices and file a written complaint.
Complaints may also be sent by mail or through the NASD Web site www.nasdr.com.
The
NASD manual is clear on the topic of transfers between member firms. It
states that, following a customer's written notice of a transfer, the carrying
(current) and receiving brokers must "expedite and coordinate"
those activities. Within three business days following receipt of the instructions,
the carrying broker must validate and return the transfer instruction to
the receiving firm. The carrying and receiving brokers must "promptly
resolve any exceptions" taken to the transfer instruction.
"When
the individual contacts one of our NASD district offices, we will follow
up on it and send a letter to the member firm asking what the story is,"
explained Nancy Condon, an NASD spokesperson. "It must respond to that."
Q. I'm interested in options and how they work. Is this a good way to buy stocks and are there other ways to purchase stocks without paying market price? S.B., Disputanta, VA
A.
They're not so simple and they
do have inherent risks.
An
option is the right, but not obligation, to buy or sell a stock or
other security for a specified price on or before a specific date. These
contracts, in which the terms are standardized, can be used to take a position
in order to potentially capitalize on an anticipated upward or downward
movement in a stock.
A
call is the right to buy the stock, while a put is the right to sell it.
The person who purchases an option is the option buyer, while the person
who originally sells it is the seller. While there is speculation in the
options market, they are primarily designed for hedging purposes, such as
protecting stock holdings from a decline in market price.
The
price of an option is called its premium, and the potential loss to the
buyer of an option can be no greater than the initial premium paid for the
contract, regardless of the performance of the underlying stock. It's important
to remember that all options expire on a certain date, called its expiration
date.
"Many
people don't realize that options have a very finite life, so you must not
only be correct about direction, but time as well," explained Marty
Kearney, senior staff instructor for the Options Institute, the educational
arm of the Chicago Board Options Exchange. "Directional traders buying
puts or calls are among our biggest retail customers."
For
example, an investor who feels strongly about a stock but doesn't wish to
tie up capital and assume the risk associated with owning it can instead
buy the option, Kearney pointed out.
If
that person intends to buy the stock sometime down the road, he can leave
money in an interest-bearing account that would have otherwise paid for
the stock. If the stock goes higher, he has the right to buy it at the lower
price. If the stock gets beaten up, he could be out the cost of the option's
premium, but he still has his cash.
Editor's Note: Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, "Successful Investing," 98 Henry St., Dept. 183, Brooklyn, NY 11201, or by e-mail at successinv@aol.com.
