ALSO - Benefits Bonanza Is Over
Successful Investing Q&A
Weak Economy Hammering office Products Stocks
Q. How are Staples Inc. and Office Depot Inc. faring
in the office products arena? What's the outlook for these stocks?
L.K., via the Internet
A. The
slight edge may go to Staples, but stocks of both these office
products firms have been hurting in 2002.
The question is whether
you believe their valuations have been sufficiently beaten down
to make them worthwhile long-term growth investments. There will
always be a need for office products, but exactly how they'll
be sold and by whom is difficult to predict.
It has been a challenging
time for all office supply superstores as they face a weak economy,
cutthroat competition and a saturated marketplace. Recent back-to-school
sales have been disappointing. They've had to close stores and
there are nagging questions about how much growth is left in
this once red-hot industry.
There are a few bright
spots, however.
Staples reported a
48 percent earnings increase in its most recent quarter due to
improved inventory-buying practices. More house-brand products
and better terms from its vendors are part of its latest strategy.
It is also buying the European mail-order business of French
retailer Pinault Printemps Redoute for $800 million to increase
its presence in Europe.
Meanwhile, Office Depot,
which has been reporting declining sales, managed to double its
e-commerce business, though some of this came from existing sales.
More profitable basic office supplies, rather than lower-margin
technology products, are being emphasized by the company. It
is selling its 10-year-old operations in Australia after failing
to make a significant dent in that market.
Shares of No. 2 Staples
(SPLS) and industry leader Office Depot (ODP) are each down about
30 percent in value this year. That follows last year's robust
58 percent gain by Staples and 160 percent increase by Office
Depot.
Both stocks receive
a consensus "buy" rating from the Wall Street analysts
who cover them, though there are more negative opinions about
Office Depot, according to the Boston-based First Call research
firm. Staples receives seven "buys" and three "holds,"
while Office Depot merits four "strong buys," four
"buys" and five "holds."
Earnings at Staples
are expected to increase 21 percent this year and 15 percent
next year, compared to gains for Office Depot of 22 percent and
13 percent, respectively. Those results lag behind the industry-wide
projections.
Staples' projected
five-year annualized growth rate of 20 percent compares to 14
percent for Office Depot and 18 percent for their peers.
Dodge & Cox: A Lot To Like Despite The Recent Numbers
Q. I'm 70-1/2 years old and have $52,000 in my individual
retirement account, which is partially invested in Dodge &
Cox Stock Fund. What's your opinion of this fund? B.P., via the Internet
A. It's a favorite
recommendation of many investment newsletters. There's a lot
to like, even though its numbers haven't been in positive territory
lately.
This is a well-run
fund with a low annual expense ratio of 0.54 percent and a diversified
portfolio of more than 80 stocks. Its management team patiently
seeks fundamentally strong companies trading at reasonable prices
and is wary of technology stocks, with only about 8 percent of
its portfolio in them.
The $12 billion Dodge
& Cox Stock Fund (DODGX) is down 9 percent over the past
12 months, but ranks in the top 4 percent of all large-capitalization
value funds. Its three-year annualized return of 5 percent places
it in the top 1 percent of its category and its five-year annualized
return of 8 percent ranks in the top 2 percent of its peers.
"Dodge & Cox
Stock Fund's portfolio turnover is fairly low, making it tax-efficient
for investors," explained Paul Merriman, publisher of FundAdvice.com,
1200 Westlake Ave. N., Ste. 700, Seattle, WA 98109. "While
it's understandable that investors would really load up on a
fund with such good performance, we still wouldn't put more than
10 to 15 percent in large-cap U.S. value funds."
If the fund does really
well, Merriman will begin shifting some money out of it and reallocating
it to asset classes that have been struggling.
The largest holdings
of the Dodge & Cox Stock Fund are financials and industrials,
each making up 20 percent of its assets. Other significant groups
are services and energy. The top stock holdings were recently
AT&T, Dow Chemical, Golden West Financial, Bank One, Union
Pacific, Schering-Plough, FedEx, Phillips Petroleum and Occidental
Petroleum. This "no-load"
(no sales charge) fund requires a $2,500 minimum initial investment.
Safety Of Principal At This Late Date
Q. My 16-year-old son is a junior in high school.
We'd been saving for college, but the money was used to pay for
private high school tuition. I'd like to have some extra money
saved for college tuition in two years. Any advise on the best
way to do this? G.L., via the Internet
A. You've
cut it close, especially with the stock and bond markets no longer
providing quick returns. You'll need that money very soon and
must emphasize safety.
Two years to go for
investing for college places you in money-market mutual funds
and short-term certificates of deposit with durations of three,
six or 12 months. Returns aren't much, but there is safety of
principal. Invest as much as you can regularly as you can.
"There's no magic
wand to wave for a higher rate of return without considerably
more risk than you should be taking with a two-year time horizon,"
asserted Dee Lee, certified financial planner with Harvard Financial
Educators in Harvard, MA. "I'd be concerned about the stock
market, since you don't want that college money to go down 10
or 20 percent."
Financial aid and loans
will be important. Consider the government-sponsored PLUS loan
program in which parents can borrow up to the full cost of their
child's tuition at attractive rates. If you have a whole-life
insurance policy, you might also consider borrowing from that.
Editor's Note: Andrew
Leckey answer questions for Bull & Bear readers only through
the column. Address inquiries to Andrew Leckey, P.M.B. 184, 369-B
Third St., San Rafael, CA 94901-3581 or by e-mail at andrewinv@aol.com.
