ALSO -
Apple Still Worth A Bite
Q. I'm a 45-year-old investor who has owned shares
of stock in Apple Computer for years. What's the outlook for
the company? -W.K., via the Internet
A. You've taken a wild ride. Since co-founder and
chief executive Steve Jobs is compensated through his holdings
in Apple stock, he's ridden right along with you.
Shares of Apple Computer
(AAPL) are down 33 percent this year. That follows a gain of
47 percent in 2001, a decline of 71 percent in 2000 and a gain
of 151 percent in 1999.
The company offers
an alternative to Windows-Intel personal computers, which remains
important to a number of consumers. That niche spares it from
some direct price competition with other PC makers. However,
consumers tend to be price-conscious in weak economic periods
and Macs are costly compared to many other PCs.
Apple earned $65 million
on revenue of $5.74 billion in its fiscal year ending Sept. 28,
compared to a net loss of $25 million on revenue of $5.4 billion
the prior year. The company has $4 billion in cash and investments
with little debt.
Instability in the
personal computer industry and a weak economy continues to be
a concern. Sales of various Macintosh computers declined 14 percent
in the past quarter from a year earlier. Apple ranks fourth in
PC sales behind Dell, Hewlett-Packard and Gateway.
Management expects
revenue and earnings in its current quarter to increase only
slightly. However, it is pinning a lot of hope on consumers putting
new iPods, iMacs and iBooks under their trees this holiday season.
It discounted its iBook laptops by $200 across the board. In
addition, iPod digital music players are being sold at Target
stores and Dell Computer is selling them online.
Apple has also expanded
its own company retail stores, adding 10 new locations to give
it a total of 50. While these stores accounted for $102 million
in sales in the most recent quarter, they still have to prove
that they can provide long-term profits.
The consensus on the
shares of Apple from the Wall Street analysts who cover them
is currently a "hold," according to the Boston-based
First Call research firm. That consists of one "strong buy,"
two "buys," nine "holds" and one "sell."
Apple's earnings for
next year are expected to increase 27 percent, versus the 30
percent gain forecast for the computer industry, according to
First Call. The projected five-year annualized growth rate for
the company is 10 percent, versus the 12 percent projected industry-wide.
John Hancock Large Cap Equity: Poseidon Adventure of 2002
Q. I've lost nearly $30,000 in the bear market and
I'm close to retirement. I have my portfolio invested in several
funds, including John Hancock Large Cap Equity. I'm considering
moving it all into something else. What's your opinion of the
fund? - S.M., via the Internet
A. This fund has been the Poseidon Adventure of 2002,
flipping upside down and holding its investors under icy waters.
The problems began
when lead manager Tim Quinlisk departed a year ago and returns
immediately turned bad. His successor, former co-manager James
Yu, lasted three months as solo manager.
The $388 million John
Hancock Large Cap Equity "A" (TAGRX) is down 36 percent
over the past 12 months to rank at the very bottom of the growth-and-value
category. Its three-year annualized decline of 13 percent is
in the lower half of its peers.
A new team headed by
Paul Berlinguet, who managed institutional assets at another
firm, was brought in to right the ship. Yu remains a member.
Unfortunately, it has continued to take on water.
"It has been a
bit of a disaster and hasn't been able to improve because this
is a bad time to be selling stocks," said Kerry O'Boyle,
analyst with the Morningstar Inc. research firm. "While
its managers are trying to revamp and make it a less volatile
core holding, they haven't been able to turn its performance
around and, as a result, we've been steering investors clear
of it."
If you have a short-term
time horizon and suffered through the past year's debacle, there's
no good reason to stick with this fund, O'Boyle said.
Financial services
and consumer goods each account for one-fourth of the portfolio.
Health care, industrial materials and energy are other significant
groups. Largest holdings are Gillette, Pfizer, Microsoft, Viacom
Class "B", ExxonMobil, American Express, General Electric,
American International Group, Coca-Cola and Freddie Mac.
John Hancock Large
Cap Equity "A" requires a 5 percent "load"
(sales charge) and $1,000 minimum initial investment.
Amazon.com Still Deserves A Look
Q. With the holiday season now in full swing, where
does Amazon.com Inc. stand? Based on its performance so far this
year, I'm considering buying the stock. What's your opinion? - K.T., via the Internet
A. The
stock of the world's largest online retailer has rebounded in
2002. Shares of Amazon.com (AMZN) are up 116 percent, coming
off declines of 31 percent in 2001 and 80 percent in 2000.
Yet, despite a seemingly
unlimited future, the firm is not yet consistently profitable
and it is carrying more than $2 billion in long-term debt. It
turned in its first-ever quarterly profit in the first quarter
of 2001 but has failed to repeat.
Furthermore, sales
by the online industry still comprise only about 6 percent of
total holiday retail sales. They did take a big jump the day
after Thanksgiving, but it's uncertain whether they'll be hurt
by heavy discounting from conventional retailers.
The lowering of Amazon.com's
minimum purchase for free shipping to $25 from $49, initiated
in August, will be kept in place at least through the holiday
season. That step squeezed profit margins, but increased sales.
A combination of Amazon.com's
price-cutting, shipping specials and strong international sales
helped significantly narrow the loss in its most recent quarter
to $35.1 million. Its British, German, French and Japanese Web
sites saw sales jump 90 percent in the quarter. Net sales for
the year are expected to be 10 percent higher than last year.
The firm's core U.S.
book-music-video division brings in more profits than conventional
bookstores and is again growing at double-digit rates. Its services
division, that includes partnerships with Target, Toys 'r' Us
and Borders, could become an important revenue source.
The consensus rating
on Amazon.com stock is between a "buy" and a "hold,"
according to the Boston-based First Call research firm. That
consists of one "strong buy," five "buys,"
six "holds" and one "sell."
Next year's earnings
are expected to increase 50 percent, versus 16 percent for the
entire retailing industry, according to First Call. The firm's
five-year annualized return is forecast as 22 percent, versus
15 percent for its peers.
Amazon.com has millions
of listings of books, music, DVDs, videos, consumer electronics,
toys, photo items, software, computer, video games, tools, baby-related
and travel items on its site. By using its Amazon Marketplace,
Auctions and zShops services, both businesses and individuals
can sell products to millions of customers. It owns The Internet
Movie Database (imdb.com).
According to the Securities
and Exchange Commission, Amazon.com founder and chief executive
Jeffrey Bezos sold 400,000 of his company shares in early November.
Nicholas Fund Has Handled The Bear Market Effectively
Q. Several years ago, I bought the Nicholas Fund
for my grandson, who is now 13. This fund was set up to pay for
college. It has not performed well and I'm considering moving
the assets into something else. What's your opinion? - B.K., via the Internet
A. A five-year time horizon puts you somewhat at
the mercy of the market's whims.
This fund run by Albert
Nicholas and his son David won't decline as much as many other
funds in a bear market, but will lag behind the pack in a rapidly
rising market.
The $2.2 billion Nicholas
Fund (NICSX) declined 19 percent in value over the past 12 months
and had a three-year annualized decline of 10 percent. Both results
still rank within the top one-third of all large growth and value
funds.
"As one of the
more conservatively-positioned funds with a growth and value
blend, the Nicholas Fund was left behind in the late 1990s but
has performed pretty well during the bear market," observed
Laura Pavlenko Lutton, analyst with the Morningstar Inc. research
firm in Chicago. "One reason is that it owns far fewer technology
stocks than the typical fund in this group."
Although it made one ill-timed
stab at tech stocks just as the tech boom was ending, it has
handled the bear market effectively. Nearly one-third of the
Nicholas Fund is currently in financial services stocks and another
one-fourth of its portfolio is in health care. Other significant
groups are consumer services and media. Thirteen percent of its
portfolio is in cash.
Largest stock holdings
were recently Berkshire Hathaway Class "A", Mercury
General, Protective Life, Fifth Third Bancorp, Alberto-Culver
Class "A", Marshall & Ilsley, Health Management
Associates, Clear Channel Communications, Guidant and Apogent
Technologies.
"If lower priced
stocks continue to hold up better than pricey stocks on a relative
basis, this fund should do nicely," said Lutton. "But
there's more downside protection here than upside potential."
This "no-load"
(no sales charge) fund created in 1969 requires a $500 minimum
initial investment. Its annual expense ratio of 0.73 percent
is average for its group.
Wash Sale Rules
Q. I've heard the term "wash sale" used
in regard to selling securities. What does this mean and what
do I need to know about it? - K.B.,
via the Internet
A. If
you want to get out of poor-performing stocks or mutual funds,
it's important to be able to take a capital loss for the sale
when filing your income tax return. The wash sale rule could
trip you up.
A wash sale is when
you sell a security at a loss, and-within 30 calendar days before
or after that sale-you buy a substantially identical security.
Substantially identical includes any stock issues of the same
company.
Wash sales taking place
within 30 days of the underlying purchase do not qualify as tax
losses under IRS rules.
"If you buy the
stock back sooner than 30 days, you're in the same position as
if you'd never sold it," said John Dyer, CPA and partner
in Peter Shannon & Co., Hinsdale, IL. "You can't take
the loss."
To avoid wash sales,
wait 31 days after the sale date before purchasing additional
stock. If you don't want to wait, be sure any securities bought
after selling the security are not substantially identical. For
example, you could buy a stock in a different company in the
same industry or a mutual fund with similar goals from a different
investment company.
Should I Move Out Funds Investing In Ginnie Maes?
Q. I have a significant amount of money in Ginnie
Mae mutual funds. I'm wondering if I should move some out of
them before the Federal Reserve starts raising interest rates.
What's your opinion? - K.K., via
the Internet
A. Times have been good for funds investing in Ginnie
Maes, which are portfolios of mortgages bundled together by the
Government National Mortgage Association.
The average Ginnie
Mae fund is up 7.16 percent this year, versus the 4.65 percent
gain of taxable fixed-income funds, according to Lipper Analytical
Services. Compare that to the 18 percent decline of the average
U.S. diversified stock fund.
Ginnie Maes are considered
riskier than Treasuries but not as risky as corporate bonds.
"In the refinancing
boom, the 8 percent mortgages your fund used to hold have been
replaced by 5.5 and 6 percent mortgages," explained Andrew
Clark, senior research analyst with Lipper in Denver. "But
while the yields will continue to decline in the intermediate
term, I wouldn't be getting out right now."
To diversify, however,
invest in a corporate bond fund as well to take advantage of
rising rates and obtain more "oomph" than you'll receive
from a Ginnie Mae, he concluded.
Editor's Note:
Andrew Leckey answers 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.
