Q. I've held shares of Pfizer Inc. for a decade but have had concerns about them the past couple of years. What's your opinion of the stock? - J.L., via the Internet
A. The world's biggest pharmaceutical firm has 14 of the world's 25 best-selling medicines. In addition, its cholesterol-lowering Lipitor is the world's top-selling prescription drug, contributing 20 percent of the firm's sales and still going strong.
The company also boasts the largest drug sales force in the United States, with 12,000 representatives.
It is spending $1.9 billion to acquire Vicuron Pharmaceuticals, a developmental pharmaceutical company. Some of that anti-infective developmental company's late-stage drug candidates could contribute to next year's earnings.
Pfizer management is confidently predicting double-digit earnings growth in 2006. An aggressive cost-reduction plan that includes job cuts and a reorganization of research and development is projected to save $400 million this year and $4 billion annually by 2008.
Yet because there are accompanying concerns about the company and its industry, shares of Pfizer (PFE) are down 5 percent this year following last year's 24 percent decline. It has a dividend yield of 3 percent.
Revenues from its pain reliever Celebrex plummeted in the first half of the year due to concern over cardiovascular risks. Celebrex is in the same drug class as Merck & Co.'s Vioxx and Pfizer's own Bextra, both of which have been withdrawn.
The recent $253 million judgment in Texas against Merck over Vioxx has had a chilling effect on all pharmaceutical stocks. Pfizer is revamping its consumer advertising to pitch specific products less and emphasize health, prevention and proper use. It has pledged not to promote new products for at least six months after they come on the market.
Its antidepressant drug Zoloft and erectile-dysfunction drug Viagra have had only slight revenue increases lately. Meanwhile, a U.S. judge and a British judge will be handing down separate rulings on challenges to Lipitor's patent by Indian generic drug company Ranbaxy Laboratories. One patent on that drug expires in 2010 and another in 2011.
Because of the Pfizer's dominant size and current stock price, the analyst consensus opinion on its shares is "buy," according to Thomson Financial. That consists of seven "strong buys," seven "buys" and 11 "holds."
Earnings are expected to decline 7 percent this year, the same as forecast for the major drug manufacturers industry, according to Thomson's tally of analyst expectations. Next year's projected 9 percent increase for Pfizer compares to the 13 percent forecast industrywide. The expected five-year annualized gain is 7 percent versus 9 percent forecast for its peers.
Pfizer also manufactures consumer products such as Visine eye drops and Nicorette to curb smoking. Sixty percent of revenues come from outside the U.S.
Q. I'm considering shares of Toyota Motor Corp. because it seems the company is doing all the right things. What is your opinion? - K.C., via the Internet
A. It is the shining star of the automobile industry, though that industry is rather gloomy these days.
Despite a healthy balance sheet, this global Japanese carmaker has been criticized for going full speed down the road of dramatic growth as it attempts to overtake General Motors Corp. as the world's largest carmaker.
Rather than put additional money into plants and equipment to continue this sales momentum, critics contend it should instead be working harder to improve earnings and shareholder return.
Revenues in its first fiscal quarter rose 10.5 percent to a record level, and it raised its total vehicle projection for the full year. Yet net profit declined 6.9 percent in the quarter.
Shares of Toyota (TM), traded here as American depositary receipts, are up 4 percent this year, following gains of 21 percent last year and 31 percent in 2003.
The company avoided the costly price wars waged by U.S. carmakers and increased prices on a number of vehicles, in most cases by 2 percent. It is believed that research and development costs were heavily weighted into the first portion of this fiscal year and have peaked.
Although its strategy of local manufacturing plants reduces the risk from foreign exchange rates, a strong yen has nonetheless been a drag on earnings. Japan and North America each provide one-third of Toyota sales.
Because Toyota is the world's best-positioned carmaker and its stock price has been relatively flat this year, the consensus analyst recommendation is a "buy," according to Thomson Financial. That consists of one "strong buy," one "buy" and one "hold."
Amid current high gasoline prices, Toyota is a leader in gas/electric hybrid vehicles, and its Prius is the best-known hybrid. It plans to sell 600,000 hybrids annually in the U.S. by early in the next decade. Nonetheless, which manufacturer's high-mileage technology ultimately proves most effective and profitable remains to be seen.
Earnings are expected to increase 2 percent for the current fiscal year ending next March and 7 percent the following fiscal year. Projected five-year annualized growth rate is 5 percent.
The company ranked No. 1 in owner satisfaction with a score of 87 out of 100 in the latest University of Michigan American Customer Satisfaction Index. But it is recalling 978,000 sport-utility vehicles and pickups built between 1989 and 1998 due to power-steering concerns.
Its Scion brand for younger buyers has caught on well, the next-generation RAV4 sport-utility vehicle debuts in the U.S. in January, and it is introducing the Lexus brand to the Japanese market.
Q. I'm looking for a steady, good-performing mutual fund for my retirement account and T. Rowe Price Growth Stock Fund has been mentioned to me. Is it a good candidate? - V.P., via the Internet
A. It's a fine "all-weather" fund that lost less money in the bear market than other large growth funds and rebounded more quickly. It also has a low annual expense ratio of 0.74 percent.
The most obvious difference from competitors is that it usually has 10 to 15 percent of its portfolio in blue-chip foreign stocks, so be sure to check if it overlaps any of your other holdings.
The $11 billion T. Rowe Price Growth Stock (PRGFX) is up 13 percent over the past 12 months to rank in the upper half of large growth funds. Its three-year annualized return of 14 percent puts it in the top one-fourth of its peers.
"Portfolio manager Bob Smith has been in charge since 1997 and is a very smart, capable investor who won't throw caution to the wind," said Christopher Davis, analyst with Morningstar Inc. in Chicago. "The fund has a strong long-term record and sensible strategy."
Although unlikely to "run with the bulls" in the raciest market environments, Davis added, it is a solid core holding for an individual's portfolio. Returns have been closely correlated with the Standard & Poor's 500, another reason to watch for overlap with other funds you own.
Smith prefers financially sound companies with solid management and strong cash flow for his diversified fund. About 18 percent of the portfolio is in financial services, with consumer services, health care and hardware other major concentrations.
Largest stock holdings were recently Citigroup, Microsoft, General Electric, UnitedHealth Group, Wal-Mart Stores, American International Group, Dell, Wellpoint, Danaher and Intel. This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment.
For more aggressive investors, Davis prefers T. Rowe Price New America Growth Fund (PRWAX) over this fund because of its smaller-cap emphasis and more manageable asset size of roughly $900 million.
Q. I've heard about Marsico Growth Fund and am thinking about investing in it. Is this a good fund? - R.L., via the Internet
A. Its reputation is a reflection of its fine portfolio manager, Tom Marsico.
Marsico successfully combines his own outlook on the economy, inflation and interest rates with fundamental analysis of companies to come up with a portfolio of about 50 stock names.
The $2 billion Marsico Growth Fund (MGRIX) gained 18 percent over the past 12 months to rank in the upper one-third of large growth funds. Its three-year annualized return of 14 percent puts it in the top one-fourth of its peers.
"While this is a growth fund that is very large-cap in nature, Marsico doesn't always stick to the usual growth sectors," said Karen Papalois, analyst with Morningstar Inc. in Chicago. "He doesn't have much in energy or technology - though he has a big Google position - and currently favors health care and consumer services."
To buy stock of companies with a competitive advantage, Marsico is willing to pay a reasonable premium. This requires patience on the part of the investor, Papalois cautioned, because it sometimes takes a while for his ideas to work out. The fund's short-term results aren't always representative of its solid long-term results.
Health care and consumer services each represent about one-fourth of the Marsico Fund's portfolio. Other concentrations are financial services and industrial materials. Recent top stock holdings were UnitedHealth Group, Genentech, General Electric, FedEx, Lowe's, Procter & Gamble, Countrywide Financial, Google, Yum Brands and Zimmer Holdings.
Marsico, who started his investment management operation in 1997 after working at Fred Alger Management and Janus Capital, is a large shareholder in each of his shop's funds. More than 70 percent of the fund's board is independent and all have money invested in the firm. There is a staff of a dozen analysts and four traders.
This "no load" (no sales charge) fund requires a $2,500 minimum initial purchase. Its 1.30 percent annual expense ratio should be a bit lower, Papalois said.
Q. What exactly are life-cycle funds? Should I invest in one as I get closer to retiring? I'm not the greatest investor. - B.J., via the Internet
A. Also known as age-based funds or target-date funds, life-cycle funds were introduced in the mid-1990s and have amassed more than $100 billion in assets because they are a basic "no-maintenance" investment.
They are selected in five- or 10-year increments with a target date. They gradually adjust their asset allocation of stocks, bonds and cash according to your age and risk tolerance as your retirement nears. Broad diversification and capital preservation are their strengths.
"Life-cycle funds are appropriate for savers who don't want to think about investing at all, rather than investors who'd make trades," said Jim Lowell, editor of the independent Fidelity Investor newsletter (www.fidelityinvestor.com) in Potomac, MD. "For a large portion of the population, they're a better vehicle than a bank account."
In most cases, these funds invest in a number of other mutual funds as a "fund of funds." A fund family such as Fidelity, Vanguard or T. Rowe Price includes a variety of its own funds in different categories. Some life-cycle funds do, however, buy stocks and bonds themselves.
Q. I am going to leave my current job soon and don't want to leave my money in the company's 401(k) retirement plan. I already have a Roth individual retirement account. Can I move my money into it? - T.W., via the Internet
A. No, you can't move that money directly into a Roth IRA. Money from a 401(k) must first be rolled over into a traditional IRA.
"Then, when you want to convert that traditional IRA to a Roth IRA, contact the custodian investment firm to have the funds from the traditional IRA moved into the Roth," explained Beverly DeVeny, technical consultant with Ed Slott's IRA Advisor newsletter (www.irahelp.com), based in Rockville Centre, N.Y. "At the point you convert, you must pay taxes on that money according to your income tax bracket."
With a Roth IRA, growth is tax-free and there are no required distributions at age 70 1/2. Keep in mind that conversion from a traditional IRA to a Roth IRA is not allowed when modified adjusted annual gross income exceeds $100,000 (married couples filing jointly and single filers) during the year in which the conversion takes place.
Editor's Note: Andrew Leckey answers questions for Bull & Bear Readers only through the column or e-mail. Address inquiries to Andrew Leckey, #184, 369-B Third St., San Rafael, Calif. 94901-3581, or by e-mail at andrewinv@aol.com.
