Q. What does the future look like for my shares of Nike Inc.? - J.T., via the Internet
A. This global company that commands about 37 percent of the athletic footwear market is fast on its feet.
The day 15-year-old golf prodigy Michelle Wie turned professional, she received a four-year contract from Nike that will pay her up to $5 million annually. Her youth and intent to compete in some men's events should help Nike Golf invigorate a lackluster golf market.
Fancy footwork is required to stay ahead of fierce competition. German sportswear-maker Adidas-Salomon AG has received U.S. regulatory approval for its $3.8 billion takeover of Reebok International Ltd. scheduled to be completed in the first half of next year.
That combination will have an estimated 30 percent of the world's athletic shoe market. In addition, Reebok's acquisition of The Hockey Company last year gave it the lead over the Nike Bauer Hockey subsidiary in sales of hockey apparel and equipment.
Nonetheless, the famous Nike brand and "swoosh" logo gives it great reach and allows it to charge premium prices. It is, for example, the top-selling brand in China. With a $200 million U.S. media advertising budget last year, Nike shows no signs of relinquishing sales leadership.
Amid continued market anxiety about the outlook for consumer spending, Nike Class B (NKE) shares are down 10 percent this year, following gains of 32 percent last year and 54 percent in 2003.
Chairman Phil Knight, who started the firm by selling track shoes out of his car trunk in 1964, owns a quarter of its Class B common stock. William Perez of S.C. Johnson was named president and CEO late last year.
Net income rose 32 percent and revenues rose 8 percent in its recent fiscal first quarter on strong U.S. sales of styles such as Air Jordan. Expiration of quotas on imported apparel this year has given manufacturers greater flexibility in where clothing can be made. But about half of Nike sales are overseas in 160 countries, making it susceptible to currency fluctuations.
The consensus Wall Street recommendation on Nike is a "buy," according to Thomson Financial. That consists of six "strong buys," seven "buys" and four "holds."
Nike has moved into low-priced sneakers with its Starter-brand footwear in Wal-Mart Stores, building on gains from its Hurley International and Converse acquisitions. Soccer offers growth potential, assisted by the firm's involvement with World Cup competition and professional clubs.
Earnings are expected to rise 17 percent this fiscal year versus 10 percent expected for the apparel, footwear and accessories industry. Next year's projected increase of 10 percent is in line with its peers. The five-year annualized growth rate forecast is 14 percent, versus 11 percent industrywide.
Q. Procter & Gamble Co. has been a big part of my retirement account for quite some time. Should I continue on with it? - J.D., via the Internet
A. One way of looking at it is that Procter & Gamble is now the proud owner of Gillette Co.'s new five-blade razor, the Fusion.
But there's obviously more to it than that:
P&G's recently completed $57 billion acquisition of Gillette marries a giant in detergent, beauty aids and toothpaste with a leader in razors and batteries. The resulting global consumer products company wields awesome marketing and distribution power.
To accommodate antitrust regulators, P&G is divesting its SpinBrush electric toothbrush brand in a $75 million sale to Church & Dwight Co., maker of Pepsodent.
Despite the size of this merged P&G and Gillette, however, the company still must cope with escalating prices for the raw materials required in its businesses. Its tactic thus far has been to cut costs and raise prices.
In addition, the company projects the deal to reduce earnings by 20 to 26 cents a share in its fiscal year ending in June, and by 12 to 18 cents in fiscal 2007. It is expected to have a neutral effect on fiscal 2008 profits and begin adding profits in the second half of that year.
The impetus behind the deal is a projected cost savings of $1 billion to $1.2 billion and increase in annual sales of $750 million by 2008.
Shares of Procter & Gamble (PG) are up 2.5 percent this year following gains of 10 percent last year and 16 percent in 2003.
There is some skepticism on Wall Street about how well the combination will actually function. The market share of Clairol, for example, has declined since its purchase by P&G for $4.95 billion in 2001.
Both P&G and Gillette have been benefiting from increased sales in developing nations, a trend expected to accelerate. P&G earnings have risen on sales in beauty aids, fabric, health and home-care products, while Gillette has seen gains across its razors, batteries and oral-care segments.
The stock of P&G currently receives a consensus "buy" recommendation from the analysts who track it, according to Thomson Financial. That consists of five "strong buys," five "buys" and seven "holds."
Earnings are expected to increase 11 percent this year, versus a 21 percent forecast for the cleaning products industry, according to Thomson Financial. Next year's projected 10 percent increase compares to 13 percent expected industrywide.
P&G's five-year annualized earnings forecast of 11 percent is slightly less than the 12 percent expected for its peers.
Q. In June 1999, we opened Education Individual Retirement Accounts for our children in Janus Twenty Fund. What are its prospects? - S.A., via the Internet
A. It should not be the primary holding for your children's education money because there's too much potential for volatility.
Even though this fund owns 37 stock names, rather than 20 as its name implies, the concentrated portfolio can be hit hard whenever several positions misfire. It performs badly in bear markets.
The $10 billion Janus Twenty Fund (JAVLX) rose 15 percent over the past 12 months to rank in the top 10 percent of large growth funds, while its three-year annualized return of 17 percent puts it in the upper 12 percent of its peers.
Currently closed to new investors, Janus Twenty does offer positives such as a low 0.89 annual expense ratio and an experienced portfolio manager.
"Janus Twenty is for an aggressive growth investor and should be a very small portion of your overall portfolio, not a core holding," said Gareth Lyons, analyst with Morningstar Inc. in Chicago. "Portfolio manager Scott Schoelzel is a talented stock picker who does exceptionally well in up markets, but he takes sector bets, and the risks are now potentially as high as anytime in the past four years."
In charge since 1997, Schoelzel late last year began betting on energy and has more than one-fourth of assets in that sector. With at least $100,000 of his own money in the fund, he selects fast-growing firms that dominate industries and is willing to hold a substantial cash position.
Besides energy holdings, health care accounts for more than one-fourth of Janus Twenty's assets, with financial services and business services its other major concentrations. Top holdings were recently UnitedHealth Group, Genentech, ConocoPhillips, Electronic Arts, Nike, eBay, Bank of America, Wells Fargo, Roche Holding and Apache.
Schoelzel also runs the less concentrated Janus Adviser Forty (JARTX) and Janus Aspen Forty Institutional (JACAX) funds.
Q. I've had and held Fidelity Dividend Growth Fund for years and, despite all the wonderful things I read about it, I'm unhappy with its performance. Should I keep it? - R.E., via the Internet
A. This highly concentrated fund keeps nearly half of its portfolio in its top 10 stocks, which magnifies its successes and failures.
That's why negative news about Cardinal Health, Fannie Mae and Pfizer hammered overall returns. It's also why it often experiences great outflows and inflows of investor money.
The $17 billion Fidelity Dividend Growth Fund (FDGFX) was up 5 percent during the past 12 months and had a three-year annualized return of 13 percent. Both results rank in the bottom quartile of large growth and value funds.
"Portfolio manager Charles Mangum can be very smart and do well, but if a few things go wrong, it really kills results," said Jack Bowers, editor of the independent Fidelity Monitor newsletter in Rocklin, Calif. "He's supposed to be looking for stocks with the potential to raise dividends, which could mean anything, and he has pretty much just stayed in large-cap stocks with no strong sector bias."
Bowers currently rates Fidelity Dividend Growth Fund a "hold" rating and is considering a downgrade to "sell." Mangum, in charge since 1997, mixes decent growth prospects with reasonable valuations in his choices. He prefers companies with relatively stable profit growth and sticks with his favorites.
Financial services and health care each represent about 20 percent of Fidelity Dividend Growth's portfolio, with consumer services and technology hardware other significant concentrations.
Top stock holdings recently were Cardinal Health, Microsoft, Home Depot, Pfizer, American International Group, SBC Communications, Wyeth, Clear Channel Communications, General Electric and CVS. This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment. Its annual expense ratio is 0.66 percent.
Bowers believes Fidelity Contrafund (FCNTX) is a much better choice and more defensive, with only 19 percent of its assets in its top 10 stocks. If you're seeking yield, he prefers Fidelity Equity Income (FEQIX) because its charter requires that its yield must be greater than that of the Standard & Poor's 500.
Q. My mother can't find some of her stock certificates. What should she do? - R.R., via the Internet
A. Although there has long been a push to eliminate paper certificates, some investors prefer physical proof of ownership rather than keeping stocks electronically in their brokerage firm's name.
But certificates must be kept in a safe place. Photocopy the front and back of each, keeping these copies apart from actual certificates, which should be stored in a secure place such as a safe-deposit box.
If a certificate is lost or stolen, check those photocopies for the transfer agent listed on the certificate. Lacking that, ask your broker, the company that issued the certificate or the SEC at http://www.sec.gov/answers/lostcert.htm for the transfer agent's name.
"Contact the transfer agent immediately and request a 'stop transfer' that prevents anyone from transferring ownership of that certificate from your name," advised Susan Wyderko, director of the SEC's Office of Investor Education and Assistance in Washington, D.C.
To obtain new certificates, you must first purchase an indemnity bond that protects the company and transfer agent against the possibility of those lost certificates surfacing later. That bond, available through a bank or broker, usually costs 1 percent to 2 percent of the current market value of the certificates.
Q. Gold fascinates me. How do I invest? - N.V., via the Internet
A. Gold prices recently rose to 17-year highs as investors reacted to uncertain times by embracing this precious metal. It is often considered a hedge against inflation.
Realize, however, that gold can be unpredictable. Currently priced at more than $465 an ounce, it averaged $440 last year; $279 in 2000; $384 in 1990; and $615 in 1980.
Investors buy gold bullion coins in a variety of sizes, usually paying dealer commission charges of around 5 percent of the gold's price. Popular government-issued gold coins include the American Eagle Bullion coins, Austria's Vienna Philharmoniker, Canada's Maple Leaf and China's Panda coins.
Small gold bars in a variety of weights and sizes are another choice. Credit Suisse gold bars are best known, though there are many accredited manufacturers.
"I recommend coins and bars because they cost the cheapest over the spot price of gold," said Greg McCoach, president of the Amerigold investment advisory firm and precious metals dealer in Centennial, CO.
There are also mutual funds investing in gold-mining stocks. Morningstar Inc. recently listed American Century Global Gold (BGEIX) and Vanguard Precious Metals and Mining (VGPMX) among its favorite gold funds.
Q. I've heard a lot about the new Roth 401(k) retirement plan that's coming out. How exactly does it work? - R.P., via the Internet
A. Companies will have the option of offering the new Roth 401(k) to employees at the beginning of 2006. This account will be funded with after-tax money, so investors will receive no tax deduction on contributions and will then owe no taxes on proceeds.
Withdrawals taken during retirement won't be subject to income tax so long as you're at least 59 1/2 and have held the account for five years or more.
The Roth 401(k) is modeled after the popular Roth individual retirement account, but, unlike the Roth IRA, will have no income limitations. It could attract some higher-income investors unable to take advantage of the Roth IRA.
Roth 401(k) accounts will be subject to the contribution limits of regular 401(k)s, which are $15,000 for 2006, or $20,000 for those 50 or older by the end of the year. These overall limits apply to both types of 401(k) plans, so you can't put $15,000 in a Roth 401(k) and another $15,000 into a conventional 401(k) plan.
"Some companies will make the new accounts available on Jan. 1, and others will watch them to see their experiences with it," predicted David Wray, president of the Chicago-based Profit Sharing/401(k) Council of America. "Keep in mind you won't be able to move your old 401(k) balances and give them the Roth 401(k) treatment."
Q. Can I gift appreciated stock to my wife and children in order to reduce some of the capital gains tax? - N.P., via the Internet
A. It's more likely to be advantageous with your children.
If you give stock to your wife and you file jointly, it makes no difference in taxes. In addition, tax rates tend to be higher for married couples filing separately, so it's unlikely she'll have a lower tax rate there, either.
In regard to your children, the maximum rate on long-term capital gains is 15 percent. For those in the 10 percent to 15 percent individual tax bracket - which your children might be - the rate will be just 5 percent. But keep the "kiddie tax" in mind.
If the child is under age 14 and recognizes a gain on the sale, much of it could be taxed at the parent's rate, explained Martin Nissenbaum, national director of personal income tax planning for Ernst & Young in New York. "The first $800 is tax-free and the next $800 taxed at the child's rate, with anything in excess of the $1,600 taxed at the parent's rate," he said.
You could gift the appreciated stock to your child, wait until the child turns 14 and then sell it, Nissenbaum concluded. The child's tax basis (original cost) will be the same as yours, but the tax rate is likely to be lower.
Editor's Note: Andrew Leckey answers questions for Bull & Bear readers only through the column. Address inquiries to Andrew Leckey, #184, 369-B Third St., San Rafael, Calif. 94901-3581, or by e-mail at andrewinv@aol.com.
