Q. Do you think my shares of TiVo Inc. are headed upward? - C.T., via the Internet
A. It is never easy to be a pioneer, even a tenacious one with a well-known name.
The digital video-recording service that lets subscribers pause, rewind and fast-forward has become synonymous with recording television programs. Revenues are derived from sales of its TiVo unit and subscriptions.
It finds itself increasingly doing battle with DVR services being offered by competitors such as cable and satellite TV providers and computer-based media centers.
TiVo lost $18.7 million in its fourth quarter ended in January. That was, however, an improvement over its loss of $21.1 million in the year-earlier quarter and better than analysts predicted.
TiVo's shares (TIVO) are up 23 percent this year after a flat 2006, boosted by hopes for gains in advertising, broadband initiatives and other new offerings.
Subscribers increased to 4.44 million by the end of 2006, a modest improvement from 4.36 million the previous year. Subscriber growth has slowed, and more is being spent on advertising to attract subscribers. The DVR offering from DirecTV during the past year has taken a toll.
TiVo, an aggressive company intent on being a significant part of the tech future, sees partnerships as key.
The Amazon Unbox on TiVo service, recently launched in partnership with Amazon.com, enables television screen access for online digital content. Digital rentals and purchases from Amazon can be downloaded directly into TiVos.
The company has also entered an agreement to distribute TiVo in a package with the EarthLink Inc. broadband Internet product this year. Furthermore, both Comcast Corp. and Cox Communications plan this year to introduce cable boxes that run TiVo DVR software for an added fee.
Amid the uncertainties and recent price run-up, TiVo shares are rated a consensus "hold" by Wall Street analysts, according to Thomson Financial. That consists of three "strong buys," three "buys," nine "holds," three "underperforms" and two "sells."
Losses are predicted to narrow sharply this fiscal year ending in January 2008 and in the following fiscal year. Analysts expect the company to be profitable in its 2010 fiscal year, according to Thomson.
TiVo competes in a complex field: For example, last year the company won a patent lawsuit against EchoStar. But a federal appeals court granted EchoStar's request to stay a permanent injunction from a lower court that would have kept EchoStar out of the DVR market.
Q. Should I hold onto my shares of Saks Inc.? Has the company turned the corner? - R.C., via the Internet
A. Image is everything in retailing.
The retailer's stock is coming back into fashion thanks to a renewed focus on its upscale Saks Fifth Avenue division. It helps that this has coincided with a general upswing in the results of luxury retailers.
Saks again is benefiting from the cachet associated with its famous brand and has plans to expand it with large stores in Mexico City and Shanghai.
Meanwhile, some Saks stores have been closed, and the company is adjusting merchandise to better suit customer tastes. Women's shoe departments are a higher priority and are being expanded as store renovations take place.
Shares of Saks (SKS) are up 17 percent this year following a gain of 6 percent last year and 16 percent in 2005.
The $2 billion in cash generated from the sale of its regional Proffitt's/McRae's, Northern Department Store Group and Parisian stores was used to issue a special dividend to shareholders and pay down debt, improving the balance sheet.
Yet because Saks' returns in recent years trailed that of most competitors, it is a bit too early to declare a complete turnaround.
With recent hefty increases in the stock price taken into account, consensus rating on Saks shares is between a "buy" and a "hold," according to Thomson Financial, consisting of five "strong buys," one "buy," five "holds" and two "underperforms."
In its fiscal fourth quarter that ended in January, Saks had a 17 percent increase in sales and turned a profit that reversed a year-earlier loss. Major stores in New York City, Birmingham, Ala., and Orange County, Calif., excelled on strong sales of designer apparel.
"We have made much progress on understanding our core customer by market and on refining our merchandise assortments in each of our stores," said Chief Executive Steve Sandove, who moved up from chief operating officer early last year, in announcing a 25 percent surge in February same-store sales.
In a recent reorganization of top managers, Ron Frasch was promoted to president of the company; Denise Incandela to president of the Saks Direct online operation; and Robert Wallstrom to president of the Off 5th outlet stores.
Earnings are expected to rise 130 percent in its current fiscal year ending in January 2008 and 65 percent the following year, according to Thomson. Five-year annualized growth rate is projected to be 8 percent vs. 14 percent expected for the department store industry.
Q. I was thinking of adding a European fund and wondered what you thought of Mutual European Fund. - R.R., via the Internet
A. It ventures where other European stock funds do not, disregarding typical index and country weightings. Adherence to deep-value strategy focusing on underpriced stocks that generate cash, such as tobacco companies, has provided decent returns with limited risk.
This fund hedges currency risks to reduce volatility, most recently on about 80 percent of portfolio, which makes it a pure stock-picking fund.
Unfortunately, that also means it missed exposure to strong European currencies appreciating against the dollar in recent years, and that has hurt returns. Some investors choose foreign funds to obtain foreign currency exposure.
The $2.6 billion Mutual European Fund "A" (TEMIX) is up 26 percent over the past 12 months to rank above the midpoint of European stock funds. Its three-year annualized return of 24 percent places it near the top one-third of peers.
"Mutual European is an excellent, consistent fund that not only looks for undervalued stocks, but is also engaged in merger arbitrage situations and distressed debt," said Dan Lefkovitz, an analyst with Morningstar Inc. "It gives investors exposure to off-the-beaten-path, overlooked and unloved names in Europe."
Philippe Brugere-Trelat, who became manager in mid-2005, has extensive fund experience and a career-long emphasis on value investing in Europe. Early this year, Katrina Dudley, an experienced industrials analyst, became assistant manager.
More than one-fourth of Mutual European is in consumer goods, with industrial materials and financial services other significant concentrations. Top stocks are Norway's Orkla, British American Tobacco, Switzerland's Nestle, Britain's Imperial Tobacco Group, Belgium's Fortis, Spain's Altadis, Germany's Siemens, and BNP Paribas and Danone Group, both from France.
"A lot of the world's best companies are in Europe, even though Europe isn't growing as fast as other parts of the world," Lefkovitz said. "Restructuring in European companies, revival of consumer demand there, and increased merger and acquisition activity benefited the fund."
This 5.75 percent "load" (sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.33 percent.
Q. Would the Fidelity Stock Selector Fund be a good choice for my Fidelity holdings? I am reallocating my funds with the company. - R.R., via the Internet
A. This blue-chip fund doesn't rest much.
It has around 200 stock names, and its returns are similar to the Standard & Poor's 500 index. It is a very actively traded fund, with portfolio turnover of more than 100 percent a year.
The $837 million Fidelity Stock Selector (FDSSX) is up 10 percent over the past 12 months to rank in the bottom one-third of large growth and value funds. Its three-year annualized return of 10 percent places it in the upper one-third of its peers.
"In terms of performance, this fund doesn't have a lot to recommend it over an S&P 500 index fund, and there are better options at Fidelity for actively managed funds," said Jim Lowell, editor of Fidelity Investor newsletter (www.fidelityinvestor.com) in Watertown, Mass. "We have a 'hold' rating, and it would require a manager change for us to consider upgrading."
James Catudal, manager since October 2001, has had success with other Fidelity funds. He shifted this fund away from its past computerized selection process to a more traditional strategy of finding large- and mid-cap stocks that could appreciate 15 percent. He limits his bets on segments and never exceeds 10 percent in cash.
"If you own this fund in a taxable account, there is no great urgency to sell it just to buy its equivalent in an index fund," said Lowell, noting that it has only a slightly higher risk level than an index fund. "But even if you wanted to invest in a fund in order to track the S&P 500, this would not be my preference to do it."
Financial services represents more than one-fifth of assets in Fidelity Stock Selector, with health care, hardware and industrial materials other significant concentrations. Largest holdings are General Electric, American International Group, Microsoft, Exxon Mobil, Procter & Gamble, Johnson & Johnson, AT&T, Cisco Systems, Google and Bank of America.
This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has an annual expense ratio of 0.87 percent.
Q. I am looking for safe, dependable investments for my retirement account. I need to be conservative, but worry that might keep me from staying ahead of inflation. Would TIPS make sense? - F.R., via the Internet
A. Treasury inflation-protected securities, or TIPS, seek to blunt the effects of inflation. They basically allow you to lock in an amount in real terms without reducing your purchasing power.
The U.S. Treasury uses the consumer price index to adjust the principal for inflation semiannually, while a fixed rate is paid semiannually on the adjusted principal. TIPS are sold with maturities of five, 10 and 20 years, and can be purchased for a minimum of $1,000.
"TIPS are backed by the government, making your principal ironclad," said Mark Balasa, certified financial planner with Balasa Dinverno & Foltz LLC in Itasca, Ill. "The face amount of TIPS moves up and down with inflation, which makes them different from traditional bonds."
Consult the Treasury Web site (www.treasurydirect.gov) regarding direct purchases of TIPS and other related information.
Balasa doesn't recommend putting more than 20 percent of an individual's portfolio into TIPS because in years of low inflation you're better off with a regular bond paying a higher rate. Rather than actual TIPS, he often puts clients in TIPS mutual funds of Vanguard, Pimco and TIAA-CREF, or exchange-traded TIPS funds of Barclay's iShares.
Q. How are closed-end mutual funds different from regular mutual funds? - S.E. via the Internet
A. Both have actively managed portfolios, but a closed-end fund has an initial public offering and then its shares are traded on an exchange like stocks.
By contrast, the typical open-ended mutual fund continually issues shares at net asset value and stands ready to redeem them.
"Closed-end funds tend to trade at a discount to the net asset value of their portfolios," said Thomas Herzfeld of the investment advisory firm in Miami that bears his name. "That's because after the IPO sponsorship stops there isn't the continuous advertising that is the case with an open-ended mutual fund."
He doesn't recommend closed-end funds to investors who aren't willing to do the extra homework to determine likely upward or downward movement in the premium or discount to net asset value. That, along with the portfolio's performance, determines whether money is made or lost.
Another type of fund, the exchange-traded fund, or ETF, also trades on a stock market but is different from a closed-end fund, Herzfeld said. The ETF generally has a fixed portfolio and, because of its structure, will likely trade at its net asset value.
Q. How does the Dogs of the Dow strategy work? - C.M., via the Internet
A. There are variations of this strategy popularized by author Michael Higgins. In general, once a year you buy the 10 stocks on the Dow Jones industrial average with the highest dividend yield and hold on about a year.
This group historically has outperformed the overall Dow and most blue-chip indexes. During 2006, it featured stellar performers in General Motors, AT&T, Merck, Verizon Communications and JPMorgan Chase.
"The whole idea is that you want to pick stocks that have been beaten down and high dividend yield is the methodology used to capture that," said James Paulsen, chief investment officer with Wells Capital Management in Minneapolis. "It doesn't work every year, but it has a good track record, is simple and has low trading costs."
Current Dogs of the Dow based on year-end 2006 dividend yields are Pfizer, Verizon, Altria Group, AT&T, Citigroup, Merck, GM, DuPont, General Electric and JPMorgan Chase.
The variables: Selections don't necessarily have to be done at year-end; price performance is sometimes used instead of yield because some Dow stocks traditionally have high yields; and sometimes five stocks are used.
Editor's Note: Andrew Leckey answers questions for Bull & Bear readers only through the column. Address inquiries to Andrew Leckey, P.O. Box 874702, Tempe, AZ 85287-4702, or by e-mail at andrewinv@aol.com.
