Q. Can my shares of Visa Inc. continue to gain in value? - P.G., via the Internet
A. This global powerhouse is benefiting as consumers shake off recession and start shopping again.
It stands to reason: The firm's brand name is on more than 60 percent of the world's cards.
Because it makes its money from the fees it charges thousands of financial institutions, rather than from consumers, it isn't hurt by rising credit delinquencies. It also benefits from the rapid growth of debit cards, which are used more often than credit cards for basics such as groceries and gasoline.
The company's fiscal third-quarter profit grew 33 percent as consumers spent more and a greater number of credit card payments were made. Chairman and CEO Joseph Saunders said volume growth is increasing and that he is "increasingly optimistic that economic growth will gradually improve."
Visa is also paying $2 billion in cash to buy CyberSource Corp., a provider of electronic-payment security services to online merchants. The fraud prevention technology of CyberSource is expected to increase online use of Visa credit, debit and prepaid cards.
The deal, which must be approved by CyberSource shareholders, is expected to close by the end of its fiscal fourth quarter that ends in September.
Shares of Visa (V) are down 4 percent this year following last year's 68 percent rise. The company has an outstanding balance sheet, growing cash flows and little debt.
Another indication Visa is bullish on the economy is the fact that it plans to open a new customer service center near Miami International Airport later this year that will create 350 jobs in its Global Customer Care Services Group.
The San Francisco-based company, which advertises heavily, was incorporated in 2007 as an initial public offering. It owns and operates VisaNet, a global payment processor that handles authorization, clearing and settlement of transactions.
The consensus Wall Street recommendation on Visa shares is "buy," according to Thomson Reuters, consisting of 17 "strong buys," 13 "buys" and five "holds."
The card business is a competitive one. American Express has been taking market share away from Visa in the U.S., a trend that most experts believe will continue. MasterCard and Discover are other aggressive competitors. Visa also faces some lawsuits that claim anticompetitive and anti-consumer practices.
Earnings are expected to rise 33 percent in the fiscal year ending in September and increase 21 percent the following fiscal year. The five-year annualized earnings growth projection of 20 percent is double that expected for the business services industry.
Q. Nike Inc. always seems to be encountering controversy. What's your opinion of my shares of it? - P.B., via the Internet
A. There's a lot more to the world's largest athletic shoe and clothing maker than controversy over golfer Tiger Woods or his commercials for the company.
The home of the "swoosh" logo expects overall revenue to rise more than 40 percent to $27 billion by 2015, boosted by its namesake brand and others that it owns, such as its Converse basketball line.
Lightweight Lunar Glide running shoes and Pro Combat football gear typify its constant stream of new products.
CEO Mark Parker is on the lookout for other brands to acquire and also sees potential in women's apparel. With Nike's markets in the U.S., Europe and Japan maturing, Parker expects middle-class growth around the globe to help it find new audiences in emerging markets. China is already a big customer.
Parker believes its Umbro soccer-style and Hurley skateboard-oriented clothing brands also have long-term potential.
Shares of Nike "B" (NKE) are up 16 percent this year following last year's 32 percent increase. On confidence boosted by strong profits, it announced plans to repurchase more than $5 billion of its shares over the next five years.
Some economic concerns in its industry include consumer spending, excess inventory, vulnerability to foreign currency volatility and trade issues. Changing fashion preferences can also have an impact.
While quarterback Ben Roethlisberger of the Pittsburgh Steelers is the firm's latest sports representative with high-visibility problems, it also features celebrities such as Michael Jordan, Maria Sharapova and Kobe Bryant.
Consensus rating of Nike shares is "buy," according to Thomson Reuters, consisting of five "strong buys," six "buys" and 10 "holds."
Named CEO in 2006, Parker was previously co-president and has been with Nike for nearly 30 years. He divested the less profitable Starter line in 2007 and the Bauer Hockey brand in 2008.
Nike can also encounter political issues. The University of Wisconsin recently cancelled its licensing agreement with Nike over concerns about the company's treatment of workers in Honduras. Chancellor Biddy Martin said Nike hasn't done enough to help workers collect severance payments they are owed at two factories that closed last year.
Earnings are expected to rise 1 percent this year versus the 12 percent expected for the apparel, footwear and accessories industry. Next year's projected growth rate of 13 percent is in line with its peers. The five-year annualized growth rate expectation of 12 percent also corresponds to the industry-wide forecast.
Q. What's your investment opinion on Vanguard Growth Equity, which has been one of my holdings? - C.B., via the Internet
A. Easy does it: As Vanguard Group attempted to calm down this fund's volatility, it has undergone considerable change with management now split between two separate advisors.
Half of the portfolio has been run by Mick Brewis of Baillie Gifford in Scotland since 2008 and the other half by Kathleen McCarragher of Jennison Associates since last year.
They came on board as Vanguard phased out long-time management firm Turner Investment Partners, which had an aggressive momentum-chasing style and traded frequently. Brewis and McCarragher have solid long-term records elsewhere and this fund features low expenses.
The $651 million Vanguard Growth Equity Fund (VGEQX) is up 31 percent over the past 12 months to rank in the top one-fourth of large growth funds. Its three-year annualized decline of 6 percent places it in the lowest one-fourth of its peers.
"We recommend Vanguard Growth Equity Fund because the new managers have the potential to lower the volatility of the fund so it will probably be easier to own going forward," said Sonya Morris, analyst with Morningstar Inc. in Chicago. "However, we were critical of the timing of the management change, as Vanguard fired Turner right at the bottom when market conditions subsequently favored its approach."
The Baillie Gifford firm prefers leading firms with strong balance sheets and the ability to increase earnings faster than the overall market. Jennison seeks firms whose revenues are growing faster than the Standard & Poor's 500 and whose franchises are defensible.
"It's been a short time since they've taken charge, but it has held its own, performing on a par with its category," observed Morris. "But it's too soon to say much more than that."
Healthcare and hardware are the fund's two largest concentrations, each at about 17 percent of portfolio. Top holdings include Apple, Cisco Systems, Microsoft, Progressive, Google, PepsiCo, Johnson & Johnson, Berkshire Hathaway and Schlumberger.
This "no-load" (no sales charge) fund requires a $10,000 minimum initial investment and has an annual expense ratio of 0.51 percent.
Q. What is the expectation for my shares of American Century Growth Fund? - B.L., via the Internet
A. Since it aims to do a little better than the Standard & Poor's 500 index over the long haul, that's pretty much what you can expect.
This fund keeps its sector weightings fairly in line with that benchmark so as not to rock the boat, making it best-suited to conservative investors seeking tranquil waters. It also has modest expenses.
The $2.1 billion American Century Equity Growth Fund (BEQGX) is up 28 percent over the past 12 months to rank in the top one-fifth of large growth and value funds. Its three-year annualized decline of 8.5 percent places it in the lowest one-fifth of its peers.
"This is a core fund that is pretty easy to hang on to and will help you sleep easy at night," said Karin Anderson, analyst with Morningstar Inc. in Chicago. "If you buy this fund expecting it to outperform the S&P by just a couple of percentage points, you won't be disappointed and can put it in your portfolio and leave it alone."
Its experienced management team is headed by William Martin, on board since the fund launch in 1997, and Tom Vaiana, who has been with it since 2001. According to filings, Martin has between $100,000 and $500,000 of his own money invested in the fund, while Vaiana has between $50,000 and $100,000.
Several quantitative analysts are on the team. Their computer models select stocks for the portfolio by looking at low valuations, growth rates and price-momentum factors. American Century Equity Growth Fund invests primarily in large U.S. companies with market capitalization greater than $2 billion.
Financial services is its largest concentration at 15 percent, followed by hardware, healthcare and consumer goods. Its top holdings are ExxonMobil Corp., IBM, Johnson & Johnson, Microsoft Corp., Apple Inc., J.P. Morgan Chase & Co., AT&T Inc., Google Inc., Procter & Gamble Co. and Cisco Systems Inc. This 1 percent "load" (sales charge) fund requires a $2,500 minimum initial investment and has an annual expense ratio of 1.70 percent.
Q. What's the easiest way to designate beneficiaries for my securities? - E.B., via the Internet
A. "Transfer on death" registration allows you to pass stocks, bonds, mutual fund shares or brokerage accounts you own directly to another person or entity upon your death without having to go through probate.
It allows you to specify the percentage of assets each will receive. You maintain complete control of the assets during your lifetime and beneficiaries have no access to those assets.
"Avoiding probate is the biggest reason for transfer on death registration," explained Mike Busch, certified financial planner with Vogel Financial Advisors in Dallas. "While most individual retirement accounts ask you up-front to name a beneficiary, non-IRA brokerage accounts usually don't."
You must therefore be proactive and request that this be done with a non-IRA account, he said. Transfer on death registration involves beneficiary paperwork not usually presented to you automatically when you open a regular account.
Most states have adopted the Uniform Transfer on Death Security Registration Act, though some have modified it. Brokerage firms can decide whether or not to offer such registration. It is endorsed by the American Bar Association, AARP and the Securities Industry Association.
Q. Do mutual fund managers have their own money in their funds? Is there significance to this? - F.P., via the Internet
A. Whether the manager has a significant amount of his or her own money invested in the fund is one of many factors to be considered when selecting a mutual fund.
The logic is that an invested manager has interests aligned with shareholders and confidence in the overall strategy.
"As an investor, I would want to know whether a portfolio manager has any skin in the game," said Wayne Thorp, financial analyst with American Association of Individual Investors in Chicago. "Luckily, you can find manager ownership levels and fund ownership policies in the 'additional information' section of a fund's prospectus."
A study by Morningstar Inc. last fall found managers of 51 percent of funds it tracked over the prior five years had no stake in their own funds. Meanwhile, funds whose managers invested $1 million or more in their fund outperformed 58 percent of their peers.
"You still must use judgment and look at expenses and tax consequences," said Mark Balasa, co-president of Balasa Dinverno Foltz, Itasca, Ill. "But it should give an investor comfort that people managing his money have the same vested interest."
Editor's Note: Andrew Leckey answers questions for Bull & Bear readers only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, Ariz. 85004-1248, or by e-mail at andrewinv@aol.com.)
