By Andrew Leckey
Q. Please give the forecast for shares of Abbott Laboratories. - B.F., via the Internet
A. This health-care-products conglomerate is extending its long and successful track record of diverse acquisitions.
For example, it has agreed to pay $7 billion in cash to acquire the pharmaceutical unit of Belgian conglomerate Solvay SA. Its biggest deal since 2002 gives it complete control over its TriCor cholesterol drug franchise, which generates more than $1 billion annually in the U.S.
It also boosts the firm's expansion into emerging markets and adds the flu vaccine Influvac, as well as drugs for hypertension and Parkinson's disease.
Meanwhile, it reached an agreement with Teva Pharmaceuticals that postpones the sale of a generic version of TriCor until March 28, 2011, at the earliest. This ends litigation going on since 1999.
To improve its position in global diagnostics, the company is paying $123 million in cash for Starlims Technologies Ltd.
Shares of Abbott Laboratories (ABT) rose 4 percent over the past 12 months following last year's 2 percent decline. Despite its acquisitions, its strong cash flow permits share repurchases and dividend increases.
Abbott manufactures pharmaceuticals, medical devices, blood glucose monitoring kits and nutritional health-care products. Its purchase of Advanced Medical Optics put it in the marketing of eye care products. This diversity blunts the possibility of overreliance on any one major drug to carry the day. In fact, pharmaceuticals currently generate less than 60 percent of revenues.
The consensus analyst recommendation on Abbott shares is "buy," according to Thomson Reuters, consisting of six "strong buys," eight "buys" and four "holds."
Third-quarter profits rose 37 percent due to sales increases of its rheumatoid arthritis medication Humira and nutritional products such as baby formula. Humira's future use in Crohn's disease and psoriasis could provide a further sales boost.
Humira, the drug-coated stent Xience and acquisitions are expected to fuel Abbott's growth over the next decade. While generic competition for its anti-seizure drug Depakote has reduced its sales, that still represents Abbott's only major patent loss in an industry full of patent losses.
Miles White, with Abbott since 1984, became CEO in 1998 and chairman of the board in 1999 and has since engineered the acquisitions that garnered numerous strong-selling products.
Earnings are expected to increase 12 percent in 2010 versus the 11 percent gain forecast for the major drug manufacturers industry. The five-year annualized forecast of 11 percent compares to a projected 6 percent increase for its peers.
Q. What's ahead for my shares of Google Inc.? - J.P., via the Internet
A. This free online search engine continues to innovate and invest in new businesses as it battles strong competitors.
Its powerful brand name and top-notch technical staff help keep it ahead of the curve. Having loads of cash doesn't hurt either.
Shares of Google (GOOG) are up 94 percent this year following last year's 56 percent decline. Clicks on its site rose 14 percent in the third quarter and CEO Eric Schmidt said "the worst of the recession is clearly behind us."
Google has been increasing advertising revenue from online searches through broader use of video and images, such as showing movie trailers in response to inquiries about a movie's title.
It is permitting publishers to limit the number of restricted articles that readers can see free of charge through its Google search engine, opening the door for publishers to charge for articles in the future. Meanwhile, new services to let readers buy electronic versions of books to read on cell phones, laptops and other devices have been launched.
In regard to Google's open-source software offerings, Chrome OS software introduced for the holidays in low-priced portable computers makes it possible to quickly start a computer in less than seven seconds. As with its Android OS smartphone software, the company believes offering it free will ultimately benefit its search advertising.
Google acquired mobile advertising firm AdMob for $750 million and has entered the long-distance phone business with Google Voice, which includes the ability to make free long-distance calls anywhere in the U.S.
Consensus analyst rating on Google shares is between "strong buy" and "buy," according to Thomson Reuters, consisting of 16 "strong buys," 19 "buys" and three "holds."
Americans used Google for 65.6 percent of "core" searches in November, compared to 17.5 percent for Yahoo and 10.3 percent for Microsoft, according to research firm comScore Inc. Ask Network and AOL ranked far behind.
Microsoft's Bing online search has posted significant growth since its summer launch. As far as social media is concerned, both Google and Microsoft are now including information from such sites on their search pages. To give users more control over personal data, Google unveiled its new dashboard linked to 20 products, including Gmail, YouTube and photo-sharing Picasa.
Earnings are expected to rise 16 percent next year versus 11 percent forecast for the Internet information providers industry. The five-year annualized growth rate is projected to be 21 percent compared to 12 percent predicted for its peers.
Q. I'm a long-time AT&T Inc. stockholder. Can we expect an upturn? -V.F., via the Internet
A. The competitive world of telecom is often brutal but always interesting, with plenty of litigation, acquisitions and hot products.
AT&T and Verizon Wireless recently agreed to drop lawsuits accusing each other of misleading marketing campaigns. The joint dismissal came after a judge rejected AT&T's request that Verizon's ads for 3G coverage should be pulled.
Meanwhile, the acquisition of eighth-largest wireless carrier Centennial Communications Corp. by AT&T for $944 million in cash was recently completed, with the Federal Communications Commission requiring the sale of eight of Centennial's service areas.
Because Apple's iPhone and the prepaid Tracfone service attracted a record number of wireless customers in the third quarter, AT&T reported stronger-than expected profits. The 3.2 million iPhone activations were a plus, but some investors are now fretting that AT&T is becoming overly dependent upon that popular phone.
Shares of AT&T (T) are up 3 percent following last year's 28 percent decline.
The dominant local phone company in 22 states, AT&T also owns AT&T Mobility, which is the second-largest U.S. wireless carrier. Unlike Verizon, it owns all of its wireless subsidiary.
It has a profitable directory publishing business with strong cash flow. The company's overall strategy - besides cost-cutting - has included a business services focus based on its phenomenal global reach.
The consensus analyst rating of AT&T stock is "buy," according to Thomson Reuters, consisting of six "strong buys," 12 "buys," 10 "holds" and two "sells."
So-called "cloud" computing services, which offer computing power or data storage from the Internet, are rapidly gaining in popularity and competition is strong. AT&T recently rolled out its entry, named the AT&T Synaptic Computer Service, which emulates Amazon's on-demand model. AT&T uses hardware from Sun Microsystems and software from virtualization firm VMware.
AT&T has direct access and established relationships with millions of residential and business customers. Yet most of its revenue and cash flow still comes from fixed-line local and long-distance phone services, which face competition from cable and wireless service substitution.
Randall Stephenson, chairman and CEO since 2007, has been with the company since 1982.
Earnings are expected to decline 2 percent this year, compared to a 23 percent increase for the domestic telecommunications services industry. Next year's expected 6 percent growth rate compares to 5 percent forecast industry-wide. The five-year annualized growth rate is projected to be 6 percent versus 4 percent predicted for its peers.
Q. Do you think I can depend on MFS Massachusetts Investors Trust as an investment? - C.F., via the Internet
A. The nation's oldest mutual fund - launched in 1924 - sticks with quality stocks to provide stable returns.
That's not the most original concept, but its track record qualifies it as a capable core holding for an individual's portfolio.
The $3 billion MFS Massachusetts Investors Trust (MITTX) is up 34 percent over the past 12 months to rank at the mid-point of large growth-and-value funds. Its three-year annualized decline of 1.5 percent places it in the upper one-fifth of its peers.
"This is a large-cap-oriented fund that looks for good blue-chip companies and doesn't pay too much for them," said Bridget Hughes, analyst with Morningstar Inc. in Chicago. "Because it wishes to remain stable there's a risk of it becoming a mediocre offering, but that hasn't happened so far and it earns a recommendation."
The returns of portfolio managers Kevin Beatty and Nicole Zatlyn have been solid in their first five years in charge and they are supported by a solid team of more than 30 analysts.
Beatty and Zatlyn previously helped manage the analyst-run MFS Research Fund. They have the flexibility to avoid or overemphasize sectors, though they insist on quality in balance sheets, cash flow and market dominance. While much of their compensation is based on the fund's performance, neither Beatty or Zatlyn invests more than $500,000 of his or her own money in MFS Massachusetts Investors Trust.
Financial services represent 15 percent of the fund, with other concentrations in consumer goods, energy, hardware and health care. Top holdings are J.P. Morgan Chase & Co., Procter & Gamble, Hewlett-Packard, Johnson & Johnson, Abbott Laboratories, Cisco Systems, Oracle, Google, Intel and AT&T.
MFS, majority owned by Canadian insurance company SunLife Financial, settled fraud allegations of market timing and late trading with the Securities and Exchange Commission and regulators in two states in 2004. It then chose a new management team in chairman Robert Pozen and CEO Robert Manning, who have cleaned up compliance issues.
This 5.75 percent "load" (sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 0.89 percent.
Q. What's your assessment of Van Kampen Equity and Income Fund? - P.V., via the Internet
A. Changes are underway, though the fund should remain fundamentally the same. Under a $1.5 billion deal announced in October in which Morgan Stanley's retail investment management business was sold to Invesco Ltd., this fund will move to Invesco, most likely in the middle of 2010.
Lead manager Tom Bastian and his experienced team that handles stock and convertible bond selections are expected to move to Invesco, while the manager of the fixed-income portion will remain at Morgan Stanley and a replacement will be named.
The $12 billion Van Kampen Equity and Income Fund "A" (ACEIX) is up 25 percent over the past 12 months and had a three-year annualized decline of 2 percent, placing it around the midpoint of moderate allocation funds.
"Due to the transition, I wouldn't jump right into this fund, but it is a good idea for existing shareholders to wait it out and see what happens," advised Katie Rushkewicz, analyst with Morningstar Inc. in Chicago. "For investors who don't want to hassle with picking individual stock and bond funds, this is a good core holding with a mix of stocks and bonds."
Bastian, James Roeder, Sergio Marcheli, Mark Laskin and Mary Jayne Maly comprise the team, with current fixed-income manager Sanjay Verma remaining at Morgan Stanley.
They have a deep-value contrarian view that favors low-priced, out-of-favor stocks. The portfolio, which is about 80 percent stocks, over the past 10 years has outperformed 95 percent of its peers, said Rushkewicz. The fact that it includes convertible bonds helps provide a bit more upside than bonds alone would, she said.
Nearly one-fourth of Van Kampen Equity and Income Fund assets are in financial services, with other concentrations in energy and industrial materials. Top holdings are J.P. Morgan Chase & Co., Treasuries, Marsh & McLennan Companies, Viacom, Occidental petroleum, eBay, Anadarko Petroleum, Time Warner and General Electric.
This 5.75 percent "load" (sales charge) fund requires a $1,000 minimum investment and has a low annual expense ratio of 0.79 percent.
Q. Is a "no-load" stock fund always a better deal than a load fund? When is it not? - F.C., via the Internet
A. A no-load fund is one in which shares are sold without commission or sales charge because shares are distributed directly by the investment company or through an investment supermarket.
This is the route most do-it-yourself investors take because more of their money goes directly to work.
A load fund comes with commission or sales charge that goes to compensate a sales intermediary such as a broker or financial planner for expertise in helping to select the proper fund. Many investors feel they need the help of a financial advisor or have an existing relationship with one.
While performance studies have given neither type an overwhelming advantage, you should always consider an individual fund's overall performance first.
"Because there are other things to consider in a mutual fund, such as long-term performance and other expenses, I wouldn't automatically discriminate against a fund just because it has a sales charge," said David Bendix, CPA and certified financial planner with Bendix Financial Group in Garden City, N.Y. "There are great load funds with good performance that might make paying the load worth it."
Q. I'm confused by the many ads about free credit reports. What am I entitled to by law for free? - C.P., via the Internet
A. The Fair Credit Reporting Act guarantees you access to a free credit report from each of the three nationwide reporting agencies - Experian, Equifax and TransUnion - every 12 months.
You can request your free reports from the Federal Trade Commission either at annualcreditreport.com; by calling 877-322-8228; or by filling out the Annual Credit Report Request form and mailing it to the Annual Credit Report Request Service, P.O. Box 105281, Atlanta, Ga. 30348-8228.
"That report that allows you to check accuracy of your accounts, balances and date of last payment is extremely secure," said Catherine Williams, vice president of financial literacy for the Money Management International non-profit counseling service in Houston. "It does not include your credit score, since you must pay for that."
If you find a mistake, you must go to each of the three credit bureaus to file a dispute, she said.
"Other sites you see offering free credit reports are often also trying to sell other products or services, such as credit monitoring that informs you whenever someone looks at your credit report or there is a change in it," concluded Williams.
Q. What is the downside of buying a foreign stock versus an American Depositary Receipt (ADR)? - K.A., via the Internet
A. The ADR "Americanizes" the way you invest in a foreign stock.
It is a negotiable certificate issued by a U.S. bank representing a specific number of shares or a share in a foreign stock. About 2,300 ADRs trade publicly on major exchanges and over the counter.
"You buy the ADR through your local broker just as you would any other U.S. stock," said Julio Lugo, vice president with BNY Mellon in New York. "It settles like U.S. stocks, corporate information comes to you in English and dividends are passed on to you in U.S. dollars."
If you buy actual foreign shares, on the other hand, your broker accesses a local broker in that country or the foreign desk to buy the shares overseas. You have to convert your local currency in order to settle, said Lugo.
"With foreign shares, any corporate actions, information and dividends will pass to you as if you were a foreign owner in the local language and will be paid in local currency," concluded Lugo. "So there are hassles and costs involved."
Editor's Note: Andrew Leckey answers questions for The Bull & Bear Financial Report readers only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248, or by e-mail at andrewinv@aol.com.
