ALSO: High-Yield Bond Investing Not For the Faint of Heart, By Andrew Leckey, Successful Investing

Q. Can you tell me anything encouraging about my shares of RadioShack Corp.? They have me worried.
A. The best news for investors is that this consumer electronics retailer will begin to carry the products and services of the No. 1 wireless provider Verizon Wireless in its company-owned stores starting in mid-September.
       This should help it deliver more predictable financial results because it is also terminating its unprofitable, contentious two-year partnership with T-Mobile.
       Averaging about 2,500 square feet in size, RadioShack stores are small compared to those of competitors such as Best Buy Co., yet sizeable enough for displaying smartphones, tablets and accessories. The company hopes to become less of an all-purpose electronics retailer and more focused on wireless devices.
       This strategy, which includes existing deals with AT&T Inc. and Sprint Nextel Corp., means investors must share its confidence in the long-term profit potential of that fiercely competitive and still-evolving sector.
       Shares of RadioShack Corp. are down 22 percent this year following last year’s five percent gain. Second-quarter earnings were down 53 percent due largely to a decline in T-Mobile and Sprint Nextel sales at its U.S. stores.
       Because of its reduced stock price, most discussion of RadioShack this year has been as a potential acquisition target. It was recently removed from the Standard & Poor’s 500 index because it slipped into the mid-capitalization range. The company might be attractive to possible suitors because it has little debt, considerable cash on hand and strong cash flow.
       Consensus analyst opinion on shares of RadioShack is “hold,” according to Thomson Reuters, consisting of three “strong buys,” one “buy,” 15 “holds” and one “underperform.”
       Besides its 4,675 company-operated stores in the U.S. and Mexico, RadioShack has 1,475 wireless phone centers in the U.S. and 1,140 dealer outlets worldwide. Its non-wireless consumer products, such as such as televisions and digital cameras, represent mature categories facing strong competition from big-box retailers and online sales.
       President and CFO James Gooch became CEO in May. Julian Day stepped down as CEO and chairman after five years of a turnaround effort that couldn’t gain traction despite measures to cut costs, make the store brand more contemporary and improve its array of products.
       Earnings are expected to decline 2 percent this year and gain 10 percent next year, according to Thomson Reuters. The five-year annualized earnings growth rate is forecast to be 8 percent versus 15 percent predicted for the specialty retail industry. 2010 Financial report: Net sales: $4.5 billion, Net income: $206 million.

Q. I have been extremely disappointed with my shares of Aeropostale Inc. this year. Can I expect anything better?
A. With no one predicting a wildly successful back-to-school sales season, this specialty retailer of casual apparel and accessories must navigate the ever-fickle youth fashion market under some duress this year.
       Fierce competition, high material costs and merchandise miscues have taken their toll on its once unassailable profitability and stock price. That has opened the door to widely reported speculation that it could become a takeover target in a leveraged buyout.
       Aeropostale (ARO) shares are down 29 percent this year following their gain of 9 percent last year.
       While Aeropostale profited as a lower-price alternative to premium youth-market competitors throughout much of the recession, its earnings declined 64 percent in its fiscal first quarter ended in April as rivals aggressively reduced prices. In announcing its earnings, management said this year’s retailing uncertainty would require adjustment of its merchandise assortment and conservative cost management.
       This mall-based retailer is, nonetheless, in good financial health with no debt and lots of cash that it uses to buy back its shares and fund expansion. It has been considered one of the better operators in its niche with a longer-term track record of producing exceptional returns on capital.
       The consensus analyst rating of Aeropostale shares is “hold,” according to Thomson Reuters, consisting of two “strong buys,” two “buys,” 19 “holds,” two “underperforms” and two “sells.”
       It focuses on 14- to 17-year-old teens at its nearly 1,000 Aeropostale stores located in 49 states, Puerto Rico and Canada. Its P.S. from Aeropostale stores, geared toward the seven to 12-year-old market, are expected to aid future growth. It also sells merchandise through its online sites www.aeropostale.com and www.ps4u.com.
       Management exerts strong overall control, with the firm designing, sourcing, marketing and selling its own proprietary brands. Mindy Meads and Thomas Johnson were co-CEOs in 2010, but Meads stepped down the end of last year to leave Johnson in charge.
       Rising apparel prices remain a concern because, while the price of cotton has fallen from its high in March, it remains above historical price levels.
       Aeropostale earnings are expected to decline 38 percent this fiscal year and increase 21 percent the following fiscal year, according to Thomson Reuters. The forecast of a five-year annualized return of 12 percent compares to 15 percent expected for the apparel store industry. 2010 Financial report (Fiscal year ended January 2011): Net sales: $2.4 billion, Net loss: $231 million.

Q. What do you think of FMI Large Cap Fund, which was recommended to me?
A. There’s nothing fancy about this straightforward, big-company, low-turnover fund that gives conservative investors exactly what it promises.
       It owns a concentrated, low-turnover portfolio of 25 to 30 stocks. While it sometimes does hold a portion of it in cash, careful stock selection is its forte.
       The $4.5 billion FMI Large Cap Fund (FMIHX) is up 20 percent over the past 12 months to rank in the lower one-fifth of large growth and value funds. Its three-year annualized return of 6 percent places it in the top one-tenth of its peers.
       “One of the nice things about this fund is that investors can take comfort in the fact that it is no flash in the pan, but has been able to outperform in up and down markets,” said Andrew Gogerty, mutual fund analyst with Morningstar Inc. in Chicago. “The managers keep it simple, looking for good companies that are stable and entrenched so that they stand the test of time.”
       Consistency and solid execution are key attributes. Fiduciary Management’s chief investment officer Patrick English heads the fund’s team along with director of research Andy Ramer. The remaining managers are members of the firm’s research staff. This isn’t a fund in which you worry about quarter-to-quarter trends or whether large-cap or small-cap stocks are leading the market. Investors must be in it for the long haul.
       FMI Large Cap seeks companies with strong management teams that care about shareholder value. Durable business models with recurring revenues and solid returns on invested capital are favored. Stock values are measured based upon historical metrics such as price/earnings, price/cash flow and price/sales.
       Industrial materials represent 28 percent of the portfolio and financial services 15 percent, with other concentrations in health care, consumer services and consumer goods. Top holdings were recently 3M Co., Accenture Plc., Bank of New York Mellon, Automatic Data Processing, Dentsply International Inc., Berkshire Hathaway Inc. “B”, AmerisourceBergen Corp., Wal-Mart-Stores Inc. and Tyco International.
       This “no-load” (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 0.97 percent.

Q. What exactly is the point of mid-cap stock investing? Shouldn’t small- and large-cap stocks get the job done?
A. In the past, mid-cap stocks – which typically have $2 billion to $10 billion market capitalization – tended to be overlooked. However, they have gained increased respect in recent years and often enjoy rallies of their own.
       The logic behind investing in mid-caps: They represent more seasoned, larger businesses than small caps yet have higher long-term growth potential than large caps. You might say they are in the sweet spot right in the middle.
       “Mid-cap stocks offer risk-adjusted returns over full market cycles,” explained Michael Weil, certified financial planner with McCarthy Grittinger Weil Financial Group LLC in Milwaukee. “For example, they historically have outperformed small caps heading into recessions and large caps coming out of recessions.”
       True diversification of investments is lost if the mid-cap category is underrepresented in an individual’s stock portfolio, Weil contends.
       Over the past five-year annualized period, mid-cap core funds outperformed large-cap core funds handily and narrowly edged out small-cap core funds, according to Lipper Inc. Of course, there is a place for all sizes of stocks in a portfolio, and other factors besides sheer size must also be considered.

Q. Please explain how TIPS work. I am thinking of investing in them.
A. They can make sense for a portion of an individual’s portfolio. Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation and are backed by the full faith and trust of the U.S. government.
       The principal of TIPS increases with inflation and decreases with deflation as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted or original principal, whichever is greater.
       They are issued in terms of five, 10 and 30 years with a minimum purchase of $100. They pay interest twice a year at a fixed rate and can be held until maturity or sold before maturity.
       “TIPS can be purchased directly from the Treasury (www.treasurydirect.gov) if you set up an account,” explained Mckayla Braden, senior advisor in the Treasury Department’s Bureau of Public Debt in Washington, D.C. “You can also buy through your bank or broker through either competitive or non-competitive bidding.”
       TIPS are also available in a number of mutual funds and exchange-traded funds (ETFs) that invest in a portfolio of different durations. Examples are Vanguard Inflation-Protected Securities Fund (VIPSX) and iShares Barclays TIPS Bond Fund (TIP) ETF.

Q. Is there an ideal number of retirement accounts? Mine are spread at five different places, but I realize you can get breaks on fees if you have more in one place.
A. Investors often confuse the number of accounts they have with diversification.
       Many holdings held in different places may replicate each other, or even conflict with one another in terms of basic goals. Such a hodgepodge can get out of hand and increase the possibility that you forget about some of them.
       “Multiple accounts can be overly complex, requiring the investor to balance across several institutions and fund managers to prevent overlap,” said Evelyn Zohlen, certified financial planner and founder of Inspired Financial, Huntington Beach, Calif. “Review of monthly statements can be so demanding that investors lose interest and neglect them.”
       See if you can save on fees by consolidating into fewer institutions, and decide how much investment tracking you realistically can and will do.
       For example, holding all individual retirement accounts at the same institution makes it easier to monitor your overall portfolio, said Zohlen. Having a single traditional IRA, a single Roth IRA and a company 401(k) plan with various investments in them may be all the diversification you need, she believes.
       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.