THE COMPLETE INVESTOR
P.O. Box 248, Williamsport, PA 17703.
Monthly, 1 year, $129.
Why we're wild about
Fidelity's Harry Lange
David Sandell: "Harry Lange may not be a household name, but in the mutual fund world, his views carry clout. The longtime manager of the Fidelity Capital Appreciation fund, he recently was named the new manager of Fidelity's flagship - and floundering - Magellan fund, replacing Robert Stansky.
Under Stansky's nine-year tenure, Magellan's assets dropped to $52.5 billion from $110 billion. Fidelity Investments, the nation's largest mutual fund company, is betting that Lange will help restore Magellan to its former glory days under Peter Lynch. Lange's outstanding record suggests this is a good bet: the five star-rated Capital Appreciation fund, seizing upon the bull markets in tech and energy, ranked among best in class over three-, five-, and 10-year periods. We expect that at Magellan, Lange will continue to pair major market trends with superior stock-picking.
Capital Appreciation's largest holding is Genetech (DNA). In its latest earnings report, the company beat consensus third-quarter estimates by roughly a nickel a share thanks to strong revenue growth from its two major cancer drugs, Avastin and Herception. Helped by off-label use, sales of each drug grew by more than 70 percent year-over-year, and planned FDA filings to expand approved uses for those and other drugs will keep earnings growth humming. While Genetech's P/E may seem high compared to those of peers, its outsized earnings growth potential bodes well for a continued uptrend in its shares.
Another health care stock FundFinds has in common with Lange is UnitedHealth Group (UNH), a position to which he recently added. In its latest quarterly earnings report, UnitedHealth beat Street estimates by a penny. It achieved these results on a lower-than-expected medical cost ratio - a metric used to measure control of costs for doctors, hospitals, and pharmaceuticals. While an increasingly transparent pricing environment could have the effect of cutting into profit margins throughout the industry, new Medicare constraints may boost enrollments, thereby swelling revenue streams.
One other large position worth mentioning is Nokia Corp. (NOK), Capital Appreciation's newest, and second-largest, holding. We've been following Nokia for a while, and it's on our watch list as a possible future recommendation. Unlike Lange, though, we think it's too early to buy. Based in Finland, Nokia is a leader in the worldwide communications industry, specializing in mobile phones and devices. The industry indisputably is growing, as handhelds continue to morph into all-in-one multimedia marvels. But it's also a highly competitive area. While Nokia ships more phones than any of its rivals, its offerings are at the lower end. When it comes to the higher-margined and future-forward smart phones, competition from the likes of Motorola and Samsung Electronics is fierce. In a move in the right direction, Nokia recently released three new multimedia models; meanwhile, though, the commoditization of phones at the cheaper end of the spectrum is a negative for the company. We'll be following Nokia's progress as the company tries to reposition itself as a leading supplier of the more complex phones; until it proves it can overtake its competitors, though, we're on the sidelines.
We'll be watching with great interest to see how Lange chooses to reposition Magellan, and we'll be ready to pounce on any ideas that seem particularly compelling."
EQUITY FUND OUTLOOK
P.O. Box 76, Boston MA 02117.
Monthly, 1 year, $149.
Thurman Smith: "The market, as measured by the Wilshire 5000 plus dividends, is now just two percentage points below its March 2000 high. It is now highly likely that the market, will fulfill the expectation that years ending 5 see gains. However, unless the gain from here to the end of the year is large, the 2005 gain will be modest by past averages. Years ending in 6 on average are flat when they are also the second year of a presidential term. But since the gain this year was way below past patterns, there is a case for a better 2006 than might be otherwise expected. Also encouraging for the near term is that the best six months of the year are, on average, from November to April. Much depends on whether the tax reductions that incentivized the economy over the last two years to good effect will be continued beyond their scheduled termination dates in 2006 to 2008.
The long reign of small-caps appears to be over. It was overdue as it lasted seven years instead of the usual five. The action seems to have bypassed mid-cap and gone straight to large-cap. Growth style is also faring batter."
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