Yankees of drug makers rates a 'buy'

Taking Stock

Your Money

March 14, 2004|By ANDREW LECKEY

Pfizer Inc. is one of my health care holdings and I'm thinking of buying more. What's the outlook for the company?

- J.C., via the Internet

Because "home run" drugs are the truest measure of success, this company ranks as the New York Yankees of the pharmaceutical industry.

Although its Viagra franchise is being challenged by the widely advertised new Cialis and Levitra drugs for erectile dysfunction, the world's largest pharmaceutical company sells many other popular products.

Its Lipitor cholesterol medicine, acquired in the $116 billion hostile takeover of Warner-Lambert completed in 2000, is the top-selling drug in the United States and the world, with $9 billion in annual sales.

Renowned for its vast sales force and efficient distribution network, Pfizer boasts 14 of the world's 25 best-selling medicines. Ten drugs have annual sales of more than $1 billion, with the antifungal Diflucan, Alzheimer's treatment Aricept, antibiotic Zithromax and incontinence drug Detrol all leaders in their categories.

Patents do not expire on its blockbuster drugs Lipitor, Viagra and arthritis-drug Celebrex until the end of the decade, but it is facing court challenges on its patents for Neurontin and Norvasc.

Shares of Pfizer are up 6 percent this year, after last year's 18 percent increase. They receive a consensus "buy" recommendation from the Wall Street analysts who track them, according to First Call, a Boston research firm. That consists of 24 "buys" and eight "holds."

Pfizer enjoyed a 52 percent increase in sales in its most recent quarter, two-thirds of which came from the United States.

However, its income declined 79 percent because of personal injury claims from people who took diabetes drug Rezulin and a government investigation into the marketing of anti-epilepsy drug Neurontin.

Pfizer also had $1.6 billion in charges from its buyout of Pharmacia that closed last year. That acquisition is expected to significantly benefit its bottom line by 2008.

Earnings are expected to increase at a 20 percent rate this year, compared with the 11 percent forecast for the pharmaceutical industry. Next year's projected 13 percent rise is in line with its peers. Pfizer's expected five-year annualized gain of 14 percent is 3 percent better than that forecast for its peers.

I'm interested in investing in a real estate mutual fund and am considering Fidelity Real Estate Investment. What is your opinion of this fund?

- S.D., via the Internet

Real estate companies are bigger and generally better managed than in the past, which means there's less overbuilding of offices, apartments and shopping malls that can ruin the market.

Low interest rates have provided a boost, too. Unless the economy takes a drastic turn for the worse, blue-chip stock-traded real estate firms should be on solid ground for a while.

That bodes well for this fund, one of the largest investing in real estate investment trusts that own and manage portfolios of real estate. It emphasizes high-quality REITs with strong earnings and cash flows.

The $2.71 billion Fidelity Real Estate Investment (FRESX) rose 44 percent over the past 12 months to rank in the lower one-fourth of real estate funds. Its three-year annualized return of 20 percent puts it just above the midpoint of its peers.

"While it's done well mainly because the real estate sector has done well, Fidelity has added value to this fund in selecting diversified properties and will continue to do so," said Jack Bowers, editor of the Fidelity Monitor (www.fidelitymonitor.com) investment letter in Rocklin, Calif. "The real draw of a real estate fund is that it is one of the asset classes that stands up well to inflation."

Besides price appreciation, this fund provides a 3 percent income stream, he noted. Because of that dividend, it is best suited for tax-sheltered accounts or those who need income. This low-volatility fund best plays a role in an overall diversified personal investment portfolio.

Manager Steve Buller has been in charge since 1998 and is supported by one part-time and three full-time REIT analysts.

Fidelity Real Estate Investment's top holdings were recently Apartment Investment & Management, Equity Office Properties Trust, CenterPoint Properties, ProLogis Trust, Simon Property Group, Duke Realty and Vornado Realty Trust.

This "no load" (no sales charge) fund requires a minimum initial investment of $2,500. Its annual expense ratio is a low 0.84 percent.

Can you explain the fees that are associated with a variable annuity?

- P.F., via the Internet

A variable annuity is a contract between you and an insurance company, with the money that's invested growing tax-deferred at a fixed or variable rate.

The insurer is agreeing to make periodic payments to you either now or at a set date in the future. The variable annuity's underlying investments are usually mutual funds investing in stocks, bonds and money-market funds.

Since fees are a drawback to these investment vehicles, you should invest in other tax-deferred choices first.

"You can expect to pay around 2.5 percent in annual expenses on average," said Terrence Herr, certified financial planner.

Fees will vary with insurers, so shop around. A variable annuity generally includes a basic insurance benefit of around 1.25 percent; an administrative fee that's a fixed dollar amount; mutual fund expenses of about 1.5 percent annually; charges for special features such as guaranteed principal protection; and surrender charges for early withdrawal that last for a period typically between three and seven years.

Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoneytribune.com.

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