As Chrysler half thrives, company sputters overall

Taking Stock

Your Money

April 24, 2005|By ANDREW LECKEY

I own shares of DaimlerChrysler AG and am concerned about what the future may hold for the company. What's your opinion?

- R.L., via the Internet

When Daimler-Benz AG and Chrysler Corp. merged in 1998 to create the world's fifth-largest automaker, top boss Juergen Schrempp boldly predicted the company would become the world's most profitable carmaker.

Toyota Motor Corp., however, still holds that top spot. Meanwhile, the market value of DaimlerChrysler shares has fallen about 50 percent since the merger, and is down 15 percent this year after a gain of 4 percent last year.

Surprisingly, the Chrysler side of the business has burst full speed ahead, while Mercedes has sputtered on quality control and weak-dollar problems.

For example, the company is recalling 1.3 million Mercedes-Benz cars worldwide, its biggest recall ever, to fix alternator and battery problems. The voltage regulator will be replaced if needed. It will install battery-control software on E-class and CLS-class models built from January 2002 through January 2005.

Schrempp says "operational excellence" is now its top priority, with no mergers planned for a while.

Chrysler is a success story, thanks to popular vehicles such as the Chrysler 300 sedan. In fact, it was the only Detroit carmaker to increase its U.S. market share last year. Nearly 10,000 Chrysler managers will receive bonuses for a $1.9 billion profit in 2004 after a $637 million loss the year before.

The company is investing $506 million in two suburban Detroit plants to produce small and mid-size Chrysler vehicles with greater use of robots and new die standards designed to reduce costs.

The consensus analyst recommendation on DaimlerChrysler stock is "hold," though there's a wide range, according to Thomson First Call in Boston. It consists of three "strong buys," no "buys," three "holds," two "sells" and one "strong sell."

While DaimlerChrysler's balance sheet is not as strong as Toyota's, it far exceeds its U.S. rivals. Earnings are expected to increase 28 percent this year and 17 percent next year. The five-year annualized growth rate is projected to be 6 percent.

I own shares of Fidelity Growth & Income Fund and haven't been overwhelmed by the performance. What do you see in the future for it?

- D.S., via the Internet

A. It rarely crawls out on a limb. This conservative fund with an experienced portfolio manager fared especially well during the bear market. That's why it has been a magnet for 401(k) retirement money.

It has made occasional mistakes, however, such as betting on the stocks of Pfizer, SBC Communications and Verizon Communications last year.

The $32 billion Fidelity Growth & Income Fund (FGRIX) gained 3.16 percent over the past 12 months to rank in the upper one-third of large growth and income funds. Its three-year annualized return of 1.57 percent places it in the upper half of its peers.

"This fund is for an investor who doesn't want anything exciting to happen and would like to stay close to the Standard & Poor's 500 while paying relatively modest expenses," said Jack Bowers, editor of the independent Fidelity Monitor newsletter (www.fidelitymonitor.com) in Rocklin, Calif. "It's just so big in size that it has a tough time outperforming the market."

Portfolio manager Steven Kaye, in charge since 1993, tries to match industry weightings, much as an index fund does, but keeps technology holdings low to reduce volatility. He favors steadily growing companies, especially financial and telecommunications firms.

"I do have a `buy' rating on the fund because its longtime manager has a reasonably good track record and it is backed by good Fidelity research," Bowers said.

Fidelity Growth & Income Fund's top holdings recently were General Electric, SLM, Exxon Mobil, Verizon Communications, SBC Communications and Pfizer. This "no-load" (no sales charge) fund requires a $2,500 minimum initial balance and has a low annual expense ratio of 0.69 percent.

Fidelity was not implicated in market-timing or late-trading mutual fund scandals that rocked the industry.

Andrew Leckey is a Tribune Media Services columnist. E-mail him at yourmoney@tribune.com.

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