Toyota remains a star in ailing auto industry

Taking Stock

Your Money

September 18, 2005|By ANDREW LECKEY

Q: I'm considering shares of Toyota Motor Corp. because it seems the company is doing all the right things. What is your opinion?

- K.C., via the Internet

A: It is the shining star of the automobile industry, though that industry is rather gloomy these days.

Despite a healthy balance sheet, this global Japanese carmaker has been criticized for going full speed down the road of dramatic growth as it attempts to overtake General Motors Corp. as the world's largest carmaker.

Rather than put additional money into plants and equipment to continue this sales momentum, critics contend it should be working harder to improve earnings and shareholder return.

Revenue in its fiscal first quarter rose 10.5 percent to a record level, and it raised its total vehicle projection for the full year. Yet net profit declined 6.9 percent in the quarter.

U.S. shares of Toyota (TM), are up 6 percent this year, after gains of 19 percent last year and 30 percent in 2003.

The company avoided the costly price wars waged by U.S. carmakers and increased prices on a number of vehicles, in most cases by 2 percent.

It is believed that research and development costs were heavily weighted into the first portion of this fiscal year and have peaked.

Amid current high gasoline prices, Toyota is a leader in gas-electric hybrid vehicles, and its Prius is the best-known hybrid. It plans to sell 600,000 hybrids annually in the United States by early in the next decade.

But it remains to be seen which of the many auto manufacturers working on high-mileage technology ultimately will come up with the most effective and profitable product.

Earnings are expected to increase 2 percent for the current fiscal year ending in March and 7 percent next fiscal year. Projected five-year annualized growth rate is 5 percent.

The company ranked No. 1 in owner satisfaction with a score of 87 out of 100 in the latest University of Michigan American Customer Satisfaction Index.

But it is recalling 978,000 sport utility vehicles and pickups built between 1989 and 1998 due to power-steering concerns.

Its Scion brand for younger buyers has caught on well, the next-generation RAV4 sport utility vehicle makes its U.S. debut in January and it is introducing the Lexus brand to the Japanese market.

Q: I've heard about Marsico Growth Fund and am thinking about investing in it. Is this a good fund?

- R.L., via the Internet A: Its reputation is a reflection of its fine portfolio manager, Tom Marsico.

Marsico successfully combines his outlook on the economy, inflation and interest rates with fundamental analysis of companies to come up with a portfolio of about 50 stock names.

The $2 billion Marsico Growth Fund (MGRIX) gained 18 percent over the past 12 months to rank in the upper one-third of large growth funds. Its three-year annualized return of 14 percent puts it in the top one-fourth of its peers.

"While this is a growth fund that is very large-cap in nature, Marsico doesn't always stick to the usual growth sectors," said Karen Papalois, analyst with Morningstar Inc. in Chicago. "He doesn't have much in energy or technology - though he has a big Google position - and currently favors health care and consumer services."

To buy stock of companies with a competitive advantage, Marsico is willing to pay a reasonable premium. This requires patience on the part of the investor, Papalois said, because it sometimes takes a while for his ideas to work out.

Health care and consumer services each represent about one-fourth of the fund's portfolio. Other concentrations are financial services and industrial materials. Marsico is a large shareholder and more than 70 percent of the fund's board is independent. All members have money invested in the firm.

This no-load (no sales charge) fund requires a $2,500 minimum initial purchase. Its 1.30 percent annual expense ratio should be a bit lower, Papalois said.

Q: I am going to leave my current job soon and don't want to leave my money in the company's 401(k) retirement plan. I already have a Roth individual retirement account. Can I move my money into it?

- T.W., via the Internet A: No, you can't move that money directly into a Roth IRA. Money from a 401(k) must first be rolled over into a traditional IRA.

"Then, when you want to convert that traditional IRA to a Roth IRA, contact the custodian investment firm to have the funds from the traditional IRA moved into the Roth," said Beverly DeVeny, technical consultant with Ed Slott's IRA Advisor newsletter (www.irahelp.com). "At the point you convert, you must pay taxes on that money according to your income tax bracket."

With a Roth IRA, growth is tax-free and there are no required distributions at age 70 1/2 . Keep in mind that conversion from a traditional IRA to a Roth IRA is not allowed when modified adjusted annual gross income exceeds $100,000 (married couples filing jointly and single filers) in the year in which the conversion takes place.

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

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