Strong outlook, rates Motorola a `buy'

December 04, 2005|By ANDREW LECKEY

I've owned Motorola Inc. shares for five years. I've been happy with them for a while, but remember when they weren't so hot and worry if this could happen again. What do you think?

- K.C., via the Internet

Performance lately has been sharp as a razor. Sales of the ultra-slim, upscale Razr cell phone helped profits more than triple, to $1.75 billion in the most recent quarter. New Razr-style models also appear promising.

Motorola says its global share of the rapidly growing cell-phone market has risen to 18.6 percent, compared with 13.3 percent about a year ago. That ranks second, behind Nokia Corp.'s share of more than 30 percent. Cell phones represent half of Motorola sales, with additional income from infrastructure for wireless and cable networks.

Shares of Motorola (MOT) are up 44 percent this year, after gains of 37 percent last year and 62 percent in 2003. Investors must be realistic about intense competition in the cell-phone industry that led to its stock declining 42 percent in 2002; 26 percent in 2001 and 59 percent in 2000.

No maker of cell phones has been infallible because the telecommunications industry and phone styles have unpredictable cycles. For example, sales of the Rokr, a combination phone and digital music player Motorola introduced in partnership with Apple Computer Inc., are disappointing. In addition, Motorola's profit per handset lags behind some competitors.

Nonetheless, Edward Zander, a Sun Microsystems Inc. veteran who became chief executive in 2004, has Motorola focused on meeting challenges of a volatile high-tech business of more than 100 competing manufacturers.

The balance sheet was improved by spinning off its Freescale Semiconductor Inc. chip-making division. Motorola recently received a contract to provide low-priced $30 cell phones to developing countries such as India, Nigeria, Bangladesh, Yemen and Kenya.

Motorola, which assembles some handsets in India, is eliminating 1,900 jobs at 29 U.S. and foreign locations in its supply chain. Total work force remains at 68,000 because of added engineering and marketing positions. The impact of the Sprint purchase of Nextel Communications, Motorola's largest customer, will be monitored closely.

Its stock receives a solid consensus "buy" recommendation from Wall Street analysts, according to Thomson Financial, consisting of 12 "strong buys," 16 "buys" and nine "holds."

Earnings are expected to grow 30 percent this year, versus 21 percent forecast for the communication equipment industry, according to Thomson. Next year's projected 13 percent rise compares with 23 percent expected industrywide. The predicted five-year annualized increase of 12 percent compares with 15 percent expected for its peers.

I own shares of Janus Enterprise Fund. Should I be worried about it?

- J.T., via the Internet

It has had some dark days. Like a number of Janus funds, it was hammered in the bear market because it owned too many volatile technology, telecommunications and media stocks.

But Jonathan Coleman, portfolio manager the past three years, has made it more moderate, value-conscious and diversified.

Shares of the $1.7 billion Janus Enterprise Fund (JAENX) are up 18 percent the past 12 months to rank in the top third of mid-cap growth funds. Its three-year annualized return of 21 percent puts it in the top fifth of its peers.

Due to past problems, the five-year annualized decline of 5 percent ranks in the lowest one-fifth of its category.

"Coleman looks for growing, quality companies with dominant market positions," said Gareth Lyons, analyst with Morningstar Inc. in Chicago. "Mid-cap stocks are more volatile than stocks of more mature companies, so an investor's time horizon should be five to 10 years."

Portfolio turnover, once as high as 100 percent annually, is now about 35 percent. The largest position in any one stock won't exceed 3 percent of total assets, and riskier holdings have been unloaded.

Lyons considers this fund suitable to be a "supporting player" in an individual's portfolio, though the lowering of its risks makes it less likely to lead in growth stock rallies.

About 17 percent of Janus Enterprise Fund's assets are in health care, with business services, technology hardware and financial services other major concentrations.

This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has a low annual expense ratio of 1.03 percent.

Can I keep making contributions to my individual retirement account after I retire?

- K.P., via the Internet You can continue to contribute to your traditional IRA so long as you receive some sort of earned income in retirement, such as from consulting or part-time work. But you can no longer make contributions to that traditional IRA as of the year you turn 70.

"With a Roth IRA, on the other hand, you can continue to make contributions at any age, so long as you have earned income," said Beverly DeVeny, IRA technical consultant for Ed Slott's IRA Advisor newsletter in Rockville Centre, N.Y.

In addition, while you must start withdrawing from a traditional IRA at age 70, a Roth IRA owner never has to take withdrawals. That's why some individuals opt to convert their traditional IRAs to non-deductible Roth IRAs that permit tax-free distributions.

Andrew Leckey writes for Tribune Media Services.

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