General Electric Co.'s stock hasn't done much lately. What's the outlook for it?
- J.N., via Internet
Being the only member of the original 12 stocks in the 1896 Dow Jones industrial average to remain in the famed indicator attests to its long history.
But the enormous conglomerate is maintaining a strong position in the present and future as well.
Success of the series Heroes and introduction of Sunday Night Football helped to revive its NBC network. Overall company earnings more than doubled in its fourth quarter, primarily on strong global sales of gas turbines, health care equipment, financial services and aircraft engines.
On a negative note, however, it would restate financial results from 2001 to 2005 and the first three quarters of 2006. This will wipe out $343 million in earnings from 2001 to 2005, while boosting profits in the first three quarters of 2006 by $130 million.
The move follows talks with the Securities and Exchange Commission's chief accounting office and an examination of the way it accounted for derivative transactions in its financial services commercial-paper program.
Shares of General Electric (GE) are down 6 percent this year after a gain of 6 percent last year and a 4 percent decline in 2005. The company, which boasts an AAA credit rating, intends to buy back as much as $7 billion of its own shares this year.
Jeffrey Immelt in his past five years as chief executive has worked to improve the balance sheet, acquire companies and divest most of GE's insurance businesses. In the event of a U.S. economic downturn, diversified companies generally are best positioned, and GE's strong overseas sales offer further protection.
The consensus recommendation on GE stock is a "buy," according to Thomson Financial. That consists of six "strong buys," 10 "buys" and four "holds."
GE recently agreed to buy two-thirds of the diagnostics business of Abbott Laboratories for $8.13 billion; the aerospace business of Smiths Group PLC for $4.8 billion, and oil and gas operations of Vetco International Ltd. for $1.9 billion. All three deals are expected to be completed in the first half of the year.
It also plans to sell its plastics business.
Earnings are expected to increase 12 percent this year and next, with a projected five-year annualized return of 10 percent. These forecasts are roughly in line with expectations for the conglomerates industry as a whole.
What is your opinion of Fidelity Focused Stock Fund? I have been disappointed of late.
- Q.R., via the Internet
With about 50 stock names, it is one of Fidelity's more concentrated funds and therefore must be judged primarily on its stock-by-stock selections.
Since taking over in early 2004, portfolio manager Bob Haber produced a strong 2004 and 2005 but a weak 2006. Having a small number of holdings inevitably results in some volatility, while having a small asset base makes the fund nimble.
The $75 million Fidelity Focused Stock Fund (FTQGX) gained 9 percent over the past 12 months to rank in the bottom 5 percent of large growth-and-value funds. Its three-year annualized return of 15 percent places it in the top 5 percent of its peers.
"Fidelity Focused Stock Fund would be used in a complementary role to a more diversified growth fund but shouldn't be considered a core holding," said Jim Lowell, editor of the Fidelity Investor newsletter (www.fidelityinvestor.com) in Potomac, Md. "We have a `buy' rating on the fund, a reflection of my confidence in the manager's approach."
Balance-sheet strength, financial ratios and earnings surprises are among the fund's primary criteria when selecting stocks. It focuses on quantitative analysis of the overall market, and within that system has some fundamental investing screens. To some, this investment philosophy mix lacks a bit of clarity.
Haber, whose long professional history at Fidelity includes running several funds and directing its U.S. stock research unit, has between $50,000 and $100,000 of his own money invested in this fund. Because he has gained the added role of chief investment officer for Fidelity's new Pyramis institutional money-management unit, a new manager could take over Fidelity Focused Stock Fund.
Financial services make up 27 percent of the fund's holdings, with significant concentrations in industrial materials, health care and energy. The top holdings recently were Hewlett-Packard, Ace, Qwest Communications International, McKesson, W.R. Berkley, TXU, Tesoro, Terex, Carolina Group and Archer Daniels Midland.
This "no load" (no sales charge) fund requires a $2,500 minimum initial investment. It has an annual expense ratio of 0.98 percent, which has remained steady and is below the median for its peers.
We recently met with a financial planner who charges a fee that is a percentage of the amount he is going to manage for us. Do you recommend such an arrangement, or are there better alternatives?
- S.D., via the Internet