Saks' shares back in fashion

Your Money

April 15, 2007|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Should I hold onto my shares of Saks Inc.? Has the company turned the corner?

- R.C., via the Internet

Image is everything in retailing.

The retailer's stock is coming back into fashion thanks to a renewed focus on its upscale Saks Fifth Avenue division. It helps that this has coincided with a general upswing in the results of luxury retailers.

Saks again is benefiting from the cachet associated with its famous brand and has plans to expand on that with large stores in Mexico City and in Shanghai, China.

Meanwhile, some Saks stores were closed, and the company is adjusting merchandise to better suit customer tastes. Women's shoe departments are a higher priority and are being expanded as store renovations take place.

Shares of Saks (SKS) are up 17 percent this year after a gain of 6 percent last year and 16 percent in 2005.

The $2 billion in cash generated from the sale of its regional Proffitt's/McRae's, Northern Department Store Group and Parisian stores was used to issue a special dividend to shareholders and pay down debt, improving the balance sheet.

Yet because Saks' returns in recent years trailed that of most competitors, it is a bit too early to declare a complete turnaround.

With recent hefty increases in the stock price taken into account, consensus rating on Saks shares is between a "buy" and a "hold," according to Thomson Financial, consisting of five "strong buys," one "buy," five "holds" and two "underperforms."

In its fiscal fourth quarter that ended in January, Saks had a 17 percent increase in sales and turned a profit that reversed a year-earlier loss. Major stores in New York City, Birmingham, Ala., and Orange County, Calif., excelled on strong sales of designer apparel.

"We have made much progress on understanding our core customer by market and on refining our merchandise assortments in each of our stores," said Chief Executive Officer Stephen I. Sandove, who moved up from chief operating officer early last year, in announcing a 25 percent surge in February same-store sales.

Earnings are expected to rise 130 percent in its current fiscal year ending in January 2008 and 65 percent the following year, according to Thomson.

Saks' five-year annualized growth rate is projected to be 8 percent versus 14 percent expected for the department store industry.

Would the Fidelity Stock Selector Fund be a good choice for my Fidelity holdings? I am reallocating my funds with the company.

- R.R., via the Internet

This blue-chip fund doesn't rest much.

It has around 200 stock names, and its returns are similar to the Standard & Poor's 500 index. It is an actively traded fund, with portfolio turnover of more than 100 percent a year.

The $837 million Fidelity Stock Selector (FDSSX) is up 10 percent during the past 12 months to rank in the bottom one-third of large growth and value funds. Its three-year annualized return of 10 percent places it in the upper one-third of its peers.

"In terms of performance, this fund doesn't have a lot to recommend it over an S&P 500 index fund, and there are better options at Fidelity for actively managed funds," said Jim Lowell, editor of Fidelity Investor newsletter (www.fidelityinvestor.com) in Watertown, Mass. "We have a `hold' rating, and it would require a manager change for us to consider upgrading."

James Catudal, manager since October 2001, has had success with other Fidelity funds. He shifted this fund away from its past computerized selection process to a more traditional strategy of finding large- and mid-cap stocks that could appreciate 15 percent. He limits his bets on segments and never exceeds 10 percent in cash.

"If you own this fund in a taxable account, there is no great urgency to sell it just to buy its equivalent in an index fund," said Lowell, noting that it has only a slightly higher risk level than an index fund. "But even if you wanted to invest in a fund in order to track the S&P 500, this would not be my preference to do it."

Financial services represents more than one-fifth of assets in Fidelity Stock Selector, with health care, hardware and industrial materials other significant concentrations.

Largest holdings are General Electric, American International Group, Microsoft, Exxon Mobil, Procter & Gamble, Johnson & Johnson, AT&T, Cisco Systems, Google and Bank of America.

This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has an annual expense ratio of 0.87 percent.

How does the Dogs of the Dow strategy work?

- C.M., via the Internet

There are variations of this strategy popularized by author Michael Higgins. In general, once a year you buy the 10 stocks in the Dow Jones industrial average with the highest dividend yield and hold on about a year.

This group historically has outperformed the overall Dow and most blue-chip indexes. During 2006, it featured stellar performers in General Motors, AT&T, Merck, Verizon Communications and JPMorgan Chase.

Current Dogs of the Dow based on year-end 2006 dividend yields are Pfizer, Verizon, Altria Group, AT&T, Citigroup, Merck, GM, DuPont, General Electric and JPMorgan Chase.

The variations: Selections don't necessarily have to be done at year-end; price performance is sometimes used instead of yield because some Dow stocks traditionally have high yields; and sometimes five stocks are used.

yourmoney@tribune.com

Andrew Leckey writes for Tribune Media Services.

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