Without Chrysler, Daimler may fly

October 07, 2007|By Andrew Leckey | Andrew Leckey,Tribune Media Services

Now that Chrysler is no longer a part of the company, what is the situation for Daimler AG and its shares?

- R.M., via the Internet

The German automaker is giving the general impression that a house guest has finally left after an extended visit.

Relieved to bid goodbye to all but 19.9 percent of money-losing Chrysler, Daimler has said it expects to return to double-digit operating margins by 2010 at the latest.

Top boss Dieter Zetsche - known in the United States as the star of Chrysler's "Dr. Z" car commercials - said the new Daimler "starts on a very solid and healthy basis."

His companywide program of operational improvements and cost-cutting since assuming his post in mid-2005 is helping the bottom line.

Less ambitious

Fortunately, he does not share predecessor Juergen Schrempp's burning desire to lead the world's largest automaker, an ambition that led to the Chrysler merger.

Not that the high-end luxury car segment is a pleasure ride either: The automaker has had to work hard to overcome quality-control problems in the building of Mercedes vehicles. It faces tough European unions and a host of aggressive luxury car competitors.

Shares of Daimler (DAI) are up 68 percent this year after a gain of 20 percent last year.

The company has a large cash reserve, and will use some of it to buy back as much as 10 percent of its stock.

Many analysts predict continued dividend increases and share repurchases during the next several years.

Profits declined 14 percent in its second quarter amid the sale of Chrysler.

Daimler is taking a $3.38 billion charge from transferring 80.1 percent of Chrysler to private-equity firm Cerberus Capital Management for more than $7 billion.

At the new Daimler, cars now account for just over half of revenues; trucks, vans and buses for one-third, and the lucrative financial-services unit represents the rest. The company employs about 375,000 people worldwide.

The consensus Wall Street rating of Daimler shares is between a "buy" and a "hold," according to Thomson Financial. That consists of three "strong buys," two "holds" and one "under perform."

The company expects improved cash flow and a better balance sheet, thanks in part to shedding the $20 billion in Chrysler health care liabilities.

The new generation of Mercedes C-Class sedans, the company's best-seller, should help this year's bottom line.

Daimler earnings are expected to increase 46 percent this year and 22 percent next year, according to Thomson.

I've had money in Janus Fund for some time and wonder if it is still a good bet. What do you think?

- F.R., via the Internet

The holdings of this classic large-cap growth fund are well-researched by manager David Corkins and the Janus team of analysts.

They seek growth at companies possessing catalysts capable of improving their prospects, such as new products or opportunities.

Unlike many growth funds, the funds that Corkins managed in the past held up well during the bear market.

The $12 billion Janus Fund (JANSX) has a 12-month return of 21 percent and a three-year annualized return of 13 percent. Both results rank in the upper half of large growth funds.

"We recommend the Janus Fund because it represents a good way to play a growth investment comeback through one of the better funds Janus offers," said Karen Dolan, analyst with Morningstar Inc.

`Good job'

"Corkins has done a good job of reshaping the portfolio since taking over on Feb. 1, 2006, and doesn't pay up too much for stocks."

The fund doesn't overemphasize sectors, instead focusing on strong free cash flows and high returns on invested capital. It prefers management that is oriented toward shareholders.

Corkins took over after several years of mediocre results by Janus Fund. Corkins had solid results when previously managing Janus Growth & Income Fund and Janus Mercury Fund.

Yet no one can ever remove all volatility from growth funds, because their stock prices are based on growth prospects.

"I think this fund will do better on the downside than other growth funds," Dolan said. "Nonetheless, one of the risks with growth funds in general is potential downside."

Industrial materials represent 16 percent of the portfolio; financial services 15 percent, and technology hardware 13 percent. Top recent holdings were Boeing Co., Exxon Mobil Corp., JPMorgan Chase & Co., General Electric Co., Roche Holding Ltd., Procter & Gamble Co., NRG Energy Inc., Texas Instruments Inc., Precision Castparts Corp. and EMC Corp.

This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has an annual expense ratio of 0.90 percent.

I receive a number of proxy statements from companies and must admit that I just throw them out. Do people actually vote and turn them in? Do they make any difference?

- N.M., via the Internet

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