Andrew Leckey

December 28, 2008|By Andrew Leckey

What gives with my Becton, Dickinson and Co. shares? I thought that its products were always needed.

B.R., via the Internet

The world's largest manufacturer and distributor of surgical products makes items that are health-care staples.

Its surgical products include needles, syringes and disposal units. It also makes diagnostic instruments and systems used to study cells. The firm derives economies of scale from its global manufacturing plants.

Net income for its fiscal fourth quarter, ended Sept. 30, rose 9 percent on stronger overseas sales and higher revenue from each of its main segments.

It derives more than half of its profit from overseas sales, which can be a problem. The stronger U.S. dollar is expected to weigh on its results, which means the firm must improve its operating margins to offset that drag.

Oil prices have fallen, but the price of oil-based resins used to make syringes, plastic dishes and other items remains a variable. In the past, the company has had some difficulty passing along price increases.

Shares of Becton Dickinson (BDX) are down 18 percent this year after last year's 19 percent increase and a 17 percent rise in 2006. The company has a healthy balance sheet with lots of cash, which it uses regularly to raise its dividend, repurchase shares, finance acquisitions and make capital expenditures.

Boasting a long history of smart management, Becton Dickinson underwent several changes at the top recently that are not expected to alter its direction.

The consensus rating among Wall Street analysts on Becton Dickinson shares is between "buy" and "hold," according to Thomson Financial. It consists of three "strong buys," two "buys" and five "holds." The medical field has its risks. For example, the company was less than successful in its blood glucose monitor business and dropped it. It is also a defendant in several class-action cases related to injuries incurred while using its products.

Earnings are expected to increase 9 percent in the fiscal year ending in September and 11 percent the next fiscal year. The forecast of five-year annualized growth rate is 13 percent, versus 14 percent expected for the overall medical instruments and supplies industry.

I have been told that Oakmark Equity & Income Fund has been reopened to new investment. Is this a good opportunity?

V.M., via the Internet

Closed to most new investors since mid-2004, the balanced fund was reopened in November. Although it has suffered declines, as most investments have of late, they have been less than those of most competitors.

Its conservative investment strategy employs safe, short-term U.S. Treasury notes and bargain-priced stocks. About half of its portfolio is in stocks, about one-third in fixed-rate and the remainder in cash.

The $12 billion Oakmark Equity and Income Fund "I" (OAKBX) had a 12-month decline of 18 percent and three-year annualized gain of 0.4 percent. Both results rank in the top 5 percent of moderate allocation funds.

"We consider it to be one of the finest funds in its category," said John Coumarianos, analyst with Morningstar Inc. "Its two managers seem to be equally involved in both parts [stocks and fixed income] of the portfolio, and they are both equally conservative."

Harris Associates is the fund's adviser. Clyde McGregor has managed the fund since its 1995 inception, while Edward Studzinski joined him in 2000. Each has more than $1 million of his own money invested in the fund, which is a good sign because it aligns their interests with those of the shareholders. Besides their own research, they are able to draw information from the analysts at Harris.

The largest portion of holdings in Oakmark Equity and Income are Treasury notes. In its stock portfolio, the largest concentrations are consumer goods, energy and industrial materials. Top stocks include XTO Energy Inc., CVS Caremark Corp., Nestle SA, General Dynamics Corp., Apache Corp. and EnCana Corp.

"The energy exposure poses some risk and volatility, but the outlook for energy is generally strong due to world demand," Coumarianos said. The "no-load" (no sales charge) fund has a $1,000 minimum initial investment and an annual expense ratio of 0.81 percent.

What are the tax rules for giving gifts of cash and stock? I would like to give gifts to both of my grandchildren this year, but I would like to avoid paying taxes on this.

H.T., via the Internet

If you give any one person gifts whose value exceeds $12,000 this year, you must report the total gifts to the IRS and might have to pay gift tax.

"You have to file the gift tax return, with the amount of the gift that is in excess of $12,000 per person deducted from your lifetime gift exemption," said Molly Balunek, certified financial planner and vice president with Spero-Smith Investment Advisers in Cleveland. "The exemption is currently $1 million."

"The gift value for stock is based on the current market value," Balunek said.

Excluded from gift tax are gifts to a spouse, a political organization, medical expenses and educational expenses. But because of the intricacies of gift tax rules, it makes sense to consult a tax adviser or the IRS if you have given gifts in excess of $12,000 this year.

E-mail Andrew Leckey at yourmoney@tribune.com.

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