Q-I’m 62 years old and own shares of Fidelity Select Health Care Portfolio. For the past year, the health-care industry has been weak and this fund’s performance reflected that. What’s your advice?
A-This once-robust fund has been in sick bay lately.
The recent performance of Fidelity Select Health Care Portfolio, down 19 percent the last 12 months, points out that no sector fund should ever constitute more than 10 percent of an individual’s portfolio.
Over five years, this $754 million fund with above-average risk had a stellar 20.82 percent annual average return. Assets mushroomed in 1991 to $1.1 billion from $373 million when health-care investment was hot.
However, many investors sold last year after performance slipped on worries about potential changes in U.S. health care.
“An investor in a sector fund must either view it as a long-term investment, or try to buy in at the bottom and get out at the top,” explained Lori Lucas, contributing editor of the Morningstar Mutual Funds investment advisory publications. “Unfortunately, a lot of investors in various Fidelity Select funds buy at the top and get out at the bottom.”
You could hold or buy shares in Fidelity Select Health Care Portfolio as a contrarian play, since so many people are skeptical about health care due to President Clinton’s goal of reducing costs, said Lucas. It does, after all, still rank highly due to its strong historical performance.
Yet with so many questions remaining, there’s no question that this sector fund qualifies as “rather down and out right now,” she said.
Q-I noticed Alberto-Culver Co. is trading close to its high for the year. Is this a stock to buy, sell or hold?
A-Longer-term, it looks beautiful.
Hold Alberto-Culver Co. (around $26 a share, New York Stock Exchange), but don’t buy more now because it’s being pressured by the cost of aggressively introducing its VO5 products in Scandinavian countries, said Andrew Shore, analyst with PaineWebber Inc.
This quarter should be difficult, but earnings comparisons should get easier, and its stock will ultimately prove to be undervalued, Shore predicted.
“Alberto-Culver has excellent brand names and tremendous cash flow, and margins will continue to improve,” said Shore. “I currently give it just a neutral rating because of all that money being spent in international markets.”
The firm’s diamond in the rough, he believes, is its Sally Beauty Co., which supplies beauty items through a chain of more than a thousand wholesale retail stores.
Q-I was unhappy when the dividend on my holdings of Oryx Energy Co. was cut. Should I hold or sell this stock? Are further dividend cuts likely?
A-Buy more shares of Oryx Energy Co. (around $24, NYSE) because even though 1993 will likely be a weak year, it marks a turning point that should lead to solid growth, said Thomas Driscoll, analyst with Salomon Brothers Inc.
This oil and gas exploration and production company is unlikely to cut its dividend further, he believes. Production gains, debt reduction and an improving oil and gas environment are expected for 1994 through 1996.
“By the time we reach 1997 and 1998, there could be very large production gains for Oryx coming from the Gulf of Mexico and the British North Sea,” added Driscoll. “I have a $25-a-share target price for the stock, derived from its asset value.”
Q-I own 100 shares of Grand Casinos. My broker advises me to hang in there even though I’ve already lost a lot of money. What do you think?
A-It may be a gamble worth taking.
If you’re an aggressive but patient investor with a diversified portfolio, Grand Casinos Inc. (around $25, over the counter) offers opportunities, said Sharon Conway, based in Chicago with A.G. Edwards & Sons.
The company manages two casinos in Minnesota and is building another in Louisiana for Native American tribes. Meanwhile, a dockside casino is being built in Mississippi, which the firm will operate on its own.
The casinos are profitable and have given jobs to many unemployed tribal members. Besides the regular gambling operation, there is bingo, a food outlet and an entertainment lounge. Future plans include a hotel, day-care center and video arcade.
Q-I own shares of Stone Container Corp., purchased at $35 a share. Is this a good investment for a retired couple? I’ve been advised to sell and purchase some blue-chip stocks, which would mean taking a loss. Am I being foolish to hold on in hopes it will return to $35?
A-Stone Container (around $15, NYSE) has risk, but such cyclical stocks may do better over the next few years than many blue-chip stocks, said Richard Wholey of Chicago-based Wayne Hummer & Co.
The company is suffering from excess capacity in containerboard and paper markets. Heavy debt from big acquisitions adds to risk.
“Despite the negatives, Stone Container shares have significant long-term recovery potential,” said Wholey, who believes that if you can handle risk, your stock should prove rewarding the next few years.
———-
Andrew Leckey, whose column appears Sunday in Business and Monday and Thursday in Your Money, answers questions only through the column. Address inquiries to Andrew Leckey, Chicago Tribune, 435 N. Michigan Ave., Chicago, Ill. 60611
