Q–What’s your opinion of the stock of Ames Department Stores? Its stock has certainly increased a lot in value. Has it topped out?
A–Although stock of the nation’s fifth-largest discount chain isn’t widely followed on Wall Street, you might be onto something.
There are just two analyst recommendations on Ames Department Stores, but both of them are strong buys, according to the I/B/E/S International research firm. Expect coverage of this company to expand in the future, especially after some large Wall Street firms become interested in it.
Ames stock, which has performed well, as you noted, remains relatively inexpensive even though its earnings prospects are superior to many competitors.
In existence since 1958, Ames boasts annual sales of better than $2 billion derived from more than 300 stores in the Northeast, Mid-Atlantic and Midwest regions. Emphasizing middle- and lower-middle-income customers, it sells brand-name merchandise that includes apparel, housewares, hardware, electronics, car accessories, health products and office supplies.
Ames earnings are expected to grow 45 percent this year, nearly double the rate of its industry. The following year, it’s expected to post a 31 percent increase, versus an 18 percent gain industrywide.
Q–I recently received notification from my mutual fund company that it’s converting my balanced fund, along with several others, into “feeder” funds whose assets are invested in a “master” portfolio. What are the implications of this?
A–It’s basically a way to sell a single investment portfolio of a fund family as several different funds by using additional sales channels such as brokerage firms or banks.
To accomplish this, the marketing and distribution process is separated from portfolio management. Names and sales charges of the various feeder funds branching off from the master portfolio may differ, despite the fact the investment portfolio is exactly the same.
“It’s not really a new concept, and is normally a sign of an organization that isn’t particularly strong in marketing and therefore needs help with distribution channels,” observed A. Michael Lipper, president of Lipper Analytical Services.
There can be drawbacks, Lipper noted, because some investment decisions in the master portfolio could favor one feeder fund over another. For example, if the fund is largely institutional, it might invest to benefit primarily institutional investors who aren’t so concerned with short- and long-term capital gains tax implications. It may not be quite as concerned about tax consequences for individuals.
What’s most important is the quality of the fund and its manager, performance, holdings and expenses.
Q–I’m 48 years old, have worked for General Motors for 29 1/2 years and plan on retiring this July. I’ve been investing for 10 years and have put aside $100,000. What do you think about the Brandywine Fund as an investment?
A–Run by teams of analysts that are in constant friendly competition to get their stock selections into its portfolio, this highly disciplined fund has excelled in a variety of market conditions.
The $7 billion Brandywine Fund, with a 19.9 percent return over the past 12 months, ranked in the top 11th percentile of midcapitalization growth funds. Its three-year annualized return of 18.06 percent placed it in the top 17 percent of its peers.
This “no-load” (no initial sales charge) fund based in Greenville, Del., isn’t for everyone because it requires a hefty $25,000 minimum initial investment. However, it might just be the ticket for you because you do have a significant sum to invest.
It’s definitely a fund best left to aggressive investors, since those volatile technology stocks recently made up more than one-third of its holdings. Its other favorite groups have included retailing and energy. Its top holdings were recently Intel, Cisco Systems, Schlumberger, Compaq Computer, 3Com, Toys “R” Us, Gap and Sears.
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Andrew Leckey, whose book “The Morningstar Approach to Investing: Wiring into the Mutual Fund Revolution” (Warner Books) is available in bookstores, answers questions only through the column. Address inquiries to Andrew Leckey, “Successful Investing,” Suite 367, 76 N. Maple Ave., Ridgewood, N.J. 07450.
