Q–My wife and I read and enjoy your column. I’m 71 and she is is 68. One of our mutual fund holdings is Mutual Beacon Fund. What do you think of this choice?
A–This $6.1 billion fund, run by famous value investor Michael Price, is a troubleshooter.
It shrewdly pinpoints mid- to large-cap companies that at some point suffered significant setbacks and profits from them. It’s done especially well with bank stocks.
Overall returns, however, haven’t kept pace with some of its peers lately because one-third of its portfolio is in foreign stocks that haven’t performed as well as U.S. stocks. Yet, in the long run, they may more than make up for their current lagging tendencies.
Mutual Beacon Fund, up 35.49 percent over the past 12 months, has a three-year annualized return of 21.85 percent.
“The strategy for the entire Mutual Fund Series is to look for special situations or bankruptcies,” pointed out Sheldon Jacobs, editor of The No-Load Fund Investor newsletter (P.O. Box 318, Irvington-on-Hudson, N.Y. 10533), who says the fund could fit in most any individual’s portfolio.
The fund has the ability to invest up to 50 percent of its portfolio in the securities of companies involved in prospective mergers, consolidations, liquidations and reorganizations, Jacobs noted.
Services, financials and industrial cyclicals are big emphasis areas. The top stocks recently included Briggs & Stratton, Chase Manhattan, Foundation Health Systems, General Motors, Investor AB of Sweden, Lyonnaise des Eaux-Dumez of France, Morgan Stanley Dean Witter, Societe Elf Aquitane, Telephone & Data Systems and U.S. West Media Group.
Price is completing the first year of his five-year agreement to continue working with the Franklin Group, which purchased his funds two years ago. Since the sale, additional management team members besides Price are being publicized by Franklin, Jacobs said, yet everyone will inevitably be watching performance closely and speculating on what Price’s longer-term goals may be.
While the fund’s Class Z shares, now closed to new investors, are “no-load” (no initial sales charge), its Class I shares have a 4.5 percent load and Class II shares have a 1 percent front-end load and 1 percent back-end load in the first year. The minimum initial investment is $1,000.
Q–I’m thinking of retiring in two years and wonder if I should hold my shares of Cincinnati Milacron Inc. until then or sell them. They seem to be climbing at a steady rate. What do you think about this stock?
A–As the economy goes, so go cyclical stocks.
This manufacturer of machine tools and plastics processing machines will prosper so long as the the nation’s economic numbers look good.
The consensus recommendation on shares of Cincinnati Milacron Inc. among the Wall Street analysts covering it is currently a “buy,” according to the I/B/E/S International research firm. That consists of one “strong buy,” six “buys” and two “holds.”
The company, whose equipment is used by the metal-working, automotive, agricultural and aerospace industries, recently signed a contract to acquire Minnesota Twist Drill Inc., a maker of high-speed twist drills.
“Cincinnati Milacron is a cyclical company and the further you look out, the more assumptions you must make about the strength of the economy,” warned Peter Crays, manager of U.S. research for I/B/E/S. “Analysts are trying to figure when the economy is going to lose some steam and price pressures will hit companies like this.”
Expected earnings growth for Cincinnati Milacron for this year is 13.1 percent, versus a more robust 19.6 percent for the overall machine tool industry. Next year’s expected earnings growth of 13.3 percent will again lag behind the estimate of 17.5 percent industrywide.
Q–We bought shares of Cole Taylor, which split for some reason. Our stock was automatically changed to Reliance Acceptance Group. We were not asked if we wanted to do this. Is this legal?
A–They didn’t really pull a fast one and it wasn’t done in secret.
Cole Taylor Financial Group Inc. split off its banking unit in a sale to an investment group of Taylor family members for $83 million in both cash and finance paper, plus 4.5 million shares.
It changed its name to Reliance Acceptance Group to focus exclusively on its sub-prime finance business. That 17-state operation finances cars for customers with unreliable credit histories.
“Every shareholder was mailed a proxy statement and the proposals received more than 90 percent of the shareholder vote at our annual meeting on Nov. 15, 1996,” explained James Kaplan, Reliance senior vice president and general counsel.
It was a tax-free split-off, Kaplan noted, which reduced the total number of shares by 25 percent, thereby enhancing the value of the remaining shares.
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Andrew Leckey, a financial anchor on the CNBC cable television network, answers questions only through the column. Address inquiries to Andrew Leckey, “Successful Investing,” Suite 367, 76 N. Maple Ave., Ridgewood, N.J. 07450 or by e-mail at successinv@aol.com.
