Q–We have two uncirculated and unframed Krugerrands, purchased when gold was more than $800 an ounce. How much would they be worth now?
A–Sometimes you win. Sometimes you lose. You unfortunately bought your coins 17 years ago when gold prices were at the highest level in history. You also purchased a type of coin that diminished in popularity.
As a result, you’ll receive well under half what you paid for them. The price of gold has lately been around $325 an ounce, with a South African Krugerrand selling at a small 1.3 percent premium to that gold price.
“If you want to sell a Krugerrand back, however, you’d probably just get the price of the gold,” explained Jeffrey Christian, managing director of the CPM Group in New York. “That’s because the Krugerrand has lost popularity and also because it’s only 91.6 percent gold, not the 99.99 percent that became the norm for most other gold coins starting in the late 1980s.”
In many world markets, especially Asia, buyers don’t want to buy lower purity gold coins, he noted. In fact, demand for new Krugerrands is so low that South Africa is minting only about 34,000 ounces annually.
That compares to 405,000 ounces minted in American Gold Eagle coins last year, which sell at a premium of about 3.5 percent. Other popular gold coins include the Canadian Maple Leaf and the Australian Kangaroo, each of which command a 3.5 to 4.5 percent premium.
Q–As my favorite financial source, I’d like you to tell me what you think of Kmart stock. I wanted to buy $20,000 worth of it months ago, but my broker advised against it. Now that the price is higher, he says I should buy it for the long term. I’m inclined to do so. This is for my grandchildren. I’m 80 years old, but still kicking.
A–Like you, the nation’s third-largest retailer is still kicking. A new management team seems to be making a difference.
Not everyone on Wall Street, however, has been completely won over. The consensus recommendation on stock of Kmart from analysts who track it is a “hold,” according to the I/B/E/S International research firm. That includes seven “buys,” 11 “holds” and one “underperform.”
Kmart, which has suffered through high-visibility troubles in recent years, operates more than 2,000 discount stores in this country and has retail operations in Canada, the Czech Republic, Slovakia and a joint venture in Singapore. It also has an interest in an Australian retailer, a footwear retailer and a discount drugstore chain.
Despite significant problems in women’s apparel sales, Kmart’s second-quarter net income was $31 million, or six cents a share, beating analyst expectations. A year earlier, it posted earnings of $34 million, or seven cents a share, but that included income from discontinued operations. Overall sales rose 3.7 percent to $7.85 billion in the recent quarter.
The discount retailer is benefiting from having improved its ability to control its selling and administrative expenses. At the same time, price competition among discounters has eased. The company’s projected earnings growth rate for this year is 41.6 percent, while its five-year median growth rate is 10 percent.
“There’s a lot of uncertainty about Kmart, so its stock is being valued not only on earnings expectations but on the uncertainty as well,” noted Peter Crays, manager of U.S. research for I/B/E/S. “Of course, it’s helpful that the entire retailing industry seems to be doing very well compared to a couple of years ago.”
Q–I have been investing in the AIM Constellation Fund. Am I on the right track? I have a newborn grandson and am anxiously awaiting your answer.
A–It’s a good choice if you’re willing to assume some risk along the way.
The $14.6 billion AIM Constellation Fund was up 37.29 percent over the past 12 months, ranking in the upper quartile of mid-cap growth funds. Its three-year annualized return of 26.54 percent was in the top one-fifth of its peers.
Run by a four-person team, AIM Constellation has more than three-fourths of its aggressive portfolio in stocks appreciating rapidly due to rising earnings, making returns volatile at times.
“It is best-suited for the most aggressive portion of an individual portfolio that already holds large-cap and value-oriented funds,” counseled Paul Ellenbogen, equity fund analyst with the Morningstar Mutual Funds investment advisory. “While it has had superb long-term performance, a risk-averse person might not want to put money in it for the entire first 18 years of a grandchild’s life.”
The heaviest weightings were recently in technology, health care, retailing and services. Based in Houston, AIM Constellation’s Class A shares require a 5.5 percent “load” (initial sales charge), while its C shares have a 1 percent redemption charge in the first year. The minimum initial investment is $500.
———-
Andrew Leckey, an anchor on the CNBC financial 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.
