Q–I’ve owned shares of Sprint Corp. for 20 years, since back when it was called United Telecommunications. I have reinvested dividends. I’ve also given some shares to my children, and I’d now like to give each of my five grandchildren 100 shares. I can’t understand why Sprint stock is going up so much when, in my opinion, earnings aren’t that great.
A–Expanding into new areas is inherently expensive. This telecommunication and information services giant is depending on its 8 million long-distance and 8 million local telephone customers to pull it through while it builds for the future.
Sprint’s first-quarter net income fell 27 percent on greater losses from new ventures such as its digital wireless and Internet-access businesses. But the company still beat analyst expectations by about 5 cents a share because of the strength of its core phone businesses.
Sprint’s stock is rated a consensus “buy” by the Wall Street analysts following it, according to the I/B/E/S International research firm. That includes two “strong buys,” nine “buys” and eight “holds.”
Its earnings are expected to decline 18.5 percent this year, versus a 16 percent gain for the overall telecommunications industry. A 27.5 percent increase is projected for next year, compared to a 24.4 percent gain industrywide. Sprint’s expected five-year annualized growth rate is just over 13 percent.
“The reason this year’s growth rate is negative is because Sprint has had somewhat of a change of business, so it’s probably more appropriate to look at next year versus this year,” advised Peter Crays, assistant vice president with I/B/E/S. “Looking at the longer-term numbers, this definitely is an industry that’s going to see growth.”
Global One, Sprint’s international partnership with France Telecom and Deutsche Telekom, posted a loss in the quarter, while costs tied to construction of Sprint PCS’ wireless network resulted in a loss for that group as well.
Sprint also publishes 325 directories in 20 states and, through Sprint Cellular, provides cellular telephone, paging and other services.
Q–I am within two years of being 70 1/2 years old and the past several years have been making annual contributions to MainStay High-Yield Corporate Bond Fund for my individual retirement account. Is this a fairly good choice at this time?
A–Its prospects are now improving.
The $3.8 billion MainStay High-Yield Corporate Bond Fund gained 15.88 percent over the past 12 months to rank at the midpoint of all high-yield bonds mostly because an imprudent investment in a number of Asian issues dragged its return down considerably.
However, its three-year annualized return of 14.38 percent places it in the upper quartile of its peers.
“Credit problems are a fact of life in the high-yield market because there’s a reason for offering a higher yield, a point that’s easy for investors to forget because there haven’t been many problems in recent years,” said Mark Wright, senior fund analyst with the Morningstar Mutual Funds investment advisory.
The fund has generally done a good job over the years, Wright believes, and the average credit quality of its bond portfolio is now BB, with about half the portfolio in B-rated bonds. The average effective maturity of its bonds is 5.9 years. Its top holdings recently were U.S. Treasury notes and the bonds of Viacom, Loewen Group, United International Holdings, CD Radio, Termadyne, First Pacific and Videotron. It had about 14 percent of its portfolio in cash.
MainStay High-Yield Corporate Bond Fund Class A shares require a 4.5 percent “load” (initial sales charge), while B shares have a redemption fee. The minimum initial investment is $500.
Q–I enjoy your column and hope you can answer this question posed to me by my daughter. She received a promotional letter for a credit card from Advanta Corp. that offers a 5.9 percent fixed introductory rate for parents to help save for their kids’ educations. It offers one point for every dollar charged to this Edvance MasterCard, plus one additional point for every dollar transferred from other higher-rate cards. When the point total reaches 2,500 points, you receive a $50 U.S. savings bond. What are your thoughts?
A–There are better ways to build for a child’s education. The Edvance program has been around about two years, with a 5.9 percent rate that lasts for six months and then kicks to a higher variable rate, which was a hefty 18.99 percent at the end of last year.
“That one point for each dollar and 2,500 for the savings bond really constitutes only a 1 percent payback,” explained Robert McKinley, president of RAM Research in Frederick, Md. “If you have reasonably good credit, you can qualify for a card at 12 or 13 percent and buy your own savings bond.”
Another new program is Citibank’s Drivers Ed credit-card program, which allows you to earn a 2 percent rebate toward a car purchase. When you buy the car, you receive a check for what you accumulated.
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Andrew Leckey, a financial anchor on the CNBC Cable Television Network, answers reader 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.
