A: Can this marriage be saved?
IN THIS PACKAGE
- Rate cut could tempt some into more debt
- Make up lost time with swift, smart action
- Closed firms can put 401(k) owners in a bind
- The savings game
- The Leckey file
- Getting started
- Spending smart
- Can they do that
- Taking stock
- The week ahead
- Andrew Leckey
Jan. 13: Mattel's offerings are playing well in overseas markets
Jan. 6: Sun Microsystems remains a work in progress
- Mergers, Acquisitions and Takeovers
- Companies and Corporations
See more topics »
Critics have said the deal merely created a bigger, financially weak company that is using cost cutting and job reductions as its primary strategies.
For example, it intends to eliminate more jobs than the 12,500 worldwide announced in February. There also is a heavy load of Lucent pension liabilities that could cause financial problems.
The company recently issued its third profit warning of this year. Expenses associated with the merger, weak North American wireless sales and declining product prices are taking their toll.
Competitors are making a strong push, sensing the company's weakness. For example, Ericsson claims to be gaining share in emerging markets.
Two key executives, each once considered a potential successor to Chief Executive Patricia Russo, have left the company. Frank D'Amelio, in charge of integrating the two companies, departed to become chief financial officer at Pfizer Inc. Mike Quigley, in charge of the combined company's strategy, returned to Australia.
Shares of Alcatel-Lucent (ALU) are down 35 percent this year following last year's 15 percent gain and a 21 percent drop in 2005.
Investors hope this is a transition year and things will improve. Alcatel-Lucent remains one of few giant, diversified telecom-equipment vendors, and Russo expresses confidence that the merger will improve profit margins. It is the global leader in broadband access equipment.
The consensus rating of the company's stock by Wall Street analysts is midway between "buy" and "hold," according to Thomson Financial. That consists of six "strong buys," one "buy," nine "holds," two "underperforms" and one "sell."
It isn't standing still. The company received a $400 million contract from Reliance Communications Ltd., one of India's largest mobile phone companies, and a $100 million contract from Hits Telecom in Uganda. It was part of a group of companies that won a $20 billion contract with the U.S. government to develop a communications network for federal offices.
Earnings are expected to decline 52 percent this year and increase 168 percent next year, according to Thomson. The five-year annualized return is projected to be 11 percent.
Q: I believe in socially responsible investing, but there are so many different funds. What is your opinion of Parnassus Equity Income Fund? -- V.M., via the Internet
A: It doesn't simply screen out stocks that aren't environmentally friendly, that make weapons or that sell alcohol or tobacco.
The fund seeks out companies that it believes treat employees well, promote workplace diversity or engage in philanthropy. It has a dividend emphasis, too, with about 80 percent of the stocks in its portfolio paying one.
It had a large cash stake in 2002 and 2003, which was a plus during the bear market but a drag as the market rallied. It has since pledged to stay fully invested.
The $892 million Parnassus Equity Income Fund (PRBLX) is up 17 percent over the past 12 months to rank in the lower one-half of large growth and value funds. Its three-year annualized return of 11 percent places it in the lowest one-fourth of its peers.
"We like portfolio manager Todd Ahlsten, but there are better-performing socially responsible funds with more proven management teams and strategies that have been in place longer," said Dan Lefkovitz, analyst with Morningstar Inc. in Chicago. "Ultimately, we don't recommend this fund."
Ahlsten, who took over Parnassus Equity Income in mid-2002 from long-time manager Jerome Dodson, had been named co-manager the previous year. Ahlsten is heavily invested in the fund. After employing the social filters, he is assisted by five analysts in selecting stocks based on his estimate of their intrinsic value. He invests across stock sizes and sectors.
"The fund's strategy is growth at a reasonable price," said Lefkovitz, who believes Ahlsten has yet to prove he can consistently add value compared with the indexes.
More than 20 percent of the fund's assets are in financial services, while health care and energy each represent 17 percent. The top holdings were recently JPMorgan Chase & Co., Apache Corp., Procter & Gamble Co., Microsoft Corp., Google Inc., Wells Fargo & Co., Sysco Corp., Valero Energy Corp., Rohm and Haas Co. and Aflac Inc.
This "no-load" (no sales charge) fund requires a $2,000 minimum initial investment and has a reasonable annual expense ratio of 0.99 percent.
Q: A few years ago, I bought a stock with a margin loan from my discount broker. I own several stocks and they have performed well, including the one bought on margin. Should I pay off the loan or continue to pay the margin interest? Are there tax consequences of which I should be aware? -- J.S., via the Internet
A: You can deduct a margin account's investment interest expense, though the deduction is limited to your income from investments. That deduction makes margin loans preferable to credit card debt.
"If you have higher interest-rate debt than the margin loan, pay off the higher interest first," said David Bendix, certified financial planner and certified public accountant with Bendix Financial Group in Garden City, N.Y. "If that's not the case, and you also have extra money to pay off the margin loan without having to sell any of the stock, it could make sense to pay it off."
Margin borrowing increases your market risk, and you must repay the loan regardless of the underlying value of the securities. If the stock falls below minimum price requirements, you will be asked to deposit additional cash or acceptable collateral. If you fail to meet that call, the brokerage may sell some or all of your securities to protect its loan.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at firstname.lastname@example.org.