I like the prospects of Merck & Co. and am thinking of adding to my position. What's your opinion of the stock?
- M.S., via the Internet
Because its stock has been under the weather for some time, the third-largest drug company is trying to revive its earnings growth by seeking approval of several drugs and vaccines in the next three years.
This is critical because, starting in 2006, Merck's blockbuster Zocor cholesterol medication will face competition from less-expensive generic drugs. Both Zocor and Vioxx, its top-selling drugs, have been losing market share to Pfizer products.
Merck has been around since 1891. It has strong cash flow, has never had a product recalled in this country and was the country's largest drug company until its rivals started merging.
However, it is criticized for not having enough medications in its pipeline and had to abandon four experimental medications after disappointing clinical results last year.
Last fall, Merck announced a major restructuring that included 4,400 job cuts. It spun off its prescription benefit management subsidiary, Medco Health Solutions, in a tax-free dividend to Merck stockholders last year after an initial public offering plan fell through.
Shares of Merck (MRK) were down 16 percent in 2003, following declines of 1 percent in 2002 and 36 percent in 2001.
The company's game plan includes submission for U.S. Food and Drug Administration approval of its Arcoxia arthritis medicine, as well as its application with partner Schering-Plough to sell their cholesterol medications as a single pill. It also is applying to market a combination vaccine for measles, mumps, rubella and chicken pox.
Because of uncertainties, Merck shares receive a consensus "hold" recommendation from Wall Street analysts who track them, according to the Boston-based Thomson First Call research firm. That consists of three "buys," 24 "holds" and two "sells."
It's estimated that Merck earnings declined 2 percent in 2003, vs. an estimated gain of 6 percent for the pharmaceuticals industry. This year's projected 7 percent rise compares with 13 percent expected industrywide. The forecast of a 5 percent five-year annualized gain falls short of the 11 percent estimate for its peers.
Peter Kim, renowned Massachusetts Institute of Technology scientist, came on board in 2001 to improve research efforts. Chief Executive Officer Ray Gilmartin, who has vowed not to merge Merck with another drug firm because it would cost too much long-term, retires in two years at 65 and intends to groom an internal candidate to succeed him.
I'm 53 years old and I own seven relatively conservative mutual funds. I'm looking to add a more aggressive fund. What do you think of American Century Growth?
- T.N., via the Internet
It's hardly the Evel Knievel of stock funds.
While its portfolio managers are willing to take a few chances by concentrating on groups such as technology or health care, they're careful. Some of their more staid holdings such as Procter & Gamble have held back recent returns.
Market dominance by small-company stocks has pushed the returns of this large-company growth fund further into the background. However, it still has a decent long-term record that was accomplished with below-average volatility.
The $4.3 billion American Century Growth Fund (TWCGX) rose 18 percent over the past 12 months, which ranked it in the lower one-third of large growth funds. Its three-year annualized decline of 13 percent placed it just above the midpoint of its peers.
"For investors looking for broad, large-growth stock exposure, but who don't want a wild ride, this fund is a respectable option," said Christopher Davis, analyst with Morningstar Inc. in Chicago.
"If you paired this fund with a large value fund, you wouldn't need any more large-cap exposure in your personal portfolio."
American Century Growth Fund emphasizes large, established companies with accelerating growth in earnings and is allowed to hold up to 10 percent of assets in cash. Co-managers Greg Woodhams and Prescott LeGard were joined by Tim Reynolds in mid-2003.
All three have solid experience both as analysts and managers.
Twenty-one percent of the portfolio is currently in health-care stocks, with other large concentrations in hardware, financial services and consumer services.
Its largest holdings recently were such familiar names as Microsoft, Pfizer, Intel, General Electric, Cisco Systems, Wal-Mart Stores, Dell, American Express, Procter & Gamble and Amgen.
This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment. Its annual expense ratio is 1 percent.
Andrew Leckey is a syndicated financial columnist. Write to him in care of Your Money, Room 400, 435 N. Michigan Ave., Chicago, Ill. 60611 or via e-mail at yourmoneytribune.com.