I recently acquired shares of Ford Motor Co. What is the outlook?
- A.M., via the Internet
While the world's No. 2 carmaker kept on truckin' with booming sales throughout the 1990s, the new century wasn't so kind.
Growing competition in the light-truck market and fierce sales-incentive wars ravaged its balance sheet. Lately, however, it has been able to significantly cut its costs and also obtain more advantageous labor contracts.
Those actions helped boost the shares of Ford 64 percent in value in the past 12 months. That compares with declines of 39 percent in 2002, 30 percent in 2001 and 25 percent in 2000, though the stock is still not back to the levels of its glory days.
There's much more to this famous firm than Ford, Lincoln and Mercury vehicles. While many potential car buyers probably believe Land Rover, Jaguar and Volvo are foreign makes, all three are Ford-owned. In addition, the Ford Credit unit offers car financing and includes the Hertz rental car business.
The company recently said it will cut $1,000 in production costs from its new F-150 pickup truck, its best-selling vehicle, by the end of 2004, thanks to lower parts costs and design changes. Industry analysts had criticized its price increase over last year's model.
Ford is to receive guaranteed price cuts on auto parts manufactured by Visteon Corp. through 2007. This comes in exchange for assuming $1.65 billion in retiree health-care costs of that former division that was spun off as a separate company in 2000. Ford also is to receive deals on future contracts with Visteon.
It had to take a $1.6 billion fourth-quarter charge to complete that deal designed to prop up the finances of the stumbling parts maker.
Because of competitive pressures the company faces, Ford shares receive a consensus "hold" rating from the Wall Street analysts who track them, according to the Thomson Financial research firm. That consists of one "buy," 10 "holds," four "sells" and one "strong sell."
The carmaker's earnings-growth rate was an estimated 56 percent for 2003, compared with a 5 percent growth rate estimate for the automotive industry. The forecast of a 15 percent increase for this year compares with the 5 percent anticipated industrywide.
A projected five-year annualized growth rate of 5 percent lags behind the 6 percent gain predicted for Ford's peers.
Finally, Ford will invest $1 billion in China over the next several years to boost production and open new plants. This is being done in partnership with that country's Changan Automobile Group. The Chinese automobile market is expected to become the world's third-largest by 2006.
I'm in the process of building a retirement portfolio. American Funds Growth Fund of America was suggested to me. What do you think of it?
- P.M., via the Internet
If you believe bigger is better, this fund is for you.
With $61 billion in assets, it is the biggest fund investing in large growth company stocks. Its strong performance, tax-efficiency and low annual expense ratio of 0.75 percent have added to its popularity - and escalating size.
The portfolio is managed by six Capital Research and Management portfolio managers, each experienced and assigned to run a separate portion of assets.
American Funds Growth Fund of America (AGTHX) gained 24 percent in the past 12 months to rank in the top one-fourth of all large-growth company funds. Its three-year annualized decline of 6 percent put it in the top one-tenth of its peers.
Over the past 10 years, the fund gained 13.27 percent, which is 2.64 percent better than the Standard & Poor's 500.
"If you're looking for a fund to anchor your portfolio, this one could do the job well," said Paul Herbert, analyst with Morningstar Inc. in Chicago. "It's ahead of both its category and the index again over the past year, and hasn't significantly underperformed in years when most funds are down."
Popularity is a two-edged sword, since rapid growth and enormous size make trading more difficult, Herbert cautioned. This fund often has a chunk of its assets in cash, which some investors may not like.
As might be expected, American Funds Growth Fund of America is a top shareholder in many companies, including Time Warner and InterActiveCorp, and wields influence over their corporate policy. Other top holdings are Lowe's Companies, American International Group, Taiwan Semiconductor Manufacturing, Target, Altria Group, Forest Laboratories, Applied Materials and AT&T; Wireless Services.
Hardware stocks currently represent 16 percent of its portfolio, while other significant concentrations are consumer services, health care and media. This fund has a 5.75 percent "load" (sales charge) and requires a minimum initial investment of $250.
Andrew Leckey is a Tribune Media Services columnist. Write to him in care of Your Money, Room 400, 435 N. Michigan Ave., Chicago 60611 or via e-mail at yourmoneytribune.com.