What's the outlook for Altria Group? I bought the stock in 1999 and it's done quite well since then. But I'm worried that it might be risky. I'm 49 years old and this holding represents one-eighth of my portfolio.
- B.R., via the Internet
The company formerly known as Philip Morris Cos. has lately received boosts from favorable currency translation resulting from the weaker dollar and increased domestic tobacco sales.
An 18 percent increase in fourth-quarter profits was posted by this maker of dominant cigarette brands such as Marlboro, Merit and L&M.; Altria, the world's largest cigarette maker, has been taking market share from No. 2 R.J. Reynolds Holdings.
Yet Altria has boosted promotional spending to compete with deep-discount cigarette makers. It also finds itself constantly battling lawsuits over health risks of its products. Nonetheless, the tobacco industry provides such significant tax revenues that government is unlikely to drive it out of business.
Shares of Altria (MO) are up 3 percent this year after an increase of 43 percent last year. It offers a significant dividend to help investors cope with a fluctuating price and the risks you noted.
Chairman and Chief Executive Officer Louis C. Camilleri, who has held that position since 2002, was recently granted common stock worth $7 million by the company. He supports giving the Food and Drug Administration authority to regulate tobacco products and also hopes to introduce a cigarette with reduced toxins this year.
Kraft Foods, in which Altria owns an 84 percent stake, remains under pressure.
Kraft is cutting 6,000 jobs, or 6 percent of its work force, in a restructuring that will cost $1.2 billion over the next three years. It will also close up to 20 factories worldwide, starting in New York and Ohio. The combined steps are expected to save $400 million annually when completed.
Altria also owns 36 percent of SABMiller, the world's second-biggest brewer, and 100 percent of the Philip Morris Capital financial-services company.
Shares of Altria receive a consensus "buy" rating from the analysts who track them, according to the First Call research firm in Boston. This consists of three "strong buys," six "buys" and two "holds."
Altria earnings are expected to rise 5 percent this year, vs. the 6 percent forecast for the tobacco industry. Projections for an 8 percent growth rate and a five-year annualized rise of 8 percent are in line with industrywide expectations.
In March 2002, I invested in Smith Barney Aggressive Growth Fund and I've been disappointed with its performance. What's your opinion of this fund?
- P.H., via the Internet
Though it stumbled because of ill-timed holdings in Tyco International and health-care stocks, it has done a lot for you lately.
The $2.8 billion Smith Barney Aggressive Growth Fund "A" (SHRAX) is up 45 percent over the past 12 months, with a three-year annualized decline of 4 percent. Both results place it within the top 10 percent of all large growth stock funds.
Last year, when portfolio manager Richard Freeman's 20th anniversary with the fund was celebrated, he held the best 20-year record among growth-fund managers. He blends steady growers with higher-risk, fast-growth stocks. Portfolio turnover is low and he holds on to his big winners, making the fund tax-efficient.
Freeman was loading up on Intel Corp. stock in 1984. He is mostly buying mid-cap stocks these days, and there are some gyrations from his bets on sectors and stocks. The fund remains in the large growth category because of the longtime winners it holds.
"It's really a great fund for someone with a long-term focus, one of my favorites, with long-tenured, experienced management and a record that few funds can match," said Kelli Stebel, analyst with Morningstar Inc. in Chicago. "Freeman looks for good management, earnings growing at a double-digit clip and products with market position."
Before joining Smith Barney, Freeman worked at Shearson Lehman Brothers, Chemical Bank and Drexel Burnham Lambert.
More than 40 percent of Smith Barney Aggressive Growth's assets are in health care stocks. Other significant groups are hardware, media and financial services. Top stocks are UnitedHealth Group, Lehman Brothers Holdings, Forest Laboratories, Chiron, Amgen, Genzyme, Merrill Lynch, Comcast, Biogen and Weatherford International.
This 5 percent load (sales charge) fund requires a $1,000 minimum initial investment. Its annual expense ratio is 1.22 percent.
I'm 72 years old and receive Social Security with a small pension. How can I invest my money in a tax-efficient way?
- A.H., Lorain, Ohio
Tax-efficient investing is most crucial for those in a middle or upper tax bracket of at least 28 percent.
You can invest more tax-efficiently in income-generating investments such as tax-exempt municipal bonds. You can also consider dividend-paying securities, now taxed at a 15 percent rate in most tax brackets.
"Chances are that someone on a small pension and Social Security is in a low bracket, so taxable investments may actually offer a better return after taxes than a tax-free investment," said Marilyn Capelli Dimitroff, president of Capelli Financial Services Inc., Bloomfield Hills, Mich. "Tax-free investments are designed for people in higher tax brackets."
Look for mutual funds that hold stocks longer than 12 months, and don't do a lot of short-term trading that generates capital gains. For example, stock index funds trade little and are therefore tax efficient. But be sure to study performance first and be sure not to use tax-efficiency as your sole criterion.
"Always make a point to figure the tax-equivalent yield," Capelli Dimitroff advised. "For example, for someone in the 25 percent tax bracket, a taxable yield of 2.67 percent is the equivalent of a tax-free yield of 2 percent."
"Yield equivalent" is the interest rate required on a taxable security to equal the return from a tax-exempt security, and vice versa. To compute, divide the tax-exempt yield by one minus the investor's tax rate.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at firstname.lastname@example.org.