My shares of Lockheed Martin Corp. have done well, but I wonder whether it can continue to depend on strong defense spending.
- K.T., via the Internet
The world's largest defense contractor is benefiting from record U.S. defense spending and increased outsourcing of government technology projects. It has a huge backlog of orders and an excellent flow of cash.
Global pressure points such as Israel, Iran and North Korea have provided an added boost to defense stocks, which have been rising since the U.S.-led invasion of Iraq in 2003. Lockheed Martin shares (LMT) are up 31 percent this year after gains of 14 percent last year and 8 percent in 2004.
Nonetheless, many expect a slowdown in the growth of military spending. Furthermore, the company remains highly dependent on U.S. government contracts, which last year accounted for 80 percent of its revenue.
It must always contend with the political uncertainty associated with defense spending. The firm recently received a grilling by a Senate committee over its expensive F-22 Raptor fighter jet. A large Army project, Lockheed's Aerial Common Sensor, was canceled this year.
Realizing its situation, Lockheed Martin has been trying to expand its nonmilitary businesses and significantly improve overall operating efficiency.
Robert J. Stevens, who added the role of chairman to his positions as chief executive and president last year, has steadfastly emphasized return on investment capital.
His efforts are paying off. Profits were up 26 percent in its most recent quarter thanks to higher sales of commercial satellites and military electronic systems. The company recently increased its full-year revenue forecast.
Based on the prospects in both defense and nonmilitary business, the consensus analyst rating on shares of Lockheed Martin is "buy," according to Thomson Financial. That consists of six "strong buys," five "buys" and 12 "holds."
Lockheed Martin continues to aggressively seek contracts, and it recently received a $138 million agreement to provide launch services for the U.S. Lunar Reconnaissance Orbiter mission.
It has also snared a contract with the Army potentially worth $500 million for continued production of Hellfire II air-to-ground missiles. This fall, it is scheduled to begin testing the most powerful single-engine fighter plane ever built, the F-35 Joint Strike Fighter, which is targeted for use in 2011 and faces some controversy over its increased cost.
Earnings are expected to rise 28 percent this year versus the 13 percent forecast for the major diversified aerospace and defense industry. Next year's projected 6 percent increase compares with 20 percent projected for its peers.
The five-year annualized growth rate expectation of 10 percent trails the industrywide forecast of 12 percent. I am a conservative investor and would like your opinion of Pioneer Fund.
- A.J., via the Internet
Its philosophy should be right up your alley.
John Carey, the fund's portfolio manager for two decades, is a patient fellow who trades as little as possible and tries to avoid volatility. He is a straightforward, blue-chip-oriented manager with proven ability to outperform the Standard & Poor's 500.
He also has invested more than $1 million of his own money in the fund, a commitment that underscores his firm belief in the portfolio of stocks he holds.
The $7 billion Pioneer Fund (PIODX) is up 12 percent over the past 12 months and has a three-year annualized return of 13 percent. Both results rank in the upper one-fifth of large funds that blend growth and value.
"Carey wants to pay a reasonable price for stocks that he thinks have the potential to grow in the future, and he's willing to give their management time to do that," said Sonya Morris, analyst with Morningstar Inc. in Chicago.
"The overarching concern might be if Carey ever left," Morris wrote, "but I get no indication he's considering retirement and he has also worked closely with his assistant portfolio manager," Walter Hunnewell.
The Pioneer Fund is 78 years old, making it the third-oldest fund in the country.
This fund makes sense as a core holding in an individual's portfolio. An emphasis on beaten-down blue-chip stocks won't produce blowout returns but should provide a solid anchor. It has lagged behind peers in growth markets, but holds up better than rivals when the market is in a difficult stretch.
The fund's largest portfolio concentrations are financial services, industrial materials and health care. Its top holdings recently were Norfolk Southern, McGraw-Hill, T. Rowe Price Group, Chevron, Rio Tinto, Target, John Wiley & Sons, AT&T;, Chubb and Walgreen.
Pioneer Fund has a 5.75 percent "load" (sales charge) and $1,000 minimum initial investment. Its annual expense ratio is reasonable at 1.08 percent, lower than three-fourths of its broker-sold rivals. How long should I keep my statements from my brokerage house? They're really starting to fill up the drawers. - V.R., via the Internet
The Internal Revenue Service has three years from your filing date to audit your return. But it has six years to challenge your return if it believes you underreported your gross income by 25 percent or more. There is no time limit if you failed to file or filed a fraudulent return.
In a taxable account, experts suggest first keeping stock and mutual fund statements that help you establish your "cost basis" - the original purchase price of the investment - for as long as you own the investment. Then, after the sale, keeping them another three years should suffice, though some recommend keeping them as long as seven years.
"I've observed that people are often remiss about keeping track of the cost basis of investments, which can wind up being a real hassle later," said Mark Balasa, certified financial planner and CPA with Balasa Dinverno & Foltz in Itasca, Ill.
But discard immediately any old documents relating to your estate plan when you make changes in it.
"You don't want multiple copies of anything in your estate plan floating around to cause confusion," Balasa said. "I've seen that happen and turmoil resulted."
Andrew Leckey writes for Tribune Media Services.