Consensus on AMD stock is 'hold'

The Baltimore Sun

What has happened to my shares of Advanced Micro Devices Inc.? The bottom has fallen out.

- K.V., via the Internet

Babe Ruth, the legend goes, once pointed to the bleachers before slamming a home run. Joe Namath guaranteed a Super Bowl victory.

Both athletes delivered. Investors in the big chip maker are waiting to see whether such bravado can succeed in semiconductors as well.

"There's no reason why" Advanced Micro Devices can't have 40 percent of the global server market by 2009, AMD Commercial Vice President Marty Seyer recently declared.

Fulfilling that bold statement by Seyer at the opening of a new Shanghai research and development plant would represent a significant jump from the firm's current level of about 20 percent.

Seyer's bullishness comes as shares of Advanced Micro Devices (AMD) are down 19 percent this year. Compare that with gains of 39 percent last year, 48 percent in 2004 and 131 percent in 2003.

There certainly are positives for this rough-and-ready No. 2 chip maker that has shown leader Intel Corp. a thing or two.

For example, International Business Machines Corp. recently expanded its lineup of energy-efficient AMD-based servers. Dell Inc. has increased its use of AMD microprocessors in servers and desktop PCs. AMD also introduced an improved version of its Opteron chip, which, like Intel's new Xeon chip, employs circuitry from two microprocessors on one piece of silicon.

But while AMD has enjoyed its resurgence, sales in its most recent quarter fell short of targets.

Consensus Wall Street rating of AMD stock therefore is a "hold," according to Thomson Financial, consisting of four "strong buys," four "buys," 23 "holds," one "sell" and one "strong sell."

The knottiest problem is that Intel has engaged it in a costly price war while introducing numerous competitive chips. Intel's latest restructuring, which targets 10,500 jobs and $3 billion in annual savings by 2008, could make it a still tougher competitor.

Although AMD's $5.4 billion acquisition of the Canadian graphics chip-maker ATI Technologies Inc., scheduled to be completed by November, is a fine long-term strategic move, it's a lot to swallow. ATI also loses major client Intel as a result of the deal.

AMD earnings are expected to increase 76 percent this year compared with the 14 percent increase forecast for the semiconductor industry. Next year's predicted rise is 21 percent versus 19 percent projected industrywide. Its five-year annualized return of 15 percent is in line with its peers.

Roughly 80 percent of AMD sales are international.

My financial adviser has me in American Funds Growth Fund of America. Is this still a good investment?

- K.T., via the Internet

This diversified fund has grown larger than the former planet Pluto. It wouldn't have grown rapidly to become the largest mutual fund of all with $143 billion in assets if it didn't have something going for it.

Performance has been hard to beat, and many financial advisers understandably recommend it to clients.

American Funds Growth Fund of America (AGTHX) has a 12-month return of 8 percent, three-year annualized return of 12 percent and a five-year annualized return of 8 percent. All rank within the top 10 percent of large growth funds.

The fund's parent, American Funds, maintains that its investment management systems are designed to handle enormous assets, but it is nonetheless a consideration. "I'm lukewarm on this fund because its size may get in the way of the investment process, though I wouldn't sell it if I already owned it," said Paul Herbert, analyst with Morningstar Inc. in Chicago. "Although the fund's stakes in energy and foreign stocks have helped it the past few years, it would face head wind if they slow down."

Not only is this the nation's largest fund, but the American Funds family has passed Vanguard Group to become the largest fund firm, with $864 billion in assets.

Although lead manager Don O'Neal has been this fund's overseer since 1994, eight other managers each do his or her own thing with a portion of portfolio. They invest in a mix of growth stocks, turnaround situations and cyclical names across a range of industries. No individual stock represents more than 2.5 percent of assets, and the fund sometimes holds considerable cash.

Energy, health care, technology hardware and consumer services are its largest groups. Top holdings recently were Google, Roche Holding, Schlumberger, Lowe's, Oracle, Altria Group, Microsoft, Target, Cisco Systems and Fannie Mae. This 5.75 percent "load" (sales charge) fund requires a $250 minimum investment and has an annual expense ratio of 0.66 percent.

I am single and have student loans and some credit card debt. I recently bought a condominium and a car. What interest that I'm paying is deductible?

- W.G., via the Internet

All interest is not alike in the eyes of the tax man:

Mortgage interest on your condo is deductible if you itemize, up to a limit of $1 million a year or $500,000 if you are married filing separately.

You can claim an itemized deduction for interest on home-equity loans totaling up to $100,000.

Up to $2,500 of your student loan interest is deductible for single filers with incomes below $50,000 and married joint filers with incomes below $105,000. Deductibility then phases out gradually.

"Interest on your car won't be deductible unless you use the car for business, and then only if you're self-employed," said Maggie Doedtman, manager of tax training for H&R; Block in Kansas City, Mo. "If you are self-employed, you can deduct actual expenses of the car, including the business portion of the interest, against your business income." Credit-card interest also can be deductible if you're self-employed and using the card for business, Doedtman said.

Andrew Leckey writes for Tribune Media Services.

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