TiVo finds partnerships may be key to growth

The Baltimore Sun

Do you think my shares of TiVo Inc. are headed upward?

- C.T., via Internet

It is never easy to be a pioneer, even a tenacious one with a well-known name.

The digital video-recording service that lets subscribers pause, rewind and fast-forward has become synonymous with recording television programs. Revenues are derived from sales of its TiVo unit and subscriptions.

It finds itself increasingly doing battle with DVR services being offered by competitors such as cable and satellite TV providers and computer-based media centers.

TiVo lost $18.7 million in its fourth quarter ended in January. That was, however, an improvement over its loss of $21.1 million in the previous fourth quarter and better than analysts had predicted.

TiVo shares (TIVO) are up 28 percent this year after a flat 2006, boosted by hopes for gains in advertising, broadband initiatives and other new offerings.

Subscribers increased to 4.44 million by the end of 2006, a modest improvement from 4.36 million the previous year. Subscriber growth has slowed, and more is being spent on advertising to attract subscribers. The DVR offering from DirecTV during the past year has taken a toll.

TiVo, an aggressive company intent on being a significant part of the tech future, sees partnerships as key.

The Amazon Unbox on TiVo service recently launched in partnership with Amazon.com enables television screen access for online digital content. Digital rentals and purchases from Amazon can be downloaded directly into TiVos.

It has also entered an agreement to distribute TiVo in a package with the EarthLink Inc. broadband Internet product this year. Furthermore, Comcast Corp. and Cox Communications plan this year to introduce cable boxes that run TiVo DVR software for an added fee.

Amid the uncertainties and recent price run-up, TiVo shares are rated a consensus "hold" from Wall Street analysts, according to Thomson Financial. That consists of three "strong buys," three "buys," nine "holds," three "underperforms" and two "sells."

Losses are predicted to narrow sharply this fiscal year, ending in January 2008, and in the next fiscal year. Analysts expect the company to be profitable in its 2010 fiscal year, according to Thomson.

It competes in a complex field: For example, TiVo won a patent lawsuit last year against EchoStar. But a federal appeals court granted EchoStar's request to stay a permanent injunction from a lower court that would have kept EchoStar out of the DVR market.

I was thinking of adding a European fund and wondered what you thought of Mutual European Fund.

-R.R., via Internet

It ventures where other European stock funds do not, disregarding typical index and country weightings. Adherence to deep-value strategy focusing on underpriced stocks that generate cash, such as tobacco companies, has provided decent returns with limited risk.

This fund hedges currency risks to reduce volatility, most recently on about 80 percent of portfolio, which makes it a pure stock-picking fund.

Unfortunately, that also means it missed exposure to strong European currencies appreciating against the dollar in recent years, and that has hurt returns. Some investors choose foreign funds to obtain foreign currency exposure.

The $2.6 billion Mutual European Fund "A" (TEMIX) is up 26 percent during the past 12 months to rank above the midpoint of European stock funds. Its three-year annualized return of 24 percent places it near the top one-third of peers.

"Mutual European is an excellent, consistent fund that not only looks for undervalued stocks, but is also engaged in merger arbitrage situations and distressed debt," said Dan Lefkovitz, analyst with Morningstar Inc. "It gives investors exposure to off-the-beaten-path, overlooked and unloved names in Europe."

Philippe Brugere-Trelat, who became manager in mid-2005, has extensive fund experience and a career-long emphasis on value investing in Europe. Early this year, Katrina Dudley, an experienced industrials analyst, became assistant manager.

More than a fourth of Mutual European is in consumer goods, with industrial materials and financial services other significant concentrations. Top stocks are Norway's Orkla, British American Tobacco, Switzerland's Nestle, Britain's Imperial Tobacco Group, Belgium's Fortis, Spain's Altadis, Germany's Siemens, and BNP Paribas and Danone Group, both from France.

"A lot of the world's best companies are in Europe, even though Europe isn't growing as fast as other parts of the world," Lefkovitz said. "Restructuring in European companies, revival of consumer demand there and increased merger and acquisition activity benefited the fund."

This 5.75 percent "load" (sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.33 percent.

I am looking for safe, dependable investments for my retirement account. I need to be conservative, but worry that might keep me from staying ahead of inflation. Would TIPS make sense?

- F.R., via Internet

Treasury inflation-protected securities, or TIPS, seek to blunt the effects of inflation. They basically allow you to lock in an amount in real terms without reducing your purchasing power.

The U.S. Treasury uses the consumer price index to adjust the principal for inflation semiannually, while a fixed rate is paid semiannually on the adjusted principal. TIPS are sold with maturities of five, 10 and 20 years and can be purchased for a minimum of $1,000.

"TIPS are backed by the government, making your principal ironclad," said Mark Balasa, certified financial planner with Balasa Dinverno & Foltz LLC in Itasca, Ill. "The face amount of TIPS moves up and down with inflation, which makes them different from traditional bonds."

Consult the Treasury Web site (www.treasurydirect.gov) regarding direct purchases of TIPS and other related information.

Balasa doesn't recommend putting more than 20 percent of an individual's portfolio into TIPS because in years of low inflation you're better off with a regular bond paying a higher rate. Rather than actual TIPS, he often puts clients in TIPS mutual funds of Vanguard, Pimco and TIAA-CREF or exchange-traded TIPS funds of Barclay's iShares.


Andrew Leckey writes for Tribune Media Services.

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