Question - I own 2,000 shares of Safeway stock. Should I hold or sell? - J.L., Highland Park, Ill.
Answer - Keep those shares in your shopping cart. This food retail chain has shown remarkable improvement in operating profitability over the past five years.
Safeway Inc. is a consensus solid "buy" recommendation of the Wall Street analysts covering it, according to the Boston-based First Call Corp. research firm. That includes 10 "strong buys," two "buys" and four "holds."
The second-largest U.S. food retailer operates approximately 1,370 stores in the West, Rocky Mountain, Southwest and Mid-Atlantic regions of the U.S. and western Canada.
The company declared a 2-for-1 stock split in February. A 21 percent gain in earnings is expected this fiscal year, compared to a 16 percent increase for the food retail group. A 16 percent gain is projected for next year, versus a 13 percent increase for its peers. An estimated five-year growth rate of 18 percent compares to 12 percent industrywide.
Safeway, based in Pleasanton, Calif., also owns the Vons Cos., the largest supermarket chain in southern California, and a 49 percent interest in Casa Ley, which operates food/variety stores in western Mexico. Kohlberg Kravis Roberts owns about one-third of Safeway.
It expects to spend $950 million this year and plans to open 40 to 45 new stores, complete more than 200 remodeling jobs and finish construction of its Maryland distribution center.
In a management change, Steven Burd, 48-year-old president and chief executive officer of the chain, will additionally assume the chairman's title in May, when Peter Magowan retires. Magowan, 55, relinquished the CEO post to Burd in 1993. He'll remain a board member after his retirement from the chairman post.
Question - I've been investing in Evergreen Foundation Fund for five years and don't think it has done well. I'd like to dump it. What do you think? - K.M., Chicago
Answser - What's there to complain about? It's been a solid performer for conservative investors.
The $2.7 billion Evergreen Foundation Fund gained 34 percent over the past 12 months to rank in the upper 12 percent of all domestic hybrid funds. Its three-year annualized return of 22 percent placed it in the 17th percentile of its peers.
While its allocation mix is adjusted, the portfolio generally runs 60 percent stocks, 30 percent bonds and the remainder in cash. Its top equity groups were recently financials, industrial cyclicals and technology. Its largest equity holdings were Intel, Fannie Mae, General Electric, BankBoston, E.I. duPont de Nemours, Hewlett-Packard, Microsoft, MGIC, Sprint and Eli Lilly. Its bond portfolio is 100 percent U.S. Treasury bonds and notes, with an average effective maturity of 17 years and a duration of eight years.
Portfolio manager Stephen Lieber likes to buy stocks on dips when he believes the market has overreacted to some bad news. He'll also hold a stock a long time if he likes it. For example, he's owned Merck since 1986 in another fund he manages.
You may be critical of Evergreen Foundation Fund primarily because its performance has lagged that of pure stock funds, but remember that it should also provide lower volatility due to its bond component.
"It is a good solid core holding to build riskier funds around," explained Scott Cooley, equity fund analyst with the Morningstar Mutual Funds investment advisory. "People might want to shift into funds like this as they near retirement or have some other terminal investment goal."
The fund's Class A shares require a 4.75 percent "load" (initial sales charge), its B shares have a declining redemption charge, and its C shares require a level load. The minimum initial investment is $1,000.