Question. What is the outlook for my shares of Caterpillar Inc.? P.V., via the Internet
Answer. The world's largest manufacturer of earthmoving equipment must plow through weakness in U.S. construction and the decline in demand for engines that it puts in trucks.
But overseas prospects remain strong.
Chairman and Chief Executive Jim Owens considers emerging-market economies to be "in good shape, with relatively low inflation and interest rates and strong balance sheets."
As North American sales fell to 44 percent of its total revenue last year, from 53 percent the year before, the firm is investing $1 billion in emerging markets from 2008-10. In addition, its exports rose 20 percent in 2007.
The company is adding manufacturing capacity in China and India. Its stake in the Japanese joint venture Shin Caterpillar Mitsubishi has been boosted to two-thirds from 50 percent. It also will be making hydraulic excavators in Russia.
Owens affirmed his 2008 forecast of 5 percent to 15 percent growth in earnings per share, propelled by overseas strength in infrastructure and oil industries. He has said he believes a 2008 U.S. recession will be short-lived.
Record sales in recent years have come from the revitalized mining and energy industries. That, however, makes it vulnerable to a sustained drop in commodity prices.
Shares of Caterpillar (CAT) are up 8 percent this year following last year's 18 percent increase. The company has a solid balance sheet, plenty of cash on hand and a high credit rating.
The product lineup is diversified in earthmoving, construction and material-handling machinery and engines. Caterpillar also has strong capital management, advanced logistics for parts delivery and an impressive research and development division. It plans to spend $2.3 billion in capital expenditures this year, part of it to research products to meet global emissions standards.
Consensus rating on shares of Caterpillar is "buy," according to Thomson Financial, consisting of eight "strong buys," three "buys," five "holds" and two "underperforms."
Longtime Caterpillar executive Owens became top boss in 2004.
Owens hasn't decided the future of Caterpillar's highway diesel-engine business, which is facing stiff competition from truck manufacturers that are increasingly making their own engines rather than turning to outside suppliers. Whatever is decided, he maintains it will have no impact on earnings per share between now and 2010.
Earnings are expected to increase 10 percent this year and 13 percent next year, according to Thomson. The five-year annualized growth rate is forecast at 12 percent.
Question. Do you think I should hold on to my shares of Fidelity Capital Appreciation Fund, which have been down? R.M., via the Internet
Answer. The track record hasn't been stellar since J. Fergus Shiel took charge in October 2005, due in part to a large stake in airline stocks that has hurt returns. He still sees potential in airline stocks because of shareholder-friendly moves and increased cash positions.
Shiel's heavy bet on industrial stocks should pay off thanks to the weaker U.S. dollar.
The $7.6 billion Fidelity Capital Appreciation Fund (FDCAX) is down 6 percent over the past 12 months to rank in the bottom 10 percent of large growth funds. Its three-year annualized return of 7 percent places it just above the midpoint of its peers.
"This is one of Fidelity's go-anywhere, do-anything type of funds, and I have a 'buy' recommendation on it," said Jack Bowers, editor of Fidelity Monitor (www.fidelitymonitor.com) in Rocklin, Calif. "The general theme, with a few exceptions, is companies that have been beaten up but are turning things around and finding new ways to increase revenues."
Shiel succeeded Harry Lange, the successful manager who left to run Fidelity's Magellan Fund. Shiel, an experienced manager who ran Fidelity Independence Fund from 1996 through 2003, is more eclectic and somewhat less growth-oriented than Lange.
Value, growth, foreign and domestic stocks of many different sizes populate his portfolio. Earnings growth and turnarounds are important, but he also will invest in some pricier stocks if he sees positive prospects.
Shiel trades often, so this fund works best in tax-sheltered accounts, and it would not be a good choice for an investor who prefers a set investment style. Furthermore, his significant bets don't always pan out
Industrial materials is the largest concentration in Fidelity Capital Appreciation, representing 21 percent of assets, with health care and business services other significant groups. Top holdings were recently Monsanto Co., Walt Disney Co., Biogen Idec Inc., Alstom, Elan Corp., AMR Corp., Qwest Communications International Inc., American Tower Corp. and Continental Airlines Inc.
This "no-load" (no sales charge) fund requires a minimum initial investment of $2,500 and has an annual expense ratio of 0.82 percent.
Question. If you put your money in several different banks, is there still just one umbrella amount that is covered by the Federal Deposit Insurance Corp.? I am becoming worried about bank failures with all the bad news. C.R., via the Internet
Answer. Federal Reserve Chairman Ben Bernanke predicted some bank failures this year because of the credit crisis. But he doesn't expect many of them, and FDIC coverage is great protection.
The FDIC limits apply to accounts at one financial institution, which means you can go to a different bank and be insured up to the FDIC limits there too. Similarly, separately chartered financial institutions under the same holding company are insured separately. They have different FDIC certificate numbers.
But you cannot increase coverage by placing deposits at different branches of the same bank. Deposits in a bank's Internet division also are considered the same as deposits made in an office.Basic FDIC insurance is $100,000 per person per account category at an insured bank. Individual accounts, joint accounts, retirement accounts and trust accounts are categories insured separately from each other. Federal law provides up to $250,000 in deposit insurance coverage for retirement accounts at participating institutions.
Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, P.O. Box 874702, Tempe, Ariz. 85287-4702, or by e-mail at [email protected]