Q: What's up with my shares of Best Buy Co.? Is the problem just the economy? -- R.C., via the Internet
A:There are some issues in the situation facing this aggressive company that ranks as the nation's No. 1 consumer electronics retailer and No. 11 overall retailer.
Early last year, Chief Executive Brad Anderson promised to shift the superstore giant's focus toward better customer service. This effort, featuring specially trained sales associates, was termed "customer-centricity."
Yet, to considerable surprise, earnings in its recent fiscal first quarter fell 18 percent and Anderson also lowered his fiscal 2008 profit estimate.
A weak U.S. economy has been diverting customers from high-margin products such as flat-screen televisions, he said. Meanwhile, the narrower profit margins of the firm's China business acquired a year ago have weighed on its overall results.
Shares of Best Buy (BBY) are down 3 percent this year following gains of about 13 percent last year and 10 percent in 2005.
Despite the firm's remarkable inventory control and market-share gains, consumer electronics is a brutal industry sensitive to consumer spending. Circuit City Stores Inc. is laying off thousands of employees, Tweeter Home Entertainment Group filed for bankruptcy and CompUSA Inc. closed half of its stores.
To provide Best Buy with a boost, its board of directors authorized the repurchase of up to $5.5 billion worth of common shares, which other large retailers such as Home Depot Inc. have done. It also plans to increase its quarterly cash dividend to 13 cents from 10 cents, to be paid Oct. 30 to shareholders of record Oct. 9.
The consensus rating on Best Buy shares is a "buy," according to Thomson Financial, consisting of eight "strong buys," nine "buys," 11 "holds" and one "underperform."
Best Buy, with more than 1,000 stores in North America, has announced long-range plans to increase its target number to 1,800, up 400 from its prior goal. It will also consider acquiring more companies. It owns Geek Squad, Pacific Sales Kitchen and Bath Centers, and Canada's Future Shop stores, but its attempt to turn around its acquisition of the Musicland Stores failed and it sold it off.
It has a majority interest in Jiangsu Five Star Appliance Co., China's fourth-largest consumer electronics retailer, and opened a Best Buy store in Shanghai. It expects to open eight to 10 stores in China in the next year and a half.
Earnings for its current fiscal year ending in February are expected to increase 7 percent. Next year's forecast is for a 15 percent increase. The five-year annualized return is projected to be 15 percent versus 14 percent predicted industrywide.
Q: Is the Muhlenkamp Fund worth my investment money? -- V.M., via the Internet
A: Nobody's perfect.
Though this fund has rewarded investors over the long haul by deftly choosing value stocks of any size it pleased, results lately have been pummeled by declines in housing, mortgage-lender and energy stock holdings.
The $2.3 billion Muhlenkamp Fund (MUHLX) gained 13 percent over the past 12 months to rank in the bottom percentile of large value funds. Its three-year annualized return of 12 percent places it in the lowest 10 percent of its peers.
"The fund hasn't been so hot recently, but has been wonderful over the long term, and portfolio manager Ron Muhlenkamp is very experienced," said Greg Carlson, analyst with Morningstar Inc. in Chicago. "He started buying home-building stocks in 2000 and made a great deal of money off them, but obviously they've suffered recently."
Muhlenkamp founded Muhlenkamp & Co. in 1977 for private accounts and launched this fund in 1988. It has a concentrated portfolio of about 50 stock names, which adds individual stock risk. Muhlenkamp's long-term economic calls and willingness to make big sector bets can lead to volatility.
What investors consider a faltering portfolio holding could, in Muhlenkamp's eyes, simply be a well-positioned stock awaiting a revival. He is patient. His holdings had been in the mid-cap range, but moved up to large-cap the past couple of years. Turnover is low, making the fund tax-efficient.
"We like Muhlenkamp's investment conviction, in which he sticks with his approach through thick and thin," Carlson said. "But that does result in rough stretches."
About one-third of Muhlenkamp Fund assets are in financial services and nearly one-fourth of its holdings are in industrial materials. Energy is another significant concentration. Its top stocks were recently Merrill Lynch & Co., Cemex S.A.B. de C.V., Citigroup Inc., ConocoPhillips, UnitedHealth Group Inc., Altria Group Inc., Countrywide Financial Corp., Capital One Financial Corp., Allstate Corp. and Nabors Industries Ltd.
This "no-load" (no sales charge) fund requires a $1,500 minimum initial investment and has a 1.06 percent annual expense ratio.
Q: Do penny stocks always sell for pennies or would a stock selling for several dollars also qualify? -- C.G., via the Internet
A: A penny stock refers to an inexpensive equity, generally selling for $5 a share or less.
These often trade over the counter, such as on the OTC Bulletin Board or the pink sheets, though sometimes on exchanges. The Securities and Exchange Commission warns investors in penny stocks that they could lose their entire investment.
Highly speculative penny stocks are hyped in millions of spam e-mail messages sent by promoters every day. These breathlessly extol virtues of obscure companies and make outrageous stock predictions.
Those who already own the stock usually benefit. When they see the price inflate, they dump their shares and leave you holding them as the stock plummets.
The SEC requires that brokers selling penny stocks provide a document describing risks, give the current market quotation, explain the brokerage firm's compensation and provide monthly statements.
If you decide to invest in penny stocks in the hope your selections will prove the exception, don't invest much. Ask first for the company's financial details (if it doesn't have to file audited reports with the SEC) and find out its market value (it's better if it's $50 million or more).
Andrew Leckey is a Tribune Media Services columnist. E-mail him at firstname.lastname@example.org.