Q: What is your opinion of my stock of Pfizer Inc.? A lot seems to be going on there. -- P.F., via the Internet
A: A year ago, no one could have predicted the world's largest drug company would select as its chief executive a lawyer with a relatively short pharmaceutical industry background.
But that happened over the summer when its general counsel of four years, Jeffrey Kindler, was put in charge. He promised to "transform every aspect of how we do business" and immediately put a streamlined management structure in place.
Wall Street seems delighted with the prospect of Kindler not only shaking up the stagnant company, but also guiding it through a maze of patent disputes, product lawsuits and federal regulation.
Pfizer (PFE) stock has gained 20 percent this year, reviving from declines of 13 percent last year and 24 percent in 2004.
The company beat earnings expectations in the second quarter on strong sales of its powerhouse cholesterol drug Lipitor and raised its guidance for the full year. It remains in excellent financial condition, with an AAA credit rating, strong dividend and aggressive share buyback program.
Kindler, a veteran of McDonald's Corp. and General Electric Co., receives a base salary of $1.35 million and will be eligible to earn a bonus equal to 150 percent of salary.
But don't be impressed with those numbers. He replaces former CEO Henry McKinnell, who earned $5.97 million in salary and bonus last year, and has an employment contract permitting a lump payment of $83 million at retirement.
While McKinnell remains chairman until February, he will leave a year earlier than scheduled due to controversy over his compensation and the company's lackluster returns.
The consensus recommendation on shares of the changing Pfizer is a "buy," according to Thomson Financial, consisting of seven "strong buys," eight "buys," eight "holds" and one "sell."
A panel of the Food and Drug Administration recently said Pfizer's anti-blood-clotting drug Fragmin warrants wider approval. Pfizer also expects to register its HIV treatment with the FDA and in other countries for approval by year-end.
Pfizer has 14 of the world's 25 best-selling drugs, but it depends on five of those for nearly half its pharmaceutical revenues. Only three of its top 10 drugs are the result of its own research and development.
It also faces a patent challenge in federal court on top-seller Lipitor. And the FDA ordered Pfizer to withdraw its Bextra pain reliever and put a strong warning on Celebrex packaging.
Earnings are expected to increase 2.6 percent this year and 6 percent next year, with a predicted 4.5 percent annualized growth rate over the next five years.
Q: Should I continue to hold shares of CGM Realty Fund? -- K.C., via the Internet
A: Portfolio manager Ken Heebner's agile mind is constantly working the market angles, leading to bold investment moves.
In light of the dramatic gains real estate funds have made, however, you must decide whether you feel confident about the near-term future. Also realize that this fund is different from most competitors that invest almost entirely in real estate investment trusts. Heebner can invest 20 percent of his portfolio in anything he wishes.
The $1.4 billion CGM Realty Fund (CGMRX) is up 30 percent over the past 12 months to rank in nearly the lowest one-fourth of the booming real estate fund category. But its three-year annualized return of 33 percent and five-year annualized return of 35 percent rank within the top 2 percent of its peers.
"Heebner is generally more right than wrong, but he can have explosive returns and then be really wrong," said Laura Pavlenko Lutton, an analyst with Morningstar Inc. in Chicago. "In recent years he did well with home builders and then energy, and currently has one-third of his portfolio in hotels."
The experienced Heebner aggressively looks for companies based on price and growth rates. Turnover is often quite high when he finds new opportunities.
Largest holdings are SL Green Realty, LaSalle Hotel Properties, Southern Peru Copper, BHP Billiton Ltd., Jones Lang LaSalle, Rio Tinto, Phelps Dodge, DiamondRock Hospitality and AvalonBay Communities.
"If there's a broad market correction in real estate, Heebner is not going to be able to hide from it even though he has 20 percent of portfolio outside the field," Pavlenko Lutton said. "I'm not making predictions, but all good things come to an end."
This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and an annual expense ratio of 0.92 percent.
Q: What does it mean when a company refers to its "pro forma" financial results? -- F.P., via the Internet
A: That Latin term, meaning "for the sake of form," indicates additional financial information being provided by a company that may not comply with generally accepted accounting principles, or GAAP. It may, for example, not include some of the usual accounting components.
GAAP is a combination of standards set by policy boards and the commonly accepted ways of reporting accounting information.
Pro forma figures can be useful when a merger, acquisition, sale or other change occurs in the business because they help provide a more complete picture of a company's real potential. They should, however, be strictly deemed a sidelight to the regular earnings and never looked at as the primary numbers for investors.
Some companies have gone totally overboard promoting their pro forma earnings over actual earnings whenever it makes their results look better.
"The problem is that a lot of what pro forma considers to be non-recurring items seem to show up every quarter or every year," said Paul Nolte, investment director of Hinsdale Associates in Hinsdale, Ill. "There are limitations to GAAP, too, but at least it's consistent from period to period."
Andrew Leckey is a Tribune Media Services columnist. E-mail him at email@example.com.Copyright © 2015, CT Now