By Andrew Leckey
Tribune Media Services columnist
January 13, 2008
A: Shares of the world's largest toymaker reached a 52-week low this month following a lackluster holiday sales season and a year of recalls of millions of toys because of lead paint or tiny magnets that could be swallowed.
The firm also has endured slippage in overall sales of its famous Barbie doll.
U.S. sales of Barbie have been hit especially hard, faced with strong competition from the Hannah Montana doll based on the Disney TV series and sold by Disney Consumer Products. In the holiday season, Barbie dolls priced at 30 percent off were used by Toys "R" Us as early morning door-buster attractions.
But international Barbie sales have been rising. In Argentina, a Barbie Store featuring apparel, a beauty parlor, playroom and birthday party area is a hit. The U.S. company licensed the Barbie rights for that purpose to a marketing firm there.
Shares of Mattel (MAT) declined 16 percent in 2007 after gaining 43 percent in 2006 and dropping 19 percent in 2005.
For investors who consider this a temporary down period because toy recalls won't have a lasting impact, the current stock price presents a buying opportunity. But while optimists reason that China will cure production problems and the recalls will end, optimism about the company or toy industry isn't unanimous.
The consensus rating of Mattel shares is between a "buy" and "hold," according to Thomson Financial. That consists of three "strong buys," four "buys," five "holds" and one "underperform."
California Atty. Gen. Jerry Brown has sued 20 companies, including Mattel, for lead violations in toys. He seeks fines, alleging failure to warn of risks under the state's Safe Drinking Water and Toxic Enforcement Act.
Mattel remains a powerful company with famous brands, including Hot Wheels, Matchbox, American Girl, Radica, Tyco R/C and Fisher-Price. It sells games, produces children's publications and has retail shops in New York, Chicago and Los Angeles.
Innovative steps to keep its dolls popular include the Barbie Girls MP3 player and the BarbieGirls.com Web site, with 6 million registered users. The "Girl of the Year" limited-edition doll released each January by its American Girl division is designed to boost post-holiday sales. This year's release is Mia St. Clair.
Earnings are expected to rise 15 percent in 2008 compared with the 30 percent predicted for the toys and game industry. The projected five-year annualized return is 10 percent versus 14 percent forecast for its peers.
Q: Tell me more about Calamos Growth Fund. Does it have good prospects? --M.R., via the Internet
A: Although it has been a multicapitalization growth fund since its inception in 1990, it has increasingly been focusing on large-cap stocks as its asset size has grown to more than $16 billion.
The question is whether its good fortune that attracted new investors and increased its size may mean less investment maneuverability.
The lack of financial stocks in its portfolio has helped it to elude the subprime lending fallout, its technology holdings have been healthy, and its still-significant 40 percent holdings of small- and mid-cap stocks have provided a boost to returns.
The Calamos Growth Fund (CVGRX) is up 23 percent over the past 12 months to rank in the top one-tenth of large growth funds. Its three-year annualized return of 11 percent puts it in the upper third of its peers.
"We recommend Calamos Growth because it has really good growth managers and could complement a portfolio heavily weighted toward growth investing," said Annie Sorich, analyst with Morningstar Inc. in Chicago. "It would also work well for an investor who doesn't have much growth exposure."
John and Nick Calamos have managed the fund since it began, with John's son, John Jr., joining them in 1994. They use quantitative models and study balance sheets to find companies growing faster than their peers. They focus on both the equity and debt structure of companies.
Because the managers work to find promising sectors and themes, the fund is sometimes highly concentrated and volatile. It didn't perform all that well in 2005 and 2006, but its 10-year record is strong, in the top 1 percent of its peers, and the experienced management team is stable and disciplined.
Technology hardware represents nearly one-fourth of the Calamos Growth Fund portfolio, with other significant concentrations in health care, business services and consumer goods. The largest holdings are Apple Inc., Google Inc., Garmin Ltd., Gilead Sciences Inc., Research in Motion Ltd., Schering-Plough Corp., Nike Inc., Smith International Inc., Celgene Corp. and America Mobile.
This 4.75 percent "load" (sales charge) fund requires a $2,500 minimum initial purchase and has an annual expense ratio of 1.19 percent.
Q: What is a sufficient amount to keep in an emergency fund, and what kind of account should I put it in? --A.T., via the Internet
A: Everyone should have an emergency fund to be used only for true emergencies.
Although the traditional amount is a reserve equal to three to six months of your after-tax living expenses, your income, debt and other financial factors must be considered before you determine an appropriate level.
Liquidity, safety of principal and best return should be the primary considerations when choosing an investment vehicle for your emergency fund. A money-market account at a bank or a money-market fund is considered a good choice.
"While you get a little better return from a bank certificate of deposit, it is not as liquid because you'll have to pay a penalty if you withdraw early when, let's say, the furnace blows," said Mark Balasa, certified financial planner and certified public accountant with Balasa Dinverno & Foltz financial advisers in Itasca, Ill. "When selecting a money market, look for low expenses, good yields and check-writing privileges."
Even though you also can tap a home-equity line of credit, insurance policy or retirement account in a pinch, readily available cash held in a money-market account is a preferable emergency vehicle, he said.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at email@example.com.
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