A: The big defense contractor understandably wants as diversified a portfolio of military projects as possible. But because it realizes the inherent vagaries of that business, it is also expanding further into civilian enterprises.
- Andrew Leckey
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IN THIS PACKAGE
- Ignored sectors need tending to stay in balance
- Road to financial success begins before college
- Old-fashioned check scams popular in a high-tech age
- Hunt for income stream can be risky business
- The savings game
- The Leckey file
- Getting started
- Spending smart
- Can they do that?
- Taking stock
- The week ahead
- Aerospace Manufacturing
- Earnings Forecasts
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The Los Angeles-based company this year has entered a $600 million accelerated share-repurchase program and increased its common-stock dividend by 23 percent. It raised its earnings estimate for this year because of better-than-anticipated pension investment performance.
Northrop Grumman operates in a world of big contracts and deals, as recent activity indicates:
-- A $874.6 million contract from the Postal Service to provide automated mail-handling equipment.
-- An exclusive partnership with Israel Aerospace Industries Ltd. to propose lighter spy satellites to U.S. military and intelligence agencies, which could transform the firm from a subcontractor to the space program to a more profitable prime contractor.
-- A more than $500 million buyout of cybersecurity company Essex Corp., a provider of signal, image and information-processing for defense and intelligence use.
-- A $256.6 million contract from the Marine Corps to develop a new Ground/Air Task Oriented Radar system that combines five different radar types.
Based on stock value and uncertainties in defense contracts, shares of Northrop Grumman receive a consensus "hold" rating from analysts, according to Thomson Financial. This consists of two "strong buys," 20 "holds" and one "underperform."
Some top products include its unmanned Global Hawk surveillance plane, nuclear aircraft carriers and Joint Strike Fighter. But there are concerns about its shipbuilding prospects and potential funding for some higher-risk projects.
Northrop Grumman's first-quarter earnings rose 8 percent despite a $50 million charge for a now-ended strike at a Mississippi shipbuilding facility.
Earnings are expected to increase 12 percent this year, versus the 24 percent forecast for the aerospace/defense products and services industry, according to Thomson. Next year's expected 9 percent rise compares to the 15 percent predicted industrywide. The five-year annualized return of 10 percent compares to 13 percent forecast for its peers.
According to the company's proxy statement, Chairman and Chief Executive Ronald Sugar received a salary of $1.4 million in 2006, plus stock awards, option awards, pension and other compensation that brought his total compensation to $21.6 million.
Q: Is Dreyfus Appreciation a good fund for my retirement account? --F.C., via the Internet
A: Because it invests in the high-quality, mega-cap stocks that haven't led the market in recent years, no investor could be overwhelmed by the fund's performance.
But it is fundamentally sound in carefully identifying companies with dominant market positions and holding them long term while they further consolidate positions of strength. Furthermore, market trends shift over time.
The $4 billion Dreyfus Appreciation Fund (DGAGX) has had a total return of 17 percent over the past 12 months to rank in the top one-fifth of large growth and value funds. Its three-year annualized return of 9 percent puts it in the lowest 10 percent of its peers.
"We recommend the Dreyfus Appreciation Fund, especially for taxable accounts, because its low portfolio turnover and long-term approach mean less of a tax hit for investors," said Lawrence Jones, analyst with Morningstar Inc. in Chicago, who notes that the fund frequently holds some stocks for a decade or more. "Even though the fund hasn't done well in recent years, we think the portfolio right now is looking very attractive in terms of the stocks it holds."
The nagging question is when large-cap growth stocks will recover. There have been predictions of an imminent revival for quite some time, but it has yet to take place.
Veteran portfolio manager Fayez Sarofim, longtime leader of the fund's investment committee, has been managing money since 1958. More than a dozen analysts support that committee, seeking firms with high-quality earnings, clean balance sheets and strong cash flow. The portfolio tends to be more concentrated in individual stocks than its competitors, and also owns more consumer-goods companies and fewer technology names than they do.
One-fourth of the fund's assets are in consumer goods, with energy and financial services its other significant concentrations. Largest holdings are Altria Group Inc., Exxon Mobil Corp., General Electric Co., Citigroup Inc., Chevron Corp., Procter & Gamble Co., McGraw-Hill Cos., PepsiCo Inc., Coca-Cola Co. and ConocoPhillips Co.
This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has a moderate annual expense ratio of 0.92 percent.
Q: What are the worst negatives in a credit report? What knocks your score down the most? --M.P., via the Internet
A: A Your payment history and amount owed play the largest roles in an overall credit score. Additional factors are the length of your credit history, your new credit and the types of credit you use.
"One of the worst sins is having too much available credit, since it indicates you could get into trouble," said Catherine Williams, vice president of financial literacy for Money Management International, a non-profit counseling service in Houston. "Opening up a rash of new credit cards in a short time period will also reflect negatively on you."
Paying bills late or having legal actions such as bankruptcies or lawsuits also are drawbacks. FICO scores, a popular credit scoring methodology developed by Fair Isaac Corp., range from 300 to 850. A score of 720 or higher is generally needed to receive the best mortgage rates.
"The No. 1 way to improve your score is to put time and good behavior between you and any bad event," Williams said. "Time heals, and a credit score will begin to improve in six to eight months if you pay everything on time and demonstrate you are reliable."
Andrew Leckey is a Tribune Media Services columnist. E-mail him at firstname.lastname@example.org.