By Andrew Leckey
Tribune Media Services columnist
June 3, 2007
A: The second-largest U.S. oil company, created by the 2001 merger of Chevron and Texaco, is expected to continue its long track record of using strong cash flow to reward shareholders. Its financial results are directly affected by the price of crude oil, which has provided a dramatic boost over the past two years, and its ability to expand international exploration and production. The company operates in oil and gas in more than 180 countries.
Inopportune investment can play an unwanted role in results. Chevron has had to write down $2 billion worth of its holdings in the electricity provider Dynegy Inc. To end those problems, it recently signed an agreement to sell its entire 96.9 million shares of Dynegy in an underwritten public offering.
Shares of Chevron (CVX) are up 12 percent this year following a 29 percent gain last year, an 8 percent increase in 2005, a 21 percent advance in 2004 and a 30 percent jump in 2003. The company increased its quarterly dividend by 11.5 percent, to 58 cents per share, payable on June 11 to stockholders of record on May 18. Earnings increased 18 percent in the first quarter, which was better than expected, with lower oil and gas prices offset by the sale of its Netherlands assets and favorable tax items. Oil prices have since rebounded somewhat due to tensions in Iran and Nigeria, which will mean a stronger second quarter for oil companies. While Chevron in this country trails only Exxon Mobil Corp. in size, international competitors BP PLC and Royal Dutch Shell also are larger and have an edge in profitability.
Stock of Chevron receives a consensus analyst rating slightly better than "hold," according to Thomson Financial. That consists of six "strong buys," three "buys," 12 "holds" and two "sells." Chevron's international projects in Asia, Kazakhstan and off the coast of West Africa offer considerable promise, despite accompanying risks.
Meanwhile, the Venezuelan government contends Chevron owes it millions of dollars in unpaid income taxes. In addition, Chevron has reportedly been in negotiations with federal prosecutors and may make a financial settlement related to allegations of kickbacks paid to Saddam Hussein's government in exchange for Iraqi oil. Earnings are expected to decline 5 percent this year, compared with the 6 percent drop forecast for the major integrated oil and gas industry. Next year's projected fractional gain is in line with the industrywide estimate. The five-year annualized return of 5 percent compares with 8 percent projected for its peers.
Q: I am concerned about shares of the Ariel Fund. Will they do better in the future? --R.L., via the Internet
A: This fund requires a long-range view of the future.
It provides a low-risk means of compounding capital over an extended period for retirement, college and general wealth-building.
For several years, the high-quality, fundamentally sound, value-conscious investments it typically owns haven't been in favor, which has taken a toll on results. It holds no utilities, energy, telecommunications or technology hardware stocks and very little software.
The $4.1 billion Ariel Fund (ARGFX) gained 19 percent over the past 12 months and has a three-year annualized return of 13 percent. Both results rank in the lowest quarter of mid-cap growth and value funds.
"We recommend this as a strong fund and consider John Rogers Jr., its portfolio manager since 1986 inception, to be a particularly skilled investor," said Todd Trubey, analyst with Morningstar Inc. in Chicago. "It is a fund that over long periods of time will do well, though it could potentially underperform during some periods."
Rogers is the founder of Ariel Capital Management. John Miller, with Ariel since 1989, was named the fund's co-manager late last year. It has 34 stock names and low portfolio turnover. The fund seeks a 40 percent discount in its stock purchases, employing cash-flow analysis and other valuation ratios to compare the price to what it considers the intrinsic value of the business. Strong firms with motivated management teams are favored.
"The Ariel Fund is willing to do turnaround plays when a company is improving and will become stronger over time, but is not interested in bad businesses that tend to destroy capital over time," Trubey said.
Financial services comprise about 28 percent of the portfolio and consumer goods, 18 percent.
Other significant concentrations are industrial materials and media. The largest stock holdings recently were Hewitt Associates Inc., Markel Corp., Energizer Holdings Inc., Janus Capital Group Inc., Idex Corp., Jones Lang LaSalle Inc., Mohawk Industries Inc., Tribune Co., HCC Insurance Holdings Inc. and Anixter International Inc. This "no-load" (no sales charge) fund has a $1,000 minimum initial investment and 1.07 percent annual expense ratio.
Q: How long will bankruptcy stay on my record and how will it affect my ability to get credit and loans? --S.J., via the Internet
A Bankruptcy can legally be reported for 10 years from the date that you file, though major credit bureaus have voluntarily agreed to remove Chapter 13 bankruptcies seven years after the filing.
Keep a copy of your bankruptcy papers because if it is being reported longer than it should be, you can dispute it. Although bankruptcy is undeniably a serious negative mark, you may be able to re-establish credit sooner than you think. You will receive secured credit card offers almost immediately after your bankruptcy is completed.
You could be able to obtain a mortgage relatively soon after bankruptcy, though you'll likely have to pay a higher interest rate and make a down payment.
"After bankruptcy, be sure to monitor your credit report for the first year so that you can see the changes and make sure the information about you is correct," said Gerri Detweiler, author of "The Ultimate Credit Handbook: How to Cut Your Debt and Have a Lifetime of Great Credit" and president of the Ultimate Credit Solutions Inc. counseling group in Sarasota, Fla. "Make sure your accounts included in your bankruptcy show a zero balance and no information falls between the cracks."
Andrew Leckey is a Tribune Media Services columnist. E-mail him at email@example.com.
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