A: The No. 1 provider of data-storage hardware, software and services is benefiting from strong industry spending on storage, which is expected to continue for the next several years.
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- EMC Corporation
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Shares of EMC Corp. (EMC) are up 45 percent this year, following declines of 3 percent last year and 8 percent in 2005. The company is close to completing its planned $1 billion stock repurchase this year.
Second-quarter profit was up nearly 20 percent, and it was the fourth consecutive quarter that the company exceeded earnings estimates. Management expects the solid second half to be somewhat better than initially expected.
The consensus rating of EMC stock by Wall Street analysts is "buy," according to Thomson Financial. That consists of six "strong buys," 12 "buys" and nine "holds."
Following the successful initial public offering of VMware Inc., EMC retains an 89 percent stake in that company. It purchased VMware in 2004 for $625 million and must retain a controlling stake for five years so EMC shareholders avoid a taxable gain on the acquisition.
VMware's "virtual" software, enabling one piece of hardware to run multiple operating-system images at the same time, reduces processing power costs. EMC's substantial stake in VMware adds appeal to EMC shares.
EMC also agreed to spend an undisclosed sum to buy privately held Tablus Inc., whose business is the prevention of data leaks from corporate networks. This is another hot area in the storage field.
There is always pricing pressure and the possibility of component shortages in the storage field. But EMC has a strong balance sheet, with about $6 billion in cash and $3.45 billion in convertible debt. There is plenty of money to spend on new products, acquisitions and stock buybacks.
Earnings are expected to increase 28 percent this year versus the 6 percent predicted for the data-storage-device industry. Next year's projected 19 percent rise compares with 26 percent forecast for its peers. The five-year annualized return is expected to be 15 percent, which is in line with its industry.
Q: I've been disappointed in Wasatch Heritage Growth Fund. Is there hope? -- M.C., via the Internet
A: It has struggled versus its peers since its 2004 inception.
That is because the overall market has favored cyclical commodity and industrial plays rather than the solid, long-term businesses that it emphasizes. Because of its mid-cap focus, it is also somewhat different from the typical Wasatch funds that favor small-cap stocks.
The $215 million Wasatch Heritage Growth Fund (WAHGX) is up 14 percent over the past 12 months and has a three-year annualized return of 10 percent. Both rank in the lowest one-tenth of mid-cap growth funds.
"This is a new fund, and that has hurt it, along with the fact that it hasn't exactly blown the doors off its category," said Andrew Gogerty, analyst with Morningstar Inc. in Chicago. "However, it is worth consideration by investors looking for a stable core fund with mid-cap growth exposure, and we believe its managers are very capable of managing it."
Wasatch Heritage Growth invests in companies between $3 billion and $20 billion in size, some of whose stocks grew too large for Wasatch's small-cap portfolios. There is potential for volatility. It has a contrarian bent and has invested, for example, in home builder NVR Inc. the past two years based on that company's market share gains and high returns on capital.
This is the first time the fund's two portfolio managers have run a public mutual fund portfolio, though Wasatch historically does provide managers with plenty of resources. Chris Bowen joined Wasatch in 2001 from the financial institutions regulatory group of law firm Skadden, Arps, Slate, Meagher & Flom LLP. Ryan Snow joined the firm in 2000 from Fidelity Investments.
Technology hardware, health care and consumer services each account for nearly one-fifth of the fund's holdings. Top holdings were recently Alliance Data Systems Corp., WellPoint Inc., Infosys Technologies Ltd., Amphenol Corp., America Movil S.A. de C.V., L-3 Communications Holdings Inc., Coach Inc., Davita Inc., CDW Corp. and Covance Inc.
This "no-load" (no sales charge) fund requires a $2,000 minimum initial investment and has a low annual expense ratio of 0.95 percent.
Q: Is there really any way to tell if holdings in my mutual funds overlap? Don't fund holdings change all the time? Everybody says not to overlap, but it's not so easy to know. -- V.R., via the Internet
A: First, it makes sense not to own too many mutual funds because keeping the number down makes it easier to select different styles and follow them.
Stock mutual fund categories consider market capitalization, such as micro-, small-, mid- and large-cap companies. They also consider investment style, such as value, growth or a blend of those two characteristics.
Avoid having too much in any one type of market cap and style because this reduces the benefits of diversification and increases the risk.
"My basic advice is to always be aware of the investment style of the funds in which you invest," said Mark Salzinger, publisher and editor of The No-Load Fund Investor in Brentwood, Tenn. "For example, if you have more than half your equity portfolio in one of the styles, you might have too much overlap for a moderate-risk investor."
To further assure diversification, avoid owning multiple funds run by the same portfolio manager or by a fund company specializing in one style of investment.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at email@example.com.