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Save This PageQ:Please give your prognosis for shares of Kroger Co. - F.L., via the Internet
A: The nation's largest conventional grocery chain, despite its impressive pricing power over food producers, must bat tle large general discounters such as Wal-Mart Stores and Costco.
Combined with a down economy and rising food prices, that worry has weighed on the stock.
Kroger (KR) shares are up 2 percent this year after increases of 16 percent and 22 percent in the prior two years. Net income in its first fiscal quarter, ended May 24, rose 15 percent, with total sales up 11 percent.
The chain has seen an increase in sales of its value-oriented house-label goods and a growing trend among families to buy groceries and eat at home rather than in restaurants. It offered bonuses to shoppers who spent tax-stimulus checks at its stores.
Kroger has taken some successful steps:
Those gas and pharmacy operations encourage "all-in-one" shopping that means fewer trips. Kroger said its customers aren't shopping as often these days but buying larger quantities of items when they do.
Consensus opinion on Kroger stock from Wall Street analysts is "buy," according to Thomson Financial.
With Kroger well-positioned to weather the current economy, some experts believe it will really excel once conditions improve. On the other hand, the tough price competition it faces will be a constant.
Kroger operates stores in 31 states under two dozen local store names. Its food-processing plants manufacture more than 40 percent of the company's house-label products, which management expects will grow to a $1 billion business this year.
The earnings estimate for the current fiscal year ending in January is a 12 percent gain and for the following year an 11 percent increase, according to Thomson. The five-year annualized growth rate of 9 percent compares with 13 percent projected for the grocery store industry.
Q:What are your expectations for Fidelity Dividend Growth Fund? I am an investor in it and not too happy. - R.M., via the Internet
A: You're not alone. Because many investors already jumped ship, the nearly $10 billion fund is less than half the asset size it was at year-end 2004.
A defensive fund that holds a concentrated portfolio of the largest name-brand multinational stocks, it hasn't outperformed the Standard & Poor's 500 index for several years.
The fact that it holds health-care stocks to ease its volatility hasn't helped, since that group has underperformed.
The Fidelity Dividend Growth Fund (FDGFX) is down 19 percent over the past 12 months and has a three-year annualized return of 1 percent, both of which rank in the lowest fifth of large growth and value funds.
"It could be a core holding for growth and income investors, or for income investors, looking for a very large-cap blend of value and growth," said Jim Lowell, editor of the independent Fidelity Investor newsletter. "But for growth or aggressive-growth investors, it is too tame, too tepid."
Veteran portfolio manager Charles Mangum has run the fund for 11 years. Portfolio turnover is low and usually involves adjusting percentages rather than adding names.
"Fidelity Dividend Growth is a very concentrated portfolio," with about 40 percent of assets in 10 names, Lowell said.
One risk is that being concentrated magnifies the damage if a major holding takes a big drop.
This "no-load" fund requires a $2,500 minimum initial investment and has an annual expense ratio of 0.60 percent.
Send questions to Andrew Leckey, No. 184, 369-B Third St., San Rafael, CA 94901-3581 or andrewinv@aol.com.
