Successful Investing:  Yahoo shows strength as recovery continues

Yahoo shows strength as recovery continues Q:I am confused about my Yahoo Inc. shares. What do you think the possibilities are? -- P.V., via the Internet

Answer: Despite its long-publicized troubles, this Internet giant with operations in more than 30 countries has lately had some kick in its get-along.

Disciplined cost-cutting by CEO Carol Bartz helped it triple its earnings to $186 million in the third quarter. Revenues were down 12 percent, but the company has been seeing some improvement in advertising sales.

Another positive: Four large advertising firms pledged their support for its planned search and advertising partnership with Microsoft Corp. that is now under review by antitrust regulators.

The controversial 10-year deal would have Microsoft's new Bing search engine power queries on Yahoo's sites. Though Yahoo would get no upfront payment, it would receive 88 percent of the revenue from advertisements generated from those sites.

On the upswing because of that Microsoft potential, Yahoo (YHOO) shares are up 45 percent this year after last year's 48 percent decline. It has plenty of cash for stock buybacks, acquisitions and new technologies or content.

Despite gaining viewers, Yahoo has lost much of its innovative luster in recent years. So it launched a $100 million, 10-country marketing campaign this fall that will run through 2010. It promotes the company's brand and its viability as competition for its more profitable Internet rival Google Inc. in display advertising.

Consensus rating on Yahoo shares is between "buy" and "hold," according to Thomson Financial, consisting of seven "strong buys," eight "buys," 18 "holds" and two "sells."

Bartz joined Yahoo in January after co-founder Jerry Yang's unsuccessful attempt to turn the company around. Yang remains with the company for his technology expertise.

Former General Electric Co. executive Andrew Siegel was recently hired as head of mergers and acquisitions to evaluate which businesses to keep and which to sell. The firm has indicated it doesn't plan to sell its 35 percent stake in Yahoo Japan or its 40 percent stake in China's Alibaba Group, the parent of Alibaba.com, because it sees value and long-growth in those holdings.

Earnings are expected to decline 22 percent this year compared with the 2 percent decline expected for the Internet information providers industry. Next year's forecast of a 14 percent gain compares with 12 percent expected industry-wide. The five-year annualized growth rate is projected to be 16 percent versus the 12 percent forecast for its peers.

Q:I would like your view on my holdings in Fidelity Stock Selector Fund. I want a conservative fund. -- B.D., via the Internet

Answer: If you don't want a shock to your system, this fund is for you. With a large portfolio of more than 200 stocks, it has some correlation to performance of the Standard & Poor's 500. It doesn't make big sector bets or hold a lot of cash, a philosophy much like an index fund.

But it also avoids stocks that don't have strong growth prospects and recently moved into some cyclical stocks.

The $600 million Fidelity Stock Selector Fund (FDSSX) is up 15 percent over the past 12 months and had a three-year annualized decline of 6 percent. Both results ranked in the lowest one-fifth of large growth funds.

"This basically is a 'closet' index fund with a slight overweight in technology and underweight in utilities," said Jack Bowers, the editor of the independent Fidelity Monitor newsletter (www. fidelitymonitor.com) in Rocklin, Calif. "It has recouped its fees and delivered a little bit on top of that over the last five years."

When James Catudal became portfolio manager in October 2001, he dropped the fund's computerized stock-picking models and emphasized a more traditional stock-picking approach.

Catudal, with more than $1 million of his own money in the fund, tends to trade frequently, and portfolio turnover can be high. He also runs Fidelity Adviser Growth & Income Fund and Fidelity Growth & Income Fund in similar fashion.

While Stock Selector turned in strong results in 2005 and 2007, investors might have gotten similar results with a low-cost index fund or exchange-traded funds.

"It is kind of a 'yawner' of a fund, and I don't have it in any of my model portfolios right now," Bowers said. "But I have a buy rating on it for people who want to stay close to the S&P but still have an opportunity to outperform."

This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment. Its annual expense ratio is 0.93 percent.

Q:What kind of investment accounts can I set up for my kids? -- M.D., via the Internet

Answer: Popular choices are custodial accounts and 529 education savings plans.

Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA) custodial accounts can be opened for an underage child, to be managed by an adult. The custodian also can take money from the account to spend for the child's benefit.

"At the age of majority, the youngsters can do whatever they want with it, no strings attached, because it is a gift," noted Marilyn Capelli Dimitroff, certified financial planner with Capelli Financial Services Inc. in Michigan.

A 529 plan is operated by an individual state to help families set aside funds for future college costs. The choice of school is not affected by the state the plan is from. It has no restrictions on income, no annual dividend tax and no annual limits.

Carefully study benefits and particulars of each type before investing.

Send questions to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, AZ 85004-1248 or .