Q. Please assess the potential of Verizon Communications Inc. stock. I am a longtime shareholder.
B.N., via the Internet
A. The telephone giant will cut more than 8,000 employee and contractor jobs in its landline business by year’s end as consumers continue to switch to cell phones. That landline operation, serving nearly one-third of the U.S. population, also has been hurt by companies curtailing telecommunication expenditures and reducing employee rolls.
The firm, which also owns 55 percent of Verizon Wireless in a partnership with Vodafone Group, increased its wireless customer base with the acquisition of Alltel in January. Verizon ranks No. 1 in U.S. wireless customers with 87.7 million versus AT&T’s 79.6 million.
As of Monday, Verizon stock (VZ) was down 9 percent this year, after last year’s 18 percent decline. Earnings fell 21 percent in its second quarter.
Among the concerns, Verizon must spend enormous amounts to upgrade its landline network and expand its wireless operation. The Alltel purchase was also costly, and integration of the companies won’t be easy.
Still, the company is moving ahead aggressively.
Consensus analyst rating of stock of Verizon is “buy,” according to Thomson Reuters, consisting of seven “strong buys,” nine “buys,” 12 “holds” and one “sell.”
Earnings are expected to decline a fraction this year, compared with the 22 percent gain forecast for the domestic telecommunication services industry.
Q. I cannot believe how poorly Legg Mason Growth Trust has done. Is there hope?
P.K., via the Internet
A. With only 34 stock names in its portfolio, mistakes in judgment such as it made in a few financial stocks can take a big toll.
As of Monday, the $344 million Legg Mason Growth Trust (LMGTX) was down 39 percent in the past 12 months and had a three-year annualized return of negative 13 percent. Both ranked in the bottom 1 percent of all large growth funds.
“We’re ‘iffy’ on this fund because, while the Legg Mason funds had a nice run in the 1990s and early part of this decade, we’ve since seen weakness,” said Bridget Hughes, analyst with Morningstar Inc. “It can’t be recommended as a core holding, so we’re in limbo until we see what it can do after such horrific performance.”
Industrial materials represent 15 percent of the portfolio, with telecommunications, hardware, health care and consumer services other concentrations.
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Robert Hagstrom, a member of the Legg Mason Capital Management team who has $500,000 to $1 million of his own money in Legg Mason Growth Trust, has been in charge of the fund since the 1995 inception. This 1 percent “load” (sales charge) fund requires a $1,000 initial investment; it’s annual expense ratio is 1.84 percent.
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Andrew Leckey answers questions only through the column. E-mail him at [email protected].