By Andrew Leckey
Tribune Media Services columnist
July 22, 2007
A:A The world's largest online travel agency, featuring Expedia.com, Hotels.com, Hotwire.com and TripAdvisor, has become a hot topic.
In a surprising move, it announced last month that it will spend as much as $3.5 billion to buy back up to 42 percent of its common stock at a premium price.
Shares of Expedia (EXPE) are up 41 percent this year after a 12 percent decline last year. Earnings rose 49 percent in its first quarter on higher revenues from advertising and European hotel bookings.
Chairman Barry Diller, who spun off Expedia from IAC/InteractiveCorp in 2005 and controls a majority of Expedia stock voting power, is busily batting down rumors.
The firm will neither go completely private nor spin off the TripAdvisor travel advice business, he said. There also will be no transfer of control of Expedia to its other major shareholder, Liberty Media Corp., "under any circumstances," he said.
Based on its price run-up and potential for the economy causing a travel slowdown, the stock of Expedia receives a consensus "hold" rating, according to Thomson Financial. That consists of one "strong buy," two "buys," nine "holds" and one "sell."
Expedia operates in a highly competitive business, with Sabre Holdings Corp.'s Travelocity and Travelport Inc.'s Orbitz Worldwide strong rivals. It must spend significant amounts on technology and marketing. More discount carriers also may opt to handle ticket bookings through their own sites.
An underlying strength of its business model is that its customers pay when they book, but Expedia needn't pay suppliers until the trip actually takes place. The float on the money is profitable.
Expedia earnings are expected to increase 7 percent this year, compared with the 18 percent predicted for the Internet information providers industry. Next year's earnings are expected to rise 14 percent versus 19 percent forecast for its peers.
This firm is aggressive. For example, it recently added American Airlines and JetBlue to the carriers whose fare, schedule and inventory are on its sites.
Expedia owns a controlling interest in the Chinese online travel agent eLong, and China's travel bookings are expected to grow dramatically. TripAdvisor recently entered the French and German travel markets with two localized Web sites.
The company also has invested an undisclosed amount in the private cruise seller CruiseShipCenters International Inc.
Q: Should I keep Fidelity Independence Fund in my retirement account? -- J.B., via the Internet
A: A retirement account is definitely the best place for it.
This fund operates under the assumption that taxable capital gains distributions from frequent trading won't be a concern for its shareholders.
The $5 billion Fidelity Independence Fund (FDFFX) is up 30 percent over the past 12 months and has a three-year annualized return of 18 percent. Both results rank in the top 10 percent of large growth funds, the category in which it fits at present.
Because it has no restrictions on its investing, that category can change from time to time. In the past it had a greater number of mid-cap stocks. It also can put money in growth and value stocks.
"It is a go-anywhere, do-anything fund that can be as tax-inefficient as it wants," said Jack Bowers, editor of the independent Fidelity Monitor newsletter in Rocklin, Calif. "Its new manager that came on board in November is ramping up its energy position, so I don't have a buy rating on it because energy stocks are seasonal and I don't want to put people in it just to have it pull back."
After Jason Weiner had successfully managed the fund for more than three years, Robert Bertelson was named to replace him. Although Bertelson had managed other funds for Fidelity since he arrived in 1991 it still makes sense for new investors to take a wait-and-see attitude until he compiles a track record at this fund.
In the past it has generally sought out growing companies trading at reasonable prices and was willing to make sector bets.
Even though it is only a "mild" energy play, it will feel more pain than its competitors if energy does take a hit. Among its larger concentrations, energy represents 18 percent of the portfolio, health care 14 percent and industrial materials 11 percent.
"I will probably upgrade it to `buy' at some point," Bowers said.
Largest stock holdings in Fidelity Independence are AT&T Inc., Research in Motion Ltd., Monsanto Co., Valero Energy Corp., Exxon Mobil Corp., Ultra Petroleum Corp., UnitedHealth Group Inc., Goldcorp Inc., Merck & Co. and Prudential Financial Inc.
This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment. It has an annual expense ratio of 0.86 percent.
Q: How do Ginnie Mae funds work? My grandmother is considering one. -- V.C., via the Internet
A: Due to their inherent lack of risk they haven't been affected much by the nation's subprime mortgage traumas.
That's because the Government National Mortgage Association, or Ginnie Mae, guarantees mortgage-backed securities issued by private institutions and marketed to investors through brokers.
"Principal and interest on Ginnie Maes are guaranteed by the federal government, so they're safe from any kind of credit or default risk," said Michael Decker, senior managing director of research for the Securities Industry and Financial Markets Association in New York. "They represent interest in a pool of home mortgages."
These income-producing securities typically that are favored by older investors offer a bit better yield than Treasuries, though there can be volatility in response to changing mortgage rates. Of course, the value of every fixed-rate investment is affected by rate movement. Ginnie Maes also are subject to repayment risk when homeowners refinance their mortgages to obtain better rates.
Although Ginnie Mae securities are sold in $25,000 denominations they can be bought on the secondary market for less. In addition, Ginnie Mae mutual funds and investment trusts permit much smaller investments.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at email@example.com.
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