Question: I have some concerns about my shares of EBay Inc. What is your perspective on the company’s future?
Answer: There is reason to have mixed emotions about this profitable e-commerce company with operations in more than 30 countries. Its PayPal online payment service continues to be a hot performer, but its mature online auction business is pressured by competitors and changes in Internet trends.
Shares of EBay are up 16% this year after gaining 18% last year. The firm has plenty of cash on hand, solid cash flow, modest debt and a strong credit rating.
Growth of the firm’s marketplace, which sells goods at set prices as well as in auctions, has slowed significantly in the last decade. Meanwhile, rivals such as Amazon.com Inc. have increased their share of the market. In addition to direct competitors, EBay faces the challenge of comparison-shopping websites, which many consumers now use instead of going to one site such as EBay’s.
PayPal’s revenue, on the other hand, is growing rapidly, especially in international markets. Purchased by EBay in 2002, the service acts as an intermediary between consumers and more than 8 million online merchants, including Dell Inc. and Best Buy Co.
The company recently bought for an undisclosed sum a shopping engine called Milo, which consumers can use to search online for products at stores near them. EBay also agreed to buy Brands4friends, Germany’s No. 1 fashion shopping site.
In 2010, EBay earned $1.8 billion on revenue of $9.2 billion. In the fourth quarter, profit was down 59% compared with a year earlier but was up 24% excluding one-time items, including a 2009 gain on the sale of Internet telephone pioneer Skype.
Analyst ratings on EBay shares indicate a consensus between “buy” and “hold,” according to Thomson Reuters, with six “strong buy” ratings, six “buys,” 17 “holds” and one “underperform.”
Franklin Income fund takes a value-oriented, contrarian approach
Question: I am a longtime shareholder of Franklin Income fund. Is it worth holding long term?
Answer: Investors in this bond-and-stock portfolio should be willing to endure greater volatility than that found in other so-called conservative allocation funds.
More than half of its $60 billion in assets are in bonds, predominantly high-yield corporate debt that carries more risk than other corporate fixed-income securities.
Franklin Income A has gained 18% in the last 12 months to rank in the top 5% of its category. Its three-year annualized return of 3.6% places it above the midpoint of its peers.
Its managers take a value-oriented, contrarian approach as they buy and hold beleaguered blue-chip stocks, utility stocks and bonds. The fund typically invests more in bonds than in stocks — at last report 51% of the portfolio was in fixed income, with 36% in equities.
The fund “has low turnover and a long-term view that we find very valuable,” Morningstar analyst Josh Koeck said.
Franklin Income A imposes a 4.25% sales charge on purchases of fund shares and requires a $1,000 minimum initial investment. The fund’s expenses, last reported at 0.65% of assets annually, are low compared with those of its peers.
Andrew Leckey answers questions only through the column. Write to him at email@example.com.