Investing: Snap-on expects growth overseas
Question: I have been a shareholder of Snap-on Inc. and am rearranging my portfolio. Is it worth keeping?
Answer: There’s more to this company, founded in 1920, than a traveling van emblazoned with its name and loaded with tools.
A pioneer in interchangeable sockets and wrench handles that snap on, the company offers products and services in more than 150 countries. Franchisees operate more than 3,000 vans in the U.S. that regularly visit vehicle service technicians and shop owners.
Its tools, equipment and diagnostics and repair information are sold primarily to independent vehicle-repair centers, as well as new-vehicle dealerships and a variety of industries.
This leading premium supplier of professional tools expects much of its growth to be in the developing world, where the motor-services industry is expanding. About two-fifths of its revenue came from outside the U.S. last year.
Shares of Snap-on Inc. recently were down 13% this year. It is in solid financial shape, with workable debt and substantial cash.
Concerns for investors are rising steel prices, increasing fuel costs and the company’s significant production in Europe, where labor and consumer markets can be demanding. It has experienced a decline in the number of franchisees in recent years because of past overexpansion.
The consensus analyst rating on shares of Snap-on is “buy,” according to Thomson Reuters. The ratings consist of three “strong buys” and two “buys.”
Its high-margin diagnostics and information business benefits from the transition to increased computerization in vehicles. Nicholas Pinchuk, chief executive since 2007 and chairman since 2009, has worked to keep the company lean while reducing franchisee turnover.
Limit exposure to Principal Diversified Real Asset Fund
Question: I have concerns about future inflation and have heard about Principal Diversified Real Asset Fund. Is it a worthwhile choice?
Answer: Inflation hedges are popular these days, even though inflation remains low.
This fund, intended to both outsmart inflation and avoid a correlation to stock and bond markets, comprises five baskets of assets. It was launched in March 2010 as investors grew increasingly wary of the debt issues weighing down much of the world.
The $725-million Principal Diversified Real Asset Fund “C” (PRDCX) was up 2% over the 12-month period ended Tuesday and ranked a little above the midpoint of moderate allocation funds.
“I would not put more than 5 to 10% of an individual’s portfolio in a fund like this, because it is a hedge, best used in moderation,” said Morningstar analyst David Kathman.
The fund will significantly underperform the market at times and outperform it at others, said Kathman. Principal Management Corp. has extensive asset-allocation experience, and advisors of the five baskets have solid track records, he said.
Mike Finnegan of Principal Management oversees the fund. About 30% of its assets are in Treasury Inflation-Protected Securities (TIPS) run by BlackRock; 20% in real estate investment trusts run by Principal Real Estate Investors; 25% in commodities run by Credit Suisse; 15% in natural resources run by Jennison; and 10% in master limited partnerships run by Tortoise Capital Advisors.
Principal Diversified Real Asset Fund has about 42% of its portfolio in stocks, 27% in bonds, and the rest in cash and other securities.
This 1% “load” sales charge fund requires a $1,000 minimum initial investment and has a 2% annual expense ratio.
Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.
