OfficeMax has its share of challenges
Question: I am so disappointed with my shares of OfficeMax Inc. Is there any hope for the future? — B.B., via the Internet
Answer: This office-supplies retailer, which trails Staples Inc. and Office Depot Inc. in the sector, has been reducing expenses while expanding its product assortment and sales channels. It has begun selling Amazon’s Kindle and Barnes & Noble’s Nook reading devices and added online sales of Lenovo computers. It also has formed partnerships with grocers Safeway and Food Lion and made an alliance with the office supplier Lyreco to expand its global reach.
High unemployment and fuel costs have affected sales. Customers are price shopping, whether for their companies or for their schoolchildren. That ignites competition from discounters such as Wal-Mart, Costco and Amazon.
OfficeMax shares recently had been down 73% for the year. The question for investors is whether the depressed stock price makes it worth overlooking problems. It lost $3 million in the second quarter on charges for store closures and severance, plus somewhat lower sales.
The consensus analyst rating on OfficeMax shares is between “buy” and “hold,” according to Thomson Reuters.
In downgrading the shares to “neutral” from “buy,” a Goldman Sachs report characterized OfficeMax as a “challenged firm in a challenged sector.”
Because of saturation of the office-supplies market, the idea of an Office Depot-OfficeMax merger is occasionally raised in investment circles or in the news media, sometimes temporarily affecting stock price.
OfficeMax sells products and services through nearly 1,000 stores, direct sales, catalogs and e-commerce. Many customers are large corporations, which means there’s a potential for increased sales to small and mid-size businesses. It has also added ImPress print centers and remote PC technical support services.
Ravi Saligram, former chief globalization officer for Aramark, became OfficeMax president and chief executive in November.
Q: I would appreciate your opinion on shares of JPMorgan Small Cap Equity Fund. — P.G., via the Internet
A: This low-turnover fund doesn’t own only small caps. About 40% of its holdings are in mid-size stocks.
The $2.4-billion JPMorgan Small Cap Equity “A” recently had been up 23% over the last 12 months to rank near the middle of the small-growth fund category. Its three-year annualized return of 6.8% placed it just outside the top 10% of its peers.
“This fund is not a core holding but can play a supporting role to balance out a heavy stake in large caps,” said David Falkof, mutual fund analyst with Morningstar Inc.
Glenn Gawronski, who uses a disciplined strategy to find value stocks, became manager of the fund in 2004. Don San Jose joined him as co-manager in 2007. According to filings, Gawronski has $500,000 to $1 million of his own money in the fund, while San Jose has between $100,000 and $500,000 in it.
JPMorgan Small Cap Equity is supported by three specific analysts and the firm’s small-cap team. They look for discounted stocks with competitive advantages, strong management teams and sustainable free-cash-flow growth.
JPMorgan Small Cap Equity concentrations include financial services, consumer services, consumer goods and industrial materials. Top stocks recently included Silgan Holdings Inc., Coventry Health Care Inc., Jarden Corp., Proassurance Corp., Waste Connections Inc. and Penn National Gaming Inc.
This 5.25% “load” (sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.25%.
Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.
