Investing: Illinois Tool Works is in good financial health

Question: What is the future for my Illinois Tool Works Inc. shares?

Answer: This diversified manufacturer that operates in 57 countries is a master of acquisitions and practices conservative accounting methods.

It includes scores of decentralized businesses that make specialized types of fasteners, components, equipment and other products.

Always on the lookout for new businesses, it recently acquired Despatch Industries, which provides thermal processing equipment for solar and carbon fiber technology. It also bought Teknek, a maker of cleaning systems for the electronics and industrial markets.

A number of its brands are leaders in seemingly mundane markets where it has earned a reputation for product innovation. The relatively small size of its business units keeps it close to its customers and their needs.

Despite those advantages, some divisions have been hurt by the cyclical nature of the economy and intense competition. Illinois Tool Works shares are down 18% this year.

The company remains in good financial health, aggressively buys back its shares and recently increased its quarterly dividend 5.9%. In the second quarter, its earnings rose 21% on steady demand from a number of its markets.

Consensus analyst opinion on Illinois Tool Works shares at their reduced price is “buy,” according to Thomson Reuters.

A revival of the U.S. housing industry is of particular concern to Illinois Tool Works because the company derives about 20% of its sales from products used in real estate construction and remodeling work.

American Beacon Value fund’s managers think long-term

Question: What is your opinion of American Beacon Value fund?

Answer: Although diversified among more than 160 stocks, this multi-manager fund lately has had its results dragged down by financial stocks, which represent about one-fourth of its portfolio.

The $7.9-billion American Beacon Large Cap Value fund is down 3% over the previous 12 months to rank in the lowest one-fifth of large value funds. Its three-year annualized decline of 3% placed it below the midpoint of its category. But it had a 10-year annualized return of 5%.

“I wouldn’t consider this as someone’s one and only domestic stock fund, but it could certainly be one of a few,” said Ryan Leggio, mutual fund analyst with Morningstar Inc. “It would therefore be considered a core holding with a fundamental, bottom-up value strategy.”

Hewlett-Packard Co. shares also have had a significant drain on results, he said.

Assets are divided among four management teams that favor value strategies and long-term goals. Barrow, Hanley, Mewhinney & Strauss; Hotchkis and Wiley Capital Management; and Brandywine Global Investment Management each run about 30% of assets. MFS Investment Management manages about 10% of the assets.

The various managers select what they consider to be stocks with above-average earnings growth potential that are selling at a discount. Their value considerations include price-to-earnings ratio, price-to-book value ratio, assets carried below market value, financial strength, dividend yield and growth expectations.

One drawback: Shareholder reports don’t offer details on the individual performance or logic of each management team, Leggio said.

In addition to financials, the fund’s concentrations include energy, healthcare, industrial materials and technology.

This “no-load” (no sales charge) fund requires a minimum initial investment of $2,500 and has an annual expense ratio of 0.96%.

Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.