Question:
My 401(k) plan is removing American Century Small Cap (ANOIX) in favor of Janus Triton (JATTX). We’re allowed to hold ANOIX, but cannot add to it. I’ve got about 40% of my contribution going into Small Cap. I think I have about $4,700 in ANOIX. Should I move it all into the Janus fund or hold some?
Answer:
Both Small-Cap funds have a good history and have similar strategies. We suspect the reason your 401(k) plan switched funds is because American Century’s Morningstar rating was dropped to three stars. The Janus Triton fund has a better expense ratio, which means less of the fund’s assets are being used to pay the expenses for the fund, such as, the investment advisory fee, the administrative costs, 12b-1 distribution fees, and other operating expenses. Since expenses are taken from the top, a high expense ratio reduces the rate of return earned by a fund’s portfolio; thus, affecting your investment.
We like Janus’ current performance and portfolio characteristics. We believe it is well allocated across the sectors, and believe it is the better fund of the two for the current economic cycle. Since the holdings are in your 401(k), there are no tax implications for you to sell the American Century shares. We suggest that you sell the American Century and invest the assets in the Janus fund.
The fact that 40% of your contribution is directed into a Small Cap fund gave us reason to pause. This is a very aggressive strategy. We generally recommend 15% to 20% in Small Cap funds for a 401(k) allocation; however, this is dependent on your investment time horizon. If you have more than 20 years until retirement, an aggressive strategy may pay off, as Small Caps have outperformed in the long run. In the short term, Small Caps are considerably more volatile.
Question:
I’m going through my mom’s portfolio, and she has a few holdings I’m not so sure about. I’d love to get your opinions on Fastenal Co., Vulcan Materials and Union Pacific Corporation. She’s held all of them for more than a year.
Answer:
All three companies are solid investments that fall within our universe of stocks, which means they meet our stringent quality criteria.
Fastenal Company (NASDAQ: FAST) is the quintessential widget company. They sell threaded fasteners that are used in manufactured products and building projects, as well as in the maintenance and repair of machines and structures. The company, generally, performs well coming out of a downturn because it has exposure to housing and construction markets. The company is a bit pricey as it currently trades for 30 times earnings. We would be reluctant to hold all her positions. We suggest she sell some to take the profits.
Union Pacific Corp. (NYSE: UNP) owns railroad transportation companies linking 23 states in the western United States. UNP suffered a small hit with companies like Norfolk Southern reporting shipments in merchandise and coal were down. However, we expect expansion of the Panama Canal should increase shipments to the East Coast and should help the company. We like UNP as a long-term play.
Vulcan Materials Company (NYSE: VMC) is a producer of crushed stone, sand and gravel for construction, with more than 40 years in reserves. The company is poised to do well as the United States likely will not import rock. The company’s stock is near its 52-week high. With construction coming back and an emphasis on infrastructure, companies like Vulcan should do well.
We are comfortable owning all three in a portfolio; however, you should be careful not to become overexposed to the industrial sector. While Vulcan Materials is considered a Basic Material, it has similar industry exposures. We recommend not having more than 10% to 12% of your total portfolio invested in Industrial stocks.
Question:
I laughed when my wife suggested Avon stock, but the more I look at it, the more I think I like it. Seems like it’s a big company in what I thought was a small market. What do you think–Is this a buy?
Answer:
We owned Avon Products (NYSE: AVP) for a short time, selling in late 2011. We thought the company had promise, but until the company has a CEO who can guide the company and take care of the problems they are having in Brazil and abroad, we recommend avoiding holding Avon stock. We agree that there is value in this franchise, but think better leadership is needed. The company cut their dividend, something which we thought they could sustain.
Question:
I’d like to get your thoughts on Cracker Barrel Old Country Store. I’ve held it about six months now. Not sure if I should keep it. I also hold BJ’s Restaurants and a few shares of Chipotle Mexican Grill.
Answer:
Cracker Barrel Old Country Store (NASDAQ: CBRL) stock is considerably cheaper than Chipotle Mexican Grill (NYSE: CMG) in terms of price, but there is not much growth in the company. The company has been around a long time. We owned it in the mid ‘90s when it was a growth story. The company still pays a decent dividend around 3%. It trades above its historical P/E at almost 15 times earnings. We do not recommend adding to it, and would be tempted to trim it if held.
Chipotle was a hot stock for a while, but it has since slowed down as far as growth is concerned. It sells for 41 times earnings. As for restaurant stocks, we like names like Darden Restaurants, Inc. (NYSE: DRI) and McDonald’s Corp. (NYSE: MCD) as they both have good dividends and the potential for growth.
Question:
My stock broker recommended buying shares of Baker Hughes Inc. during our last call. I had never heard of the company so I wanted to do a little more research on my own before I bought. Is there any news on this stock that makes this a good recommendation?
Answer:
Baker Hughes, Inc. (NYSE: BHI) is a good recommendation. It is among the biggest and best oil services, and trades at 12 times earnings, which is cheap for that industry. The company is growing fast. We believe as long as there is tension in the Middle East, oil prices will remain elevated. The fundamental reason to own Baker Hughes is that we are producing a lot of oil and gas at this time. We believe that production will only increase, as we try to become less energy dependent on the Middle East. Companies like Baker Hughes are poised to benefit from that production.
Disclosures
This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.
