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What's ahead for Netflix stock?

Netflix captures an early leadership role by signing numerous large content deals. Also, a look at Causeway International Value Fund.

April 10, 2011|By Andrew Leckey

Question: Can my Netflix Inc. shares still do well? They have been great for me.

Answer: This aggressive and innovative company continues to increase its domination of the DVD rental business by adding millions of new subscribers and exceeding the estimates of analysts.

The question for investors is whether Netflix can apply its rental-by-mail success to the burgeoning field of paid video streaming, which represents the future because of the connected devices of all types becoming available to consumers.

Capturing an early leadership role in this field, Netflix has signed numerous large content deals. Perhaps its most significant step, however, is the intention to take a page from HBO's strategy and distribute original programming. It recently announced a deal for a new television series, "House of Cards," starring Kevin Spacey, that will be exclusive to its Internet streaming service.

Video streaming is a lower-cost delivery system than shipping DVDs, but acquiring and producing content is much more costly, and results less dependable. Much hinges on how much Netflix pays for licensing deals and how popular they become.

According to Nexflix's 2010 financial report, its sales were $2.2 billion, up from $1.7 billion in 2009. Profit was $161 million, up from $116 million in 2009.

Question: I would like your opinion of the Causeway International Value Fund.

Answer: This global value fund, with more than one-fifth of its assets in Japanese stocks, favors developed rather than emerging markets and looks to add to holdings in weakening sectors.

For example, in the wake of the Japanese earthquake, tsunami and nuclear disaster, it immediately saw value in the shares of companies likely to be involved in the rebuilding effort and in Honda Motor Co., because most of that automaker's operations are based outside of Japan.

Willingness to lead the way into areas about which others are squeamish can occasionally lead to volatility, while missing out on emerging markets or small-cap stocks can sometimes hurt results. Nonetheless, long-term results of this disciplined fund are strong.

The $1.5-billion Causeway International Value Fund recently was up 13% over the last 12 months to rank in the top 10% of the large foreign value category. Its three-year annualized decline of 1% placed it in the upper one-fifth of its peers.

"For someone with a more contrarian instinct, this is a very solid fund with a great management team," said Kevin McDevitt, an analyst with Morningstar Inc. "A genuine value fund, it was buying shares of Toyota when the company was having its recall issues last year."

Causeway International Value Fund's management team and support staff of fundamental and quantitative analysts look for inexpensive stocks with strong balance sheets that pay dividends or repurchase their shares. They do not hedge currency exposure, and the portfolio turnover is low.

Besides Japan, Britain is a major concentration, with 15% of assets. One-third of holdings are in industrial materials, with other concentrations in financial services, consumer goods and business services.

Top holdings in its 57-stock portfolio include the Netherlands' Akzo Nobel and Reed Elsevier, France's Sanofi-Aventis and Germany's Linde.

This "no-load" fund requires a $5,000 minimum initial purchase and has a 1.22% annual expense ratio.

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

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