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Xerox, facing fierce competition, is making strategic moves

Also, Vanguard Wellesley Income, a bond-and-stock fund with a safety-first portfolio and low expenses, is a good choice for conservative investors.

January 02, 2011|By Andrew Leckey

Question: I am impressed with the results of Xerox Corp. but wonder if it can continue on this course.

Answer: As impressive as "the document company" has been lately, it isn't overconfident.

Xerox has seen an improvement in spending on hardware and services by big business.

But Chief Executive Ursula Burns, who became president in 2007 and CEO in 2009, has said she can't be sure that such improved conditions "will stay forever." As a result, the firm is cutting 2,500 jobs worldwide in 2011, on top of 2,500 cuts announced last January.

Although it enjoys an enormous stream of revenue from leasing and servicing its office equipment and is a leader in high-end digital and color technologies, Xerox faces fierce competition.

In 2009, the company earned $485 million on sales of $15.2 billion. In the third quarter of 2010, its profit doubled from the year-earlier period, to $250 million, partly because of a $6.4-billion purchase in February of outsourcer Affiliated Computer Services.

Analysts on average expect Xerox earnings to increase 18% in 2011. But the average five-year forecast is for an annualized earnings decline of 1%.

Xerox's stock price jumped nearly 40% in 2010.

Business services account for half of Xerox's revenue. That's in line with Burns' ambition to transform Xerox from a copier company into a business-process and document-management firm.

To promote that shift, a global ad campaign set to run through 2011 spotlights 20 companies that use Xerox products or services. The ads star familiar figures such as Procter & Gamble's Mr. Clean.

The firm has made other strategic moves, including its acquisition of Global Imaging Systems in 2007. The addition helped introduce Xerox products and services to small and mid-size businesses.

The average analyst rating on Xerox shares is a "buy," consisting of four "strong buys," three "buys" and three "holds," according to Thomson Reuters.

Question: I am a conservative investor and wonder if Vanguard Wellesley Income is a good choice.

Answer: This bond-and-stock fund with a safety-first portfolio and low expenses provides a reliable income stream with some capital appreciation.

That should fill the bill for most conservative investors. More than half of its holdings are in high-quality bonds, and more than one-third are in dividend-paying stocks, with the rest in cash.

The $18.5-billion portfolio had a total return of about 10% in 2010, ranking it around the midpoint of so-called conservative allocation funds, the least aggressive category of funds that invest in stocks and bonds. Its three-year annualized return of almost 5% and five-year return topping 6% place it in the top 10% of its peers.

"Vanguard Wellesley is a core holding for a conservative or income-oriented investor, or for those close to financial goals or already in retirement," said Dan Culloton, mutual fund analyst at Morningstar Inc.

The fund requires a $3,000 minimum initial investment. There is no sales charge on purchases of fund shares.

Andrew Leckey answers questions only through the column. E-mail him at yourmoney@tribune.com.

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