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Tax changes not a problem for Intuit's stock

The company dominates the individual tax software market with TurboTax. Also, the FPA Paramount fund does well in rough markets.

January 09, 2011|By Andrew Leckey

Question: So much is going on in Washington in regard to taxes. Does that hurt or help my Intuit stock?

Answer: Tax changes are a procedural nuisance for this maker of the popular TurboTax tax-preparation software, because it must wait for the Internal Revenue Service to make the necessary adjustments. But that's not a problem for the company's stock.

Intuit Inc. dominates not only the individual tax software market with TurboTax but also the market for small-business accounting software with a program called QuickBooks.

A longer-term concern, however, is how the company will expand, given that its main businesses are relatively mature and their international potential is unclear.

In its last fiscal year, which ended July 31, Intuit earned $574 million on revenue of $3.5 billion. In the first quarter of the current fiscal year, revenue surged 12%.

Shares of Intuit soared 60% in 2010 after gaining 29% in 2009.

The average of Wall Street analysts' ratings on Intuit shares is a "buy," according to Thomson Reuters, consisting of eight "strong buys," five "buys," eight "holds" and one "underperform."

Tax legislation passed by Congress in December included extensions of some individual tax breaks through the 2010 tax year, affecting taxpayers who take itemized deductions.

Because the IRS must take time to reprogram its systems to implement the late changes, the agency isn't expected to accept itemized tax returns until mid- to late February.

Intuit, however, says its customers can file their returns using TurboTax starting in mid-January. The company will hold itemized returns and file them when the IRS starts to accept them. Non-itemized returns face no such delay.

Question: How good is the FPA Paramount fund? It has been recommended to me.

Answer: FPA Paramount is a highly concentrated $270-million fund of about 30 stocks.

The portfolio, managed by Los Angeles-based First Pacific Advisors, gained 21% in total return over the last 12 months, ranking it somewhat below the midpoint for so-called mid-cap growth funds.

Its three-year annualized return of 5.3% placed it in the upper one-fifth of its peers, and its 10-year annualized return of 9.3% put it at almost the top of its category.

"This is one of the best funds out there, featuring seasoned management in Eric Ende and Steve Geist," who have been running FPA Paramount since 2000, said Christopher Davis, a mutual fund analyst at Morningstar Inc. "But it is more of a satellite holding and should not be a large position in an individual's portfolio because it focuses on small and mid-cap companies and is so concentrated."

The managers look for reasonably priced, high-quality companies that earn a strong return on capital and don't have much debt. That strategy has helped the fund do well in rough markets and reasonably well in good times.

The fund incurs annual expenses equal to 0.95% of assets. To buy shares in FPA Paramount, investors must pay a 5.25% sales fee known as a load. The minimum initial investment is $1,500.

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

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