Review of Dodge and Cox Stock Fund

Dodge and Cox stock fund has a stellar record of 12.5% over the past 20 years. I have admired their record since their inception in 1965. The return for the last year has been disappointing 21.4%. Their bad performance last year has been a little bit of surprise.

They have $52.5 billions in net assets. I believe they have re-opened their flagship stock fund to new investors.

Given their disappointing returns I looked through their stock holdings.

Their top ten holdings as of Jun 30th 2008 are

1. Comcast
2. Hewlett Packard
3. Wachovia
4. Novartis
5. Time Warner
6. Wal-Mart
7. Sony
8. Sanofi- Aventis
9. Glaxo Smith Kline
10. News Corp.

In the top ten Wachovia seemed like a red flag. I listened to the CEO on CNBC. He said that Wachovia has posted its entire real estate portfolio online classified by zip code so that investors can draw their own conclusions. If true it is refreshing given the opacity and duplicity practiced by financial companies on Wall Street.


I believe the following companies are bad picks


American International Group
I never liked them even before this week’s event. In hindsight it looks like a bad pick.


Citigroup
It is a great franchise. But they might have too much exposure to real estate mess.


DISH Network Corp
Dish faces competition from DirecTV and cable companies. The number of cable subscribers is not going to increase faster than the population. Add to the mix -- the telecommunication companies Verizon and AT&T are introducing paid television service. The US consumer is weak. Look for small number of customers to cancel their Dish satellite TV service and switch to broadcast television. The chances of an AT&T acquisition is slim because AT&T has been rolling out their IPTV service U-Verse.


Ford Motor Co.
General Motors Corp.

The poor balance sheet of the American consumer, high gasoline prices and liabilities to retired workers make General Motors and Ford Motor horrible long term bets. However these stocks would be a gamble on Washington’s willingness to provide a bailout to the auto industry. This seems more likely after the bailout of Bear Stearns and AIG.


Motorola
Motorola is poorly positioned in terms of products. They face competition from Cisco in selling equipment and set top boxes to the cable television companies. Their cellphone division will face fierce competition from tradition players like Nokia, Samsung, Sony-Ericsson and the new players – Google Android and Apple iPhone. Their wireless infrastructure division will face a slow death. They do not have the product depth to compete with Cisco in core networking area.

I would prefer that they owned Cisco or Nokia.

Sprint Nextel Corp.
Sprint Nextel is an also ran compared to AT&T and Verizon Wireless. The only hope for Sprint stock appreciation is an acquisition by cable companies or Google. I think the number of cellphone subscribers in United States has saturated.

AT&T Wireless - 72 million
Verizon Wireless - 68 million
Sprint- 51 million
T-Mobile - 28 million
Alltel - 13 million.
add the numbers and you get 232 million

Compare it to 300 million population of United States. Let us exclude kids below the age of 10 and old people who are never going to switch to cellular.


More information can be found about Dodge and Cox stock funds at their website. Please read the prospectus before investing in any mutual fund.