By Christine Dugas
Gannett News Service

Pointers on monitoring your company stock Few workers have the time or inclination to immerse themselves in the fine points of stock picking. Wall Street analysts get paid big bucks to do that. Here are a few simple tips from experts to help novices keep an eye on their company stock: Pay attention to what's happening on the factory floor and in the executive suite. "Workers are often the first to know that orders are down or the company is cutting back on customer service," says Dee Lee, author of "The Complete Idiot's Guide to Retiring Early." "Maybe there have been layoffs or a management change. These things are signals." Read the annual report -- including the footnotes, Lee says. The disclosure of a costly asbestos lawsuit, for example, could affect stock. Learn some of the key indicators of a company's health: Earnings per share. The firm's net worth divided by the number of outstanding shares. Book value. The difference between the company's assets and liabilities. Return on equity. The company's earnings per share divided by its book value. Price-earnings ratio or P-E. The price per share divided by the earnings per share. The P-E is often considered the most important number to watch. A low P-E usually indicates that the company has questionable future prospects, though occasionally it means it is undervalued. "The price-earnings ratio is meaningless unless you have something to compare it to," says Peggy Ruhlin, a financial planner in Columbus, Ohio. For example, if you are looking at the P-E of a Fortune 500 company, you should compare it to the P-E of the S&P 500 index. And keep in mind that you can thoroughly research a company and still get blindsided. "Look at all the mutual funds that held Lucent and Enron stock," Ruhlin says, referring to two stocks that have taken huge hits. "The fund managers are experts who do nothing else but research stocks. If they can't protect themselves from a disaster, then how can a factory foreman or company manager protect themselves?" In the end, the only protection is diversification, experts say.

(Sunday, January 27, 2002) -- The only individual stock that many Americans will ever own is the company stock they receive through their 401(k) plan. Over the course of a working career, it's not unusual for them to accumulate large holdings.

But most workers are not skilled investors. Owning company stock is often like betting on the home team -- a sign of loyalty. And many 401(k) plan participants never give much thought to their company stock holdings, even though their financial future might depend in part on its performance.

That could be changing. The recent collapse of energy trader Enron and the huge losses suffered by many Enron 401(k) plan participants serves as a cautionary tale about the risks of company stock.

Financial experts say that now is the time for all plan participants to take a closer look at their own portfolios and see if their company stock holding is a ticking time bomb.

"Your job security already depends on your company's fortunes," says Bart Boyer, a financial planner for Parsec Financial Management in Asheville, N.C. "Why would you also link your retirement security to your company's success or failure?"

Many financial experts say investors should have no more than 10 percent of their portfolio in any one security -- no matter how well the stock is performing. But 401(k) plan participants routinely have much more than that invested in company stock.

Among plans that offer employer stock as an option, it accounts for about 40 percent of the assets, according to the Profit Sharing/401(k) Council of America. "That has stayed relatively stable in recent years," says David Wray, president of the association.

A recent study by DC Plan Investing found that 44 companies had 50 percent or more of their 401(k) plan assets invested in company stock, with Procter & Gamble at the top of the list. Its stock represented 94.7 percent of plan assets as of Nov. 30.

Workers often end up with company stock in their 401(k) plans by default, because many companies provide matching contributions only in company stock. Plan participants might be restricted from selling the stock until they reach a certain age or tenure.

So what can you do?

If you can't sell your matching contributions until you are 50 or 55, you have two choices.

You can sit tight until you leave the company or reach the age threshold.

Or, you can get together with co-workers and press your employer to loosen the restrictions. The company might be more receptive to the suggestion, given all the publicity surrounding Enron's 401(k) plan and the current efforts in Congress to protect employees from too much company stock.

Sen. Barbara Boxer, D-Calif., has introduced a bill that would limit the amount an employee can invest in any one stock in a 401(k) plan to 20 percent. It also would relax restrictions on selling.

Don't put your own contributions into company stock if your matching contributions are already invested in it. And make sure your contributions are well diversified to help compensate for the company's matching contributions.

If you work for a bank or an insurance company, for example, make sure you reduce any other exposure you might have to the financial services sector, says Chris Cumming, vice president of marketing for Diversified Investment Advisors in Purchase, N.Y.

Even young employees should take care. Just because you are young and have time to recover from any downturn, that doesn't mean you should go overboard on company stock.

"Yes, you can afford to be more aggressive when you are young," says Ray Ferrara, a financial planner for ProVise Management Group in Clearwater, Fla. "But you still need to diversify. Young people often lose sight of the fact that the most valuable dollar they will ever have is the first dollar they invest."

For example, a 30-year-old computer programmer who invests $1,000 into a diversified portfolio that has an average return of 11 percent will have $38,500 when he reaches 65, Ferrara says. The same $1,000 could be worth much less if it's invested in one stock that hits a major snag and wipes out years of gains.

Don't invest blindly. Just because you love your job doesn't mean the company's stock is a good investment. Check out the fundamentals of the company. Find out what the analysts are saying about the stock. Many financial Web sites, such as Quicken.com and Morningstar.com, let you look up information about publicly traded companies.

If you aren't restricted from selling, don't hesitate to get rid of the stock if you are overweighted in it or believe it's no longer a good value.

Even if you think the stock has potential to go higher, set a target allocation or criteria for selling, and stick to the plan.

"The streets are littered with people who've tried to predict the price trajectory of stocks," says Glenn Kautt, a financial planner for the Monitor Group in Fairfax, Va.

When you change jobs or retire, be sure to consult an accountant about the tax consequences of your company stock holdings. Even though the market is down, many long-time workers still may have accumulated substantial capital gains.

There are ways to avoid paying income taxes on the gains by shifting the stock to a taxable account, but you may incur a penalty. Check with an expert to see if it's worth it.

Some workers feel guilty about selling their company stock. To this day, some ex-Enron workers believe the stock will come back.

"We run into people who say, 'The company has always been good to me. I wouldn't feel right selling the stock,' " Ferrara says. "I tell them that the stock doesn't know who owns it. It's just a piece of paper. The owner shouldn't have an emotional attachment to it."