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Beneficial owners

Ask the Fool

Published: February 20, 2024

Q. What's a "beneficial owner"? -- L.B., Oxford, Mississippi
A. If you're a beneficial owner of, say, a stock, you're entitled to share in its growth or losses and to receive any dividends it pays -- even though it's registered as belonging to another entity, such as your brokerage. These days, most investors indirectly own their stocks, with their brokerages keeping the shares "in street name" -- that is, in the brokers' names. The shares still belong to us shareholders, as we're the beneficial owners.
Having your shares held in street name is generally a good thing. It enables you to sell a stock fairly quickly, via phone call or online order, without having to locate a paper stock certificate among your belongings and mail it in to your brokerage.
Q. What's the difference between a 401(k) plan and a 403(b) plan? -- H.R., Norwich, Connecticut
A. Both are employer-sponsored, tax-advantaged retirement plans. A 401(k) plan is typically offered by private sector, for-profit companies, while a 403(b) plan is offered by public schools, churches and 501(c)(3) nonprofit organizations. Both plans allow workers to make contributions with pre- or post-tax money via payroll deductions, and both can feature matching contributions from employers, though 401(k) plans are more likely to offer them.
Both plans have contribution limits of $22,500 for 2023 and $23,000 for 2024, with an additional $7,500 "catch-up" contribution allowed for those aged 50 and older (for both plans for both years). Both plans can also be offered in traditional and Roth form. (Traditional plans feature upfront tax breaks, while Roth plans permit tax-free withdrawals in retirement.)
While 401(k) plans are often administered by mutual fund companies, 403(b) plans are often administered by insurance companies.
Fool's School
Be Careful With Analyst Ratings
We investors occasionally run across ratings from stock analysts on Wall Street and elsewhere, recommending that we "buy," "sell" or "hold" various stocks. It can be tempting to pay close attention to analyst ratings, but you shouldn't.
For starters, remember that these analysts aren't working for you. They typically work for banks that want to do business with lots of companies. Thus, they'd rather their analysts not suggest selling the stock of a company that might be a current or future client. Not surprisingly, then, a 2023 report noted that out of nearly 11,000 ratings on S&P 500 companies, more than half were "buy" ratings, about 40% were "hold" ratings and fewer than 6% were "sell" ratings.
Meanwhile, if you see a "buy" rating for a stock, remember that it's just one analyst's opinion. There may be a dozen other ratings for it, the majority of which may be "hold."
Investing time horizons are another concern. Plenty of stocks might be a bit overvalued right now, but might have a long runway of growth ahead, making them reasonable investments for strong believers who aim to hold the stock for many years. And when you see a "buy" rating, there's generally little information attached, so you often won't know if the analyst thinks the stock is a good buy for the medium- or long-term.
Some researchers have noted a tendency for analysts to be bullish on stocks that have risen, expecting the near future to resemble the near past. They've cited timidity, too, as analysts often stick with the herd and don't make an unusually strong case for or against a stock -- because there's little penalty for being wrong when everyone else is.
So go ahead and look at analyst ratings, but don't give them too much credence.
My Dumbest Investment
My most regrettable investment was buying into Skyworks Solutions at $7.55 per share and then selling my shares at $8.40. I spent the proceeds on shares of a different company -- which quickly fell in value and eventually went bankrupt. -- D.P., online
The Fool responds: Anyone who invests in individual stocks is likely to have severely disappointing results on occasion. You can try to minimize the damage by studying companies closely before investing and then keeping up with their progress, following them in the news and reading their quarterly and annual reports. Doing so might have tipped you off that there was trouble brewing at your holding that went bankrupt. It's simpler and easier to invest in low-fee, broad-market index funds, such as ones that track the S&P 500 -- but even the S&P 500 has down years now and then. Stock investments generally go up in fits and starts, not in a straight line.
If you're still bullish on Skyworks Solutions, which makes a wide range of semiconductor products, it's not too late to jump back in. Its shares, recently trading at near $112 apiece, have seemed reasonably priced: Their recent price-to-earnings (P/E) ratio of 18.3 is a bit below the five-year average of 18.8.
But note that Skyworks is very dependent on just one customer -- Apple -- which was responsible for nearly two-thirds of its revenue as of earlier this year.
Foolish Trivia
Name That Company
I trace my roots back to the 1865 purchase of a flat grain-storage house in Conover, Iowa. I then started adding more locations, many with grain elevators and conveyors, near railroads. I became a major food supply chain connector -- and established my first farm. In the 1930s, I started transporting grains over water. Per Forbes magazine, I'm now the largest privately held company in America, with $177 billion in annual revenue and 160,000-plus employees. My activities include growing, storing, processing and transporting crops, animals and commodities. Who am I?
Last Week's Trivia Answer
I trace my roots back to 1886, when my flagship beverage was first served at an Atlanta pharmacy. Soon, about nine servings a day were being sold. More recently, nearly 2 billion servings have been enjoyed daily. I was the first product shown on the cover of Time Magazine, in 1950. My brands include Sprite, Fanta, Dasani, Smartwater, Vitaminwater, Barq's, Schweppes, Topo Chico, Bodyarmor, Powerade, Costa Coffee, Gold Peak, Minute Maid, Simply and Fairlife. With a recent market value over $250 billion, I employ more than 700,000 people. My ticker symbol is a knockout. Who am I? (Answer: Coca-Cola)
The Motley Fool Take
A Money-Focused Money-Maker
Payment processor Mastercard (NYSE: MA) is favored by many investors, including Warren Buffett. Its stock went up nearly 23% in 2023, and it reported year-over-year revenue growth of 14% in the third quarter, with earnings soaring 28%.
Mastercard enjoys multiple moats protecting its business; these include its well-known brand and switching costs associated with moving to rival payment-processing networks. Another factor working in the company's favor is its purposeful avoidance of lending. While becoming a lender would allow Mastercard to generate interest and fee income along with merchant fees, that would also expose the company to potential loan losses and credit delinquencies. Since it doesn't lend, it can bounce back from downturns quicker than other financial institutions.
Mastercard has cemented itself as the United States' No. 2 credit card network by purchase volume (after Visa), and it should be able to keep its momentum going domestically over the long run. The shift from cash to digital payments will continue, and e-commerce will grow. Furthermore, Mastercard has a sizable opportunity abroad, as the middle classes in emerging markets expand. Over the coming decades, the company can also extend its payment infrastructure into underbanked regions, such as Southeast Asia, the Middle East and Africa. (The Motley Fool owns shares of and has recommended Mastercard.)