About: Roche Holding AG

Ticker: RHHBY.PK

Traded: OTC Pink Sheets

What does the company do? Biopharmaceuticals and diagnostics

2009 Financial report

Net sales: $46.5 billion

Net income: $7.07 billion

Q. I've heard many good things about Roche Holding AG and wonder whether, in light of the current situation for healthcare, it's still a good investment.—K.M., via the Internet

A. This Swiss pharmaceutical and diagnostic company with an array of cancer-fighting biotechnology drugs has lost some investment lustre.

Its previously robust sales gains are falling more in line with competitors, the threat of cheaper generic drugs is growing and it has suffered several setbacks in drug development.

To improve its outlook, the firm is turning to cost-cutting, with the specifics of a restructuring plan to be announced before year-end. While staff and marketing reductions are expected in a number of markets, employment in China will be increased. The company says research and development efforts will remain intact.

Shares of Roche (RYYBY.PK) are down 12 percent this year following last year's 10 percent gain. Sales results declined in the third quarter due to the strong Swiss franc, decreased demand for flu drugs and greater pressure on pharmaceutical prices.

The question for an investor is whether the firm can regain its form despite the morass of new healthcare reform and austerity programs of governments around the globe.

Roche, which purchased cancer diagnostics firm Ventana Medical Systems in 2008 and biotech pioneer Genentech Inc. last year, is also under pressure to keep pace with a consolidating healthcare industry by continuing to acquire small and medium-sized firms.

The consensus analyst rating of Roche shares at their reduced price is "buy," according to Thomson Reuters, which consists of two "strong buys," one "buy" and two "holds."

There is management continuity. Roche CEO Severin Schwan, former head of its diagnostics unit, played a large role in the Ventana and Genentech acquisitions. Former Genentech CEO and Chairman Arthur Levinson is on the board of directors.

Biotechnology represents two-thirds of Roche's drug products and, despite some drugs going off patent, a stable of strong patents remains. Diagnostics operations are solid, with a strong in vitro diagnostics lead.

One concern: The US Food and Drug Administration said the company failed to prove benefits of expanding some uses of its popular drug Avastin beyond approved treatment of colon, lung and certain other cancers.

Earnings are expected to increase 55 percent this year compared to the 47 percent rise predicted for the healthcare industry, according to Thomson Reuters. Next year's forecast is 9 percent vs. 38 percent expected industry-wide. The five-year annualised return is projected to be nine percent compared to 13 percent expected for its peers.

Q. Is the Dreyfus Opportunistic Small Cap Fund as good as its numbers indicate and will this last?—M.K., via the Internet

A. Nothing lasts forever, but this fund has performed admirably since David Daglio took charge in 2005. Just don't toss all of your money into it, for like most small-cap funds, it can be volatile at times.

The $570 million Dreyfus Opportunistic Small Cap Fund (DSCVX) is up 37 percent over the past 12 months to rank in the top five percent of small-cap growth and value funds. Its three-year annualised return of 10 percent and five-year annualised return of nine percent put it in the top one percent of its category.

"This fund's performance isn't run like an index-like mutual fund and its performance has been fantastic," said Ryan Leggio, mutual fund analyst with Morningstar Inc. in Chiago. "Daglio really tries to find the best values and often owns names that are very small components of his benchmark index (the Russell 2000)."

Daglio, who previously co-managed Dreyfus Midcap Value Fund for six years, has the patience to stick with his choices even if they temporarily drop in price.

That requires patience on the part of his investors, as well. He often makes contrarian picks in firms that could have explosive growth ahead or are recovering from a stumble. Industrywide events and restructuring especially command his interest.

This 95-stock portfolio has concentrations of 10 percent or more in industrial materials, software, healthcare, financial services, consumer services and consumer goods. Top holdings were recently Emergent BioSolutionsinc., King Pharmaceuticals inc., Portland General Electric Co., PNM Resources inc., Interpublic Group of Companies, Actuant Corp. "A", ScanSource, Portfolio Recovery Associates Inc. and Con-way Inc.

"I view Dreyfus Opportunistic Small Cap as a supporting player, but it could be a decent position of five to 10 percent for someone with a long time horizon," said Leggio, who views it as a complement to mid- and large-cap holdings. "Because of its strong rally, investors should not expect the same performance they've seen over the past two years."

This "no-load" (no sales charge) fund requires a $2,500 minimum initial investment and has an annual expense ratio of 1.37 percent.

Q. Please settle this: Is there any good reason to keep a stock certificate yourself rather than leave it with a brokerage firm?—P.J., via the Internet

A. A small number of investors are "old school" and prefer to keep the actual stock certificates, which is fine so long as they are kept in a safe place.

If you hold the shares yourself, you will have to mail them in when you wish to sell them. If you lose the certificates, you'll have to contact the transfer agent, fill out forms and pay fees to get new certificates.

Keeping stocks in "street name" with a broker you trust, however, will allow faster electronic trading and means no worry as to their whereabouts.

One additional consideration: In order to participate in a company-sponsored dividend reinvestment plan (DRIP), the stock must be registered in the investor's name and not the name of the broker.

"This gives DRIP investors two options," explained Charles Carlson, editor of the DRIP Investor newsletter in Hammond, Ind. "Either the DRIP (the company whose shares are being offered) can hold the shares for investors or the investors can hold the stock certificates themselves."

Andrew Leckey answers questions only through the column. Address inquiries to Andrew Leckey, 555 N. Central Ave., Suite 302, Phoenix, Ariz. 85004-1248, or by e-mail at andrewinv@aol.com.